A supply chain strategy is a roadmap that allows a company to get their products to customers as efficiently as possible. It should cover each aspect of the supply chain, everything from sourcing materials to delivery.
The most efficient supply chain strategy is one built around your customer’s needs. Often, small businesses use a combination of both push and pull supply chain strategies.
When choosing a supply chain strategy, carefully consider your needs as a business and your customers’ expectations. Do your customers understand there is a lead time with their order, or do they expect immediate delivery? Consider what your competitors are offering when creating your strategy as well.
Push Strategy
Push supply chain strategy means that decisions about when products are manufactured and shipped is determined by anticipated customer demand. An example of classic push supply chain strategy is for seasonal items. A factory in China doesn't begin manufacturing Christmas ornaments when consumers go to the store to buy them. The decision about when to produce twinkle lights and tree toppers is made far in advance, based on how many sets of lights consumers are likely to want and when.
You don't have to pick just one supply chain strategy. Most businesses use a combination of both.
Push supply chain strategy gives stakeholders plenty of time to plan for things like raw material needs and expenses, number of spaces for shipping containers, and space to set aside for that seasonal merchandise.
Pull Strategy
Pull supply chain strategy is driven by actual consumer demand.
It's hard to find an example of a wholly pull-based supply chain, with the exception of custom, made-to-order items. A high-end custom jeweler might have a consultation with a client, discuss the needs for a specific piece of jewelry, purchase special metals or gemstones, and then produce the piece.
One benefit of pull supply chain strategy is the ability to carry little inventory, investing inventory dollars only when you know you have a buyer. Another plus is being able to charge a premium for custom merchandise.
Pick the Right Supply Chain Strategy for Your Business
You don't have to pick just one supply chain strategy. Most businesses use a combination of both.
Think about a restaurant. The manager orders vegetables, bread, and meats ahead of time based on anticipated demands. But menu items aren’t actually made until a customer places an order. Raw materials are gathered ahead of time, and while some popular items might be prepared in advance, others are made when they're ordered.
So if most businesses use both push and pull supply chain strategy, why does it matter? Businesses may be able to improve efficiency and profit margins by examining options. If you stock staple items, they're probably best ordered on a push basis. You can then order when there's a deep discount or stock up for busy times of year.
There might also be advantages to adding products that are purchased on a pull basis. Can you make high-dollar perishable or seasonal items available on a pre-order basis? Can you add custom options for some products?
The Takeaway
Supply chain management is just one element of running your business, but it's one that can be beneficial for your profitability. Taking the time to examine your strategies can pay off in the long term.
A version of this article was originally published on November 26, 2019.
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