As an inventory stock manager it is significantly important to be able to develop an inventory stock control system to manage customer demand. This is because that demand for the product will control inventory costs, carrying costs, ordering costs and storage costs. Inventory stock control systems can be categorised as push or pull models. Knowing the key definitions, advantages and disadvantages of each pull or push system will help a business establish which inventory stock control method works best for their company.
What is Push Inventory?
A push model requires a business to rely heavily upon long-term projections to meet customer demand without oversupplying or undersupplying inventory stock. After forecasting the demand for a given period, a business will order accordingly and push the product to its customers. Businesses in a stable and highly predictable industry tend to use this strategy more so than their counterpart businesses that are in less-stable industries with lower predictability.
Advantages of a Push Model
One of the biggest advantages of a push system is that you can effectively reduce your shipping costs. Push systems inherently see that businesses place larger orders, and less frequently, which has the flow on effect of cutting down on the number of shipments. If you rely on foreign freight this can be a smarter option in the long term, as assuming you make accurate demand projections, you can keep customers happy while simplifying the shipping process.
Disadvantages of a Push Model
A major disadvantage however, of a push model is that inaccurate projections can easily leave you over or under supplied. Over ordering can wind up costing your business because you may be forced to mark down items to get rid of the over-supply. On the other side of the coin, a lack of supplies can be costly as your business can miss out on lost sales. A business also needs to consider that a larger warehouse space in necessary to store inventory stock. This can be problematic for smaller businesses that cannot simply afford this increase overhead costs.
What is Pull Inventory?
A pull approach differs from push systems at it relies upon placing smaller and often more frequent orders. Rather than trying to make long-term projections, a pull system is more reactive and adapts to its customer buying trends as they tend to unfold. Many businesses that implement this form of inventory stock control monitor statistics in real time to make the most informed decisions when ordering inventory. With technological advances, sophisticated software will analyse data to provide insights on which inventory to order and how much a business will need. This can be a smarter choice for businesses in industries that have volatile and unstable markets.
Advantages of a Pull Model
The main advantage of a pull system is that a business should comfortably be able to meet consumer demand without having too much inventory stock in surplus. If a particular item suddenly grows or decreases in demand, you can easily adapt. This will tend to keep customers happy and prevent the need to have excessive items that you may need to discount to get rid of.
Disadvantages of a Pull Model
However, there are two primary concerns with the pull model. The first is that your shipping costs can be excessively high. This is problematic especially if your distribution centre is in a foreign location. The second issue is that excessive purchases of an item over a smaller amount of time can often leave you out of stock temporarily. This is because you are placing smaller orders and if the popularity of an item peaks or your supplier cannot get an order out in time it may leave you with disgruntled customers who may take their business elsewhere, not to mention missed out sales opportunities.
It is important to note that choosing an inventory control system for your business will depend on several important factors. These factors include your industry, inventory quantity, customer demand and warehouse space. Due to advances in technology, and predictive analysis, both push and pull models can be implemented with greater efficiency than the past. By choosing the right model for your business, you can keep items stocked and customers happy while minimising shipping costs and increasing profitability.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.