Pull vs Push System

There are two basic approaches of bringing the product to its final destination, i.e., the customer. In a Push system (See Figure 1), products are pushed from the manufacturing plants to distribution points based on a sales forecast. The second approach is the Pull system (See Figure 2) which requires that the product be pulled from the plants based on actual demand.

 In a Push system, since all the product is deployed based on the sales forecast for each region, an inaccurate sales forecast incurs several severe penalties which include:

• Increased safety stock
• Larger Distribution Centers/Godowns
• Higher stock transfer rates

The pre-order deployment of product increases safety stock. Since there is greater uncertainty associated with forecasts, which are often little better than educated guesses, the system must provide for variations in the demand in a particular region serviced by the particular godown. In addition the system must provide for errors in the overall forecast for the country as a whole. These concerns lead to the carrying of larger safety stocks, which necessitate larger godowns.

The irony in the concept of safety stocks is that although sufficient stocks may exist in the system, the product mix demanded in a particular region may not exist in the regional godown. This necessitates inter-godown transfer of goods. The result is an increase in the transportation costs system-wide, in addition to handling and shipping costs, information costs, product loss and damage, and poor customer service. The more points of distribution in the system, the greater the penalties incurred for unpredictable order fluctuations.

The goal of any logistics system is to maintain or improve customer service. In the Push mode of operation, the penalties of higher safety stock, larger godowns, and inter-godown transfer are not the only penalties. Stock rotation becomes more difficult to maintain. Handling of all products at each godown involves unloading, staging, storing, picking, staging and loading for shipment. All these activities involve an element of cost. In addition, there is a potential for product damage each time a product is handled.

There are some positive aspects of a Push system as well. These are:

• Small plant warehouses
• Potential for higher customer service
• Lower transportation costs

Since the majority of the product is stored at the godowns, the plant needs to maintain a low inventory of finished goods. This allows the plant to utilize its space for production and eliminate the need for a full warehouse staff. If the forecast is accurate, the Push system provides the potential for higher customer service by having the product ready for delivery directly to the customer/retailer. Finally, by having the products deployed in the godowns, the plants have the capability of shipping full truckloads and thereby reducing the system-wide transportation costs.

A Push system works best when sales are consistent, the product variety is small, and there are a few regionsl distribution points.