In this blog, we will be moving from a discussion of inventory “push” replenishment methods to an analysis of inventory “pull” methods. The APICS Dictionary defines the inventory pull method as
- In distribution, a system for replenishing field warehouse inventories where replenishment decisions are made at the field warehouse itself, not at the central warehouse or plant.
Also known as an independent deployment system, replenishment pull methods have several important characteristics. To begin with, each location in the supply channel is responsible for managing its own inventory replenishment. Such elements as forecasts, ordering techniques, costs, customer service objectives, and resupply lead times are decided at each facility. Each location calculates its own replenishment requirements and then draws inventory from predesignated resupply facilities located upstream in the channel network. The supplying echelon could be a regional distribution center (DC) within the internal channel network or an independent channel intermediary. The role of the distribution centers is to receive a sequence of resupply orders from their branch “children” and attempt to fill and ship them according to some priority rule, usually first-come first-serve.
The below figure provides an illustration of the pull system flow. The process begins when demand at a facility triggers a resupply requirement. The requirement could be generated by using either a statistical reorder point (ROP) or distribution requirements planning (DRP) or a combination. Based on the ordering method, each facility generates its own interbranch resupply orders consisting of the items and quantities to be ordered. These orders, in turn, are transmitted to predetermined supplying facilities located upstream in the distribution network. Normally, executing a pull system requires the presence of an enterprise resources planning (ERP) or a supply chain management (SCM) system capable of networking facilities in the distribution channel. Supply facilities then receive the resupply orders from their satellite warehouses and attempt to fill and ship them according to order due date. The supplying facilities, in turn, pull their resupply inventory from higher channel echelon supplying facilities, the supplying production plant, or outside suppliers.
An example of a pull system appears in the below figure. The supply channel consists of a supplying manufacturing plant, two distribution centers (DCs), and four remote warehouses. The process begins on the warehouse level where resupply orders are generated using either reorder point techniques or DRP. The resupply order requests then move upstream from the warehouses to the DCs. The DCs respond to these resupply orders by shipping inventory to the warehouses. A warehouse could draw all of its requirements from one DC, or split the requirements by drawing a predetermined percent from multiple supplying DCs. If there are insufficient inventories, the DCs use a predetermined algorithm to split the existing inventories by percent to the warehouses with the unsatisfied quantities going on backorder.
In turn, the DCs independently manage their own requirements. Just like the warehouses, the DCs generate resupply orders through the computerized planning system. Normally, the DCs would be using the same ordering method (ROP or DRP) used by the warehouses they supply. Once resupply orders are generated, they are placed into the planning system of the next higher channel echelon, which in the example, is the manufacturing plant. The resupply orders appear as demand in the plant’s master production schedule (MPS) for scheduling, production, and shipment to the DCs.
In the next blog we will be discussing mechanics of the replenishment pull.