Distribution

Understanding the environment – Push Vs Pull Distribution

Traditionally, the industry follows ‘Push Distribution’ model in which stock levels are stored at various places in the supply chain on the basis of forecasts. Since the consumption patterns in the market are highly variable, it results in sales opportunity loss for some SKUs and high redundant inventory for the others.

Push Distribution Model

‘Pull Distribution’ refers to the supply chain strategy that focuses on customer demand as a governing force for operations. It is a ‘replenish when consumed’ model which helps maintain the correct amount of inventory for all materials (finished goods, raw materials etc) in the warehouses.

Whenever there is consumption of goods from the predefined buffers, an order is generated in the shop floor to replenish the stocks. This ensures reliable availability in the market and also eliminates excess and unnecessary inventory throughout the supply chain channel.

Pull Distribution Model

Although materials flow from the supplier to the manufacturer in both the models, the focus on flow of information in the Pull type is upstream – from the customer to the manufacturer rather than the manufacturer to the customer in the Pull type.

A manufacturer/distributor has two main questions in mind while deciding on the stock to be kept at each location. These are:

• How much should be kept upstream the supply chain?

• How much should be kept downstream the supply chain?

The natural tendency is to keep the stock as close to the consumers as possible – if a product is not at the consumption point, then there is a (much) smaller chance the item will be sold. Only a few consumers would let their vendors ship the product to them in a few days instead of taking it right away – immediate consumption is always given preference.

This is a typical push behavior: pushing the products downstream in order to increase consumption. The push behavior requires a good forecasting model, in order to predict where and when the stocks will be needed at the stock locations. However, it is a generally known phenomenon that forecasting can never be accurate!!

Read more here to learn about the solution for consumer goods companies