When dealing with traditional supply chain management strategies, the strategies are usually categorized as a push or pull strategy. A push system computes production schedules that are based on long-term forecasts of sales of end products. It is akin to Materials Requirements Planning. Because a pull system relies on forecasts, it takes a lot longer for a push-based supply chain to react to changes that can occur in the marketplace. The pull system is akin to the Just-in-Time system that was discussed in the Barilla case. This system was derived from the Japanese Kanban system that was developed at Toyota. The goal of a pull system is to deliver the correct amount of product at the correct time. Both production and distribution are demand driven which means that they are correlated with customer demand instead of forecast demand. When dealing with pure pull systems, you would maintain zero inventory and react only to orders. I do not think that a pure pull system is used too often.
Using a push-based supply chain can ultimately lead to the inability to meet changing demand patterns. If you forecast is too low and your end product has a very long lead time, you essentially cannot provide your customers with their product because demand is a lot higher than expected. Also, the obsolescence of supply chain inventory as demand for certain products disappears. Furthermore, using forecasts and past customer demands can lead to the dreaded bullwhip effect. Because of the number one rule of forecasts, the forecasts is always wrong, a company can have excessive inventories that stem from the need of large safety stocks and less than desirable levels of service. The excessive amounts of inventory of course can lead to increases in costs due to storage. However, when using a push system you can be fairly assured that you will have enough products available to complete customer orders. This prevents the inability to meet customer demand. And we...
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