Push vs. Pull Inventory Control Systems: Which is Right for Your Business?
One of the most important aspects of running a product-based business is maintaining the right amount of inventory at all times.
Too little means not being able to meet customer demand. Too much means inventory markdowns and potential financial loss.
Two common inventory control systems, known as “push” and “pull,” provide solutions using two divergent approaches.
Implementing a push system requires a company to rely heavily upon long-term projections to meet consumer demand without oversupplying or undersupplying. After forecasting what the demand will be for a given period, a company will order accordingly and push the products to consumers. Companies in stable and highly predictable industries tend to thrive with this strategy more so than companies in less-stable industries with lower predictability.
Perhaps the biggest benefit of a push system is you can reduce your shipping costs. Push systems revolves around placing larger, less-frequent orders, which cuts down on the number of shipments. If you rely on foreign distribution where boats and/or airplanes are involved, this can be a smart option. Assuming you make accurate demand projections, you can keep consumers happy while simplifying the shipping process.
In terms of drawbacks, inaccurate projections can easily leave you over or undersupplied. Excessive supplies can wind up costing you if you’re forced to mark down items. A lack of supplies can cause resentment among customers and lead to lost sales. You also have to consider that a larger amount of warehouse space is necessary to store inventory. This can be problematic for mom-and-pop shops that can’t afford massive overhead costs.
This differs from a push system because it relies upon placing smaller, frequent orders. Rather than trying to make long-term projections, a pull system is more reactive and adapts to consumer-buying trends as they unfold. Many companies that implement this form of inventory control monitor statistics in real time to make the most educated decisions when ordering supplies.
Sophisticated software technology will analyze data to provide insights on which supplies to order, and how much you’ll need. This tends to be a smart choice for businesses in industries that are less than stable at times.
The main advantage of a pull system is that you should be able to comfortably meet consumer demand without having a bunch of leftover supplies. If a particular product suddenly grows or decreases in popularity, you can adapt. This should keep customers happy and prevent the need to markdown certain items.
On the other hand, there are two primary cons with this system. First, your shipping costs can be high. This can be problematic when your distribution center is in a distant location. The other issue is that excessive purchases of an item over a small period can temporarily leave you out of stock.
Because you’re placing smaller orders, it could leave you ill-equipped if a product’s popularity suddenly soars. In the event your supplier is unable to get an order out in time, it can leave you in a pinch with angry customers who may take their business elsewhere.
Choosing an inventory control system for your business will depend upon several factors, including your industry, inventory quantity, consumer demand, and warehouse space. Thanks to advances in technology and predictive analytics, both systems can be implemented with greater efficiency than in the past. By choosing the right one for your business, you can keep shelves stocked and customers happy while minimizing shipping costs and increasing profit margins.