Running a business can feel like a balancing act between making a profit and satisfying customers. An effective inventory management system can help you do both. First, you’ll need to figure out what an effective system looks like for your business.
Most inventory management systems occur in one of two ways — a push system or a pull system. Choosing the right method can help you control how much inventory you have at any given time so your business can meet demand effectively. What’s the difference between the two methods, and how do you choose one for your business?
- Pull System vs. Push System — Key Differences
- What Is Push System Inventory Control?
- What Is Pull System Inventory Management?
- Using a Push and Pull Inventory Management System
- Make the Most of Inventory Management With Finale Inventory
Pull System vs. Push System — Key Differences
A pull inventory system prioritizes current demand. The supplier orders or manufactures goods in the quantity and timeframe needed, based on existing customer sales orders. In contrast, the push inventory system uses demand forecasting. The manufacturer instead produces goods to anticipate customer needs and pushes them through the supply chain to retailers.
Each strategy offers its advantages, and either could be the better option in particular situations. Let’s talk more about what makes each method unique and when to use each strategy.
What Is Push System Inventory Control?
To make the most of push system inventory management, companies need to forecast stocking needs to meet consumer demand. The goal is to sell — or push — goods from the existing inventory to customers as orders come in. To create a successful push system, the business must have plenty of products in stock ahead of the demand. In manufacturing, this strategy is sometimes called “build to stock.”
When a company uses the push system effectively, the advantages are clear. The business can meet consumer demand and ship products without delay. Merchandise is likely to be in stock all the time, and the company typically pays lower manufacturing costs per item by ordering in bulk. By reducing the potential for stockouts, a company can maintain excellent customer relationships and can take advantage of every sales opportunity.
While sophisticated demand forecasting makes a huge difference, consumer demand can always be unpredictable. Manufacturers and retailers using the push method tend to keep extra stock or works in progress, just in case. Therefore, the push system comes with the risk of over-stocking. In turn, excessive supply can lead to higher storage costs.
Companies that manage high inventory volumes or many works in progress, alongside those that experience longer supplier lead times, do well with the push system. Sellers that work with higher sales volumes have an easier time moving excess stock. Products that offer better volume discounts are also a good fit because the purchasing cost savings make up for the higher storage costs. The push system also makes the most sense in markets with highly predictable demand.
What Is Pull System Inventory Management?
Rather than looking ahead at anticipated demand, pull system inventory management involves a more short-term approach. The business relies on the ability to place orders for products as customers request them. For this reason, the pull system is often referred to as “just-in-time” ordering or lean inventory management. Manufacturers sometimes refer to this strategy as “build to order,” as well.
The pull system is beneficial since a business doesn’t need to order or store products until it knows there’s a demand for them. The upfront investment in inventory is lower, and the company faces minimal losses on unsold products.
However, the pull system does come with disadvantages. When a business follows this model, they have lower stock levels and face longer fulfillment times if there’s an unexpected rise in demand. The company also places more orders in smaller quantities, resulting in higher manufacturing costs per item.
Companies prefer the pull system when there’s more uncertainty in demand forecasting. The method is also more useful when ordering in large quantities doesn’t result in a significant volume discount. Retailers with a small product mix can manage their inventory more easily under the pull system.
Using a Push and Pull Inventory Management System
Some businesses rely on both the push system and the pull system. Each strategy comes with a unique set of advantages and drawbacks. In addition, some products are better suited to one method over the other. A company that stocks a wide variety of items may use both push and pull strategies to manage its supply chains for different products.
The hybrid push and pull inventory management system can be a bit complicated, especially for growing businesses and those with extensive inventories. These companies need a reliable inventory management system to track what’s in stock in conjunction with a dynamic demand forecasting tool to adjust stock levels based on predicted demand.
Using the systems together has many advantages for companies with more unpredictable demand that also rely on bulk volume discounts and economies of scale. It’s also an excellent option for warehouses without a lot of storage space. If you’re a retailer, an inventory pull system is more effective when your suppliers offer short, predictable lead times. A local manufacturer can support your just-in-time ordering strategy best.
Some manufacturers employ the push and pull method by stockpiling raw materials while only producing finished goods as customers order them. In other words, raw materials are “pushed” while customer orders are “pulled.” Retailers might keep a small amount of safety stock “just in case” and use a “just in time” approach to dictate a reordering schedule. Otherwise, they might keep their mainstay products on a push inventory system and pull their less popular or less predictable products from suppliers as customers request them.
If you think this solution may be a good fit for your business, you’ll need an effective inventory control management system to manage both systems appropriately. Inventory management software can go a long way to lighten the load. Schedule a demo with our team to learn more.
Make the Most of Inventory Management With Finale Inventory
Whether your company relies on a push system, a pull system or a combination of the two, Finale Inventory can help you stay on top of inventory management and maximize your profits. Our experienced domain experts can work with you to create a personalized solution to meet your specific business needs. Our solution provides dynamic reorder point calculations, allowing you to keep a leaner inventory without missing sales opportunities. We also offer a robust database that can let you track more than 100,000 SKUs.