PUSH, PULL AND PUSH-PULL PUSH, PULL AND PUSH-PULL SYSTEMS, BULLWHIP EFFECT AND SYSTEMS, BULLWHIP EFFECT AND

3PL3PL

PUSH BASED SUPPLY CHAINPUSH BASED SUPPLY CHAIN

With a push-based supply chain, products are pushed through the With a push-based supply chain, products are pushed through the channel, from the production side up to the retailer. channel, from the production side up to the retailer.

The manufacturer sets production at a level in accord with historical The manufacturer sets production at a level in accord with historical ordering patterns from retailers.ordering patterns from retailers.

It takes longer for a push-based supply chain to respond to It takes longer for a push-based supply chain to respond to changes in demand, which can result in overstocking or bottlenecks changes in demand, which can result in overstocking or bottlenecks and delays, unacceptable service levels and product obsolescence. and delays, unacceptable service levels and product obsolescence.

PULL BASED SUPLY CHAINPULL BASED SUPLY CHAIN

Procurement, production and distribution are demand driven so that Procurement, production and distribution are demand driven so that they are coordinated with actual customer orders, rather than they are coordinated with actual customer orders, rather than forecast demand. forecast demand.

In a pure pull system, the firm does not hold any inventory and only In a pure pull system, the firm does not hold any inventory and only responds to specific orders enabled by fast information flow responds to specific orders enabled by fast information flow mechanisms (POS data) to the various supply chain participants.mechanisms (POS data) to the various supply chain participants.

It leads to reduction in system inventory level, enhanced ability to It leads to reduction in system inventory level, enhanced ability to manage resources and a reduction in system costs.manage resources and a reduction in system costs.

It is difficult to implement if the lead times are very long and it is It is difficult to implement if the lead times are very long and it is difficult to take advantage of economies of scale in manufacturing difficult to take advantage of economies of scale in manufacturing and transportation since systems are not planned ahead. and transportation since systems are not planned ahead.

PUSH-PULL SUPPLY CHAINPUSH-PULL SUPPLY CHAIN

In a push-pull strategy, the initial stages of the supply chain are In a push-pull strategy, the initial stages of the supply chain are operated in a push based manner while the remaining stages operated in a push based manner while the remaining stages employ a pull based strategy.employ a pull based strategy.

The interface between the push based stages and pull based stages The interface between the push based stages and pull based stages is known as the push-pull boundary.is known as the push-pull boundary.

Example: manufacturer builds to orderExample: manufacturer builds to order

: postponement or delayed differentiation: postponement or delayed differentiation

BULLWHIP EFFECTBULLWHIP EFFECT

The bullwhip effect is the uncertainty caused from The bullwhip effect is the uncertainty caused from distorted information flowing up and down the supply distorted information flowing up and down the supply chain. chain.

Who is affected?Who is affected?

Nearly all industries are affected!Nearly all industries are affected! Firms that experience large variations in demand are at Firms that experience large variations in demand are at

risk.risk. Firms that depend on suppliers upstream or distributors Firms that depend on suppliers upstream or distributors

and retailers downstream may be at risk.and retailers downstream may be at risk.

Results of the bullwhip effectResults of the bullwhip effect

Excess inventoriesExcess inventories Problems with qualityProblems with quality Increased raw material costsIncreased raw material costs Overtime expensesOvertime expenses Increased shipping costsIncreased shipping costs Customers turning back sales ordersCustomers turning back sales orders Lengthened lead time Lengthened lead time Lost salesLost sales

METHODS INTENDED TO REDUCE UNCERTAINTY, METHODS INTENDED TO REDUCE UNCERTAINTY, VARIABILITY, AND LEAD TIME:VARIABILITY, AND LEAD TIME:

Vendor Managed Inventory (VMI) Vendor Managed Inventory (VMI) Just In Time replenishment (JIT) Just In Time replenishment (JIT) Strategic partnership Strategic partnership Information sharing Information sharing smooth the flow of products smooth the flow of products

coordinate with retailers to spread deliveries evenly coordinate with retailers to spread deliveries evenly reduce minimum batch sizes reduce minimum batch sizes smaller and more frequent replenishments smaller and more frequent replenishments

THIRD PARTY LOGISTICSTHIRD PARTY LOGISTICS

A third-party logistics provider (abbreviated 3PL) is a firm that A third-party logistics provider (abbreviated 3PL) is a firm that provides outsourced or "third party" logistics services to provides outsourced or "third party" logistics services to companies for part, or sometimes all of their supply chain companies for part, or sometimes all of their supply chain management function. management function.

Third party logistics providers typically specialize in integrated Third party logistics providers typically specialize in integrated warehousing and transportation services that can be scaled and warehousing and transportation services that can be scaled and customized to customer’s needs based on market conditions and customized to customer’s needs based on market conditions and the demands and delivery service requirements for their products the demands and delivery service requirements for their products

and materialsand materials..

ADVANTAGES OF 3PLADVANTAGES OF 3PL

Focus on core strengthsFocus on core strengths Provides technological flexibilityProvides technological flexibility Provides other flexibilities (regional warehousing, Provides other flexibilities (regional warehousing,

lowering inventory levels)lowering inventory levels)

LIMITATIONS OF 3PLLIMITATIONS OF 3PL

Loss of control over the logistics functionLoss of control over the logistics function More distance from clientsMore distance from clients Discontinuity of 3PL providerDiscontinuity of 3PL provider Differences in opinion or perception of the service level Differences in opinion or perception of the service level

of 3PL provider.of 3PL provider.