In this blog, the discussion moves from a concern with the nature of demand in the supply chain to a detailed review of push and pull inventory replenishment methods. Previously, it was stated that demand begins with the customer as independent demand, but from that point on is dependent as it passes upstream through the supply chain. How participants in the supply chain respond to demand will determine their selection of either a push or pull inventory replenishment method. A supply chain could be uniformly push or pull, an individual intermediary could be push or pull, or channel partners could be a combination of both. Actual channel replenishment design is driven by a variety of factors, such as the nature of the product, marketing strategies, seasonal campaigns, stage of product life cycles, and others.
Viewed against the supply chain, the process value chain can be said to deploy push methods. Inventory replenishment for this part of the supply chain is generally driven by the output of material requirements planning (MRP) systems that first determine inventory replenishment out through the planning horizon and then “push” production and purchase orders to supplying points that in turn maintain the integrity of resupply quantities and due dates.
In contrast, how the companies constituting the value delivery network send their requirements and receive resupply inventories can follow either push or pull methods. Let’s begin by defining what is meant by a push system.
The APICS Dictionary defines the push system as:
3) In distribution, a system for replenishing field warehouse inventories where replenishment decision making is centralized, usually at the manufacturing site or central supply facility.
Inventory replenishment in a push system is literally pushed or allocated from the producer, through several possible intermediate echelon facilities all the way to the lowest channel location. In a push system the supplying location possesses resupply authority. In addition, the supply point also has the ability to adjust the actual replenishment items and quantities before they are passed to the next channel echelon to improve overall channel service or reduce total channel costs. The key to successfully executing a "push" system is effective central inventory planning. Planning begins with the receipt of independent and/or derived demand from downstream channel facilities. This demand can then be massaged through forecasts or other techniques to arrive at total channel replenishment needs.
Inventory managers must also have accurate and timely information as to the stock statuses of all satellite locations. Whether gathered on a transaction-by-transaction basis or periodically, channel inventory requirements provide the data necessary for aggregate planning and efficient resupply allocation. The role of central deployment locations is to calculate and resupply inventory requirements for the whole channel in accordance with value delivery network customer delivery responsiveness performance targets.
In the next blog in the series, I will be investigating the mechanics of a supply chain push system.