TECH BRIEF PUSH VS.

PULL SYSTEMS FOR THE RETAIL SUPPLY CHAIN

Push versus Pull Systems for the

Retail Supply Chain
Todays supply chains are undergoing significant pressures to
become more demand-driven. Retailers, distributors and
manufacturers are forced to choose the approach they hope
will make them the most profit. Is it producing and making
goods available to forecasts of expected consumer demand,
or by reacting to what consumers have already bought? This
brief shows why companies are investing in a new generation
of cloud technologies that enable the transition from push
environments to pull environments.
WHAT IS A PUSH SYSTEM?
Most companies use the forecast approach today, in what is
called a Push system. Companies forecast to feel confident
that the goods they order will both find willing buyers and not
run out unexpectedly soon. In the Push world, decision points
occur at every reorder. How much should be purchased? In
other words, how often is it necessary to consider buying
each item?
The sheer volume of SKUs and associated decision points
mean that push systems use the peanut butter approach,
where all products are treated roughly the same despite their
different demand profiles. Thus we see the following:
Forecasting done at the aggregate level. This is a weekly
forecast at best, and is from the DC to the store.
Product is then pushed to the store weekly based on
this forecast with no granularity based on how much the
individual SKU is actually selling for that particular store.
The main problem with push systems is that they are based
on forecasts that are almost always wrong. Despite billions
spent annually in the US for the best computers and most
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sophisticated software, actual demand varies from forecasts.

Forecasting does not make the end consumer react more
rationally or predictably. When it comes right down to it, no
matter how sophisticated its algorithm, a forecast is only a
guess. Wrong guesses mean excess investment and lower
profits, due to missed sales. They also lead to other problems
like high carrying costs, discounting, disposals, missed sales,
weak customer loyalty, shortages, high debt loads, inventory
disposals, emergency shipments, rescheduled production and
attenuated profits.

WHAT IS A PULL SYSTEM?

Modern cloud-based technologies are enabling a true pullbased approach to retail replenishment that uses actual
daily consumer-level demand to generate a true forecast.
Pull systems use demand data to drive both replenishment
and production. Only immediate customer requirements
are drawn from the protective inventories upstream.
This approach is driven by actual consumption at the
store (store/SKU/daily demand with POS) as well as with
forecasts. This allows for a much more granular approach
than push systems.

TECH BRIEF PUSH VS. PULL SYSTEMS FOR THE RETAIL SUPPLY CHAIN

For example, a pull network supports multiple

replenishment policies based on the individual demand
profile of the product.
- E.g. for a slow mover you can manage by a simple
reorder point (sell one, replenish one).
- For a turn item however, you can use a more
sophisticated min/max policy with DOS.
The result is an automated inventory policy driven by
actual pull requirements at the granular level. By acting
on actual demand, statistical variations are damped rather
than magnified, steadying on-hand inventory levels at every
stocking location.
Since goods only flow downstream to cover immediate
need, the preponderance of the inventory remains further
up the supply chain, closer to the source. In contrast, many
push systems put the majority of the inventory at the retail
store.

ADVANTAGES TO PULL-BASED SYSTEM

All companies in the 2013 Gartner Top 25 are implementing
pull-based processes. Companies that have implemented a
pull-based network have seen the following benefits:
Up to 30% inventory reduction
20% increase in perfect orders
10% increase in revenue
Improved service levels
Forecast Accuracy Improvements:
Manufacturing from 30% to 95%
Retail DC from 75% to 90%
Retail from 50% to 75%

WHAT ARE THE EFFECTS OF PUSH AND

PULL ON RETAIL?
Push systems are particularly devastating to the retail
industry. Retailers accept the massive inventory push from
their suppliers to drive local improvements such as the
following:

Retailers broaden their product selection to attract

customers to compete with other shops that sell
similar products.
Retailers fear missing sales, and so, buy to
optimistic forecasts.
Retailers choose higher quantity discounts or buy large
quantities opportunistically.
Consequently, nearly all retailers end up with much more
inventory than they need to cover immediate consumption.
In fact, as a result of the above choices and the lack
of aggregated demand at the retail level, the biggest
accumulation of inventory in a Push consumer goods supply
chain resides at the retail node.
In a Pull system, using readily available point-of-sale (POS)
data as inputs, shortages can be reduced by an order of
magnitude due to the quick response nature of these flow
systems.

RETAILERS ENJOY IMPROVED

EFFICIENCY, SERVICE, CUSTOMER
LOYALTY, AND PROFITABILITY
In short, what a Pull system means for retailers is:
More product is always about to arrive, especially
when inventories are low.
Customers find what they need, when they need it,
where they need it, and complete a purchase more
often.
Customer loyalty and upbeat word-of-mouth increase.
Patrons are less likely to resort to a competitor.
New sales are the result-sales that require no
additional operating expense.
The retailers replenishment staff are automated,
and the people are redeployed managing exceptions
(potential stock outs in the future).

Retailers choose long replenishment times in return for

lower costs to facilitate the highest possible markups.
In many retail environments, retailers do not expect
replenishment within the season, so they accept everything
they hope to sell in advance of each season.

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