HISTORY OF PUSH AND PULL INVENTORY PHILLOSOPHIES
American manufacturers historically used push inventory control methods for the majority of time from the start of the Cold War up to the Reagan administration. During the mid-1970s Japanese manufacturers starting using a concept known as kanban replenishment. The word "kanban" means "signal" in English. This shift started what we now call the lean manufacturing era. The concept of lean manufacturing involves reducing waste in an organization. Push systems inherently increase waste and decrease resources. Pull systems inherently decrease waste and fully utilize resources. Today many companies around the world utilize pull systems to increase efficiency and decrease operating costs.
PUSH INVENTORY PHILLOSOPHY
With a push strategy, a producer will form relationships with retailers and distributors to bring a product to consumers.
Motorola may use a push strategy to make arrangements with large mobile phone providers, such as Sprint, Verizon and AT&T, who can advertise phones directly to consumers. Businesses can promote products to wholesalers and vendors through trade shows, contacting local retailers and providing attractive packaging and point of sale displays to convince consumers to buy.
This philosophy forecasts demand by looking at historical sales or demand data. The company then uses that forecast to drive production. The push system concept centers on expected demand. In an environment that uses this system, a Manufacturing Resource Planning (MRP) tool schedules production to anticipate future needs.
Push systems typically create larger-than-required replenishment quantities. This happens because push systems use production efficiencies in manufacturing. Typically, production machines do not reach peak efficiency when they put out small batches, so companies produce larger batches to maximize the machine’s efficiency. This creates extra inventory, increases labor costs and decreases productivity.
PULL INVENTORY PHILLOSOPHY
A pull strategy involves a massive advertising campaign and word of mouth to create demand for a product that draws the consumer to seek it out. Businesses can create a viral campaign, hiring an advertising company and may also promote products through radio, television, newspaper and magazine advertisement purchases. Companies may also promote a pull strategy through offering sales promotions and discounts to new and loyal customers to convince them to buy a product. The pull inventory control system begins with a customer's order. The pull system–also called the made-to-order system. Companies only make enough products to fulfill customer's orders. Making more products requires authorization, which is granted when the pull system recognizes a “void of material” that signals the need for new supplies. In a pull system, the company makes only enough products to satisfy actual customer consumption. Stock is not held to address expected demand. One advantage to the system is that there will be no excess of inventory that needs to be stored, thus reducing inventory levels and the cost of carrying and storing goods. However, one major disadvantage to the pull system is that it is highly possible to run into ordering dilemmas, such as a supplier not being able to get a shipment out on time. This leaves the company unable to fulfill the order and contributes to customer dissatisfaction. An example of a pull inventory control system is the just-in-time, or JIT system. The goal is to keep inventory levels to a minimum by only having enough inventory, not more or less, to meet customer demand. The JIT system eliminates waste by reducing the amount of storage space needed for inventory and the costs of storing goods. This system’s philosophy has its roots in lean manufacturing. Excess inventory built for expected consumer demand (push inventory) runs contrary to the concept of lean manufacturing. Other...
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