Push & Pull Inventory Management Strategies Assignment Help
The effective management of inventory and supply chain plays a vital role in ensuring all customer orders are timely fulfilled, while maintaining the stock costs of the company to a bare minimum. This paper briefly discusses the three types of inventory management systems with special reference to ford Australia and automobile industry.
Push Strategy
In Push strategy the manufacturers produce their product based on historic forecasts and “push” their product to the end customers through marketing and advertisement (Hunt, 2012). A company that follows this strategy will therefore have to make a prediction about what products the customer will buy and in what quantities. Based on the prediction the company makes assessment about its production capacity, orders raw materials from the suppliers, and produces the quantity of finished goods that is adequate to meet the customer demand for the period. This also means that the company would have to store the excess stock quantities which increase the storage and carrying costs. A prime example of push control system is Materials Requirements Planning (MRP) which combines the results of financial, operating and logistics planning to ensure that adequate supplies and transport are available for production to continue (Hunt, 2012).
Pull Strategy
In contrast with the push control system which relies on anticipation and forecasts to drive the production, pull strategy relies on technology with sufficiently quick production to respond to the customer demands (Coyle et al, 2008). So in this strategy customers place the orders and “pull” products from the manufacturers who shall be ready to move the product through their logistics system. The advantage of the system is obvious that it avoids most of the costs related to stock by having no inventory in the warehouse. Example of pull strategy is Just-in-time (JIT) system which keeps the inventory levels to the lowest required at a particular point in time. JIT is therefore a cost reduction strategy.
Push-Pull Strategy
The advantages and disadvantages associated with exclusive application of Push or Pull strategies have led the modern companies to look out for a rather new type of supply chain management technique that combines the potential advantages of both types of systems and eliminates the disadvantages. Push-Pull strategy is thus a hybrid of two systems discussed earlier and also called “lean manufacturing” (Coyle et al, 2008).
In Push-Pull strategy companies tend to operate the initial stages of supply chain in a push-based manner, and the remaining stages (mostly the final delivery stages) are dealt with on a pull-based manner. This gradual shift in the two types of manufacturing systems is called the push-pull boundary and is located somewhere in the supply chain from the initial procurement of raw material stage to the final delivery of finished goods to the customer (Harrison et al, 2005). For example, the automobile or computer manufacturer may resort to manage the component parts’ inventory on the basis of accurate forecasts, but the final assembly of the product, the car or the assembled computer, as the case may be, is managed on the basis of actual demand originating from the market.
Advantages of Push-Pull Strategy
Advantages include the elimination of costs related to storage and carriage of raw materials and products, and stabilization of supply chain and production which results in timely supply of finished goods to the customer (Hunt, 2012). Moreover, it offers more flexibility in terms of effective management of different stages of production and supply chain, for instance, component materials that are required in large quantities and costs lower can be pushed whilst the products that cost high and are required in low volume can be pulled.
Disadvantages of Push-Pull Strategy
Disadvantages include the more accurate measure of forecasts required in order for this system to be operated perfectly. More sophistication is required in terms of planning and control of operations and logistics in order to manage the short and long term production needs effectively. The hybrid system also demands quick production and being responsive to customer demands (Hunt, 2012).
Hire Expert Writers at Affordable Price
WhatsApp
Get Assignment Help
Use of Pull Strategy by Ford Australia and Other Automobile Companies
Ford Australia only starts production of their cars when they are ordered by the customers. The main reason for this is uncertain demand of their finished product, and high cost of component parts and assembly process which makes the push-pull strategy very difficult to apply. Accordingly the pull strategy helps Ford Australia and other automobile companies because the demand driven supply chain management reduces their cost of production by:
- Eliminating the need to build warehouses to store inventory
- Hiring workers and logistics to transport the inventory
- Costs of implementing controls over the safeguard and maintenance of inventory
- Hiring personnel to handle the computerized inventory control system (Monden, 2011)
The Just-in-time production allows the automobile companies like Ford, Toyota and Holden to produce the necessary product units in the required quantities at the required time while keeping the inventory and overhead costs at the minimum. The sophisticated technology employed by these companies help achieve automation of tasks which complements the JIT system and helps in swift efficient operations.
Works Cited
Coyle, J. J., Langley, C. J., Gibson, B., Novack, R. A., & Bardi, E. J. (2008). Supply Chain Management: A Logistics Perspective (8th ed.). Cengage Learning.
Harrison, T. P., Lee, H. L., & Neale, J. J. (2005). The Practice of Supply Chain Management: Where Theory and Application Converge . Springer .
Hunt, J. (2012). Push System Vs. Pull System Inventory Control. Retrieved October 1, 2013, from Demand Media: http://smallbusiness.chron.com/push-system-vs-pull-system-inventory-control-12650.html
Monden, Y. (2011). Toyota Production System: An Integrated Approach to Just-In-Time (4th ed.). Productivity Press.
