Supply Chain Logistics Management Assignment 1

 MKTG 6253 Assignment #1

1. Push, pull and postponement are 3 strategies that work within the supply chain (SC). A push-model supply chain is one where projected demand determines what enters the process (Lander, 2016). For example, sweaters will get pushed to clothing retailers when summer ends and the fall and winter season start. Under a push system, companies’ supply chain must have predictability because they need to know what will come before it actually arrives. Walmart would be an example for a company that uses a push-model in the supply chain. However, a push-model needs to face the following problems:

• Inability to meet changing demand patterns;
• Obsolescence of supply chain inventory as demand for certain products disappears; and
• Variability of orders received are much larger than the variability in customer demand due to the bullwhip effect (McGraw-Hill, pg. 23).

A pull strategy is related to the just-in-time school of inventory management that minimizes stock on hand, focusing on last-second deliveries (Lander, 2016). With this strategy, the products only enter the supply chain when the customer orders are received. It helps the company “coordinate with true customer demand rather than forecast demand” (McGraw-Hill, pg. 25) and decrease the inventory costs. However, the company needs to deal with the risk that it cannot have enough inventory to meet demand if it cannot produce quickly enough. Dell’s online channel is an example of this strategy: the company simply carries the computer parts and only builds the finished good when it receives the final customer order.

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Graph 1: Different between push strategy and pull strategy (Sehgal, 2009)

Postponement is a strategy in which the company has the ability to defer the final assembly of the products until receiving the final customer orders but must maintain a short lead-time to fulfill orders and manage demand variability. With this strategy, the company has traded the cost of obsolescence for the cost of extra resources by trading inventory for the ability to quickly react to demand (Sehgal, 2009). This strategy is based on the following principles:

• The accuracy of the forecast demand decreases with an increase in the time horizon;
• Demand projections for a product group are generally more accurate than projections for individual products (Sehgal, 2009).

An example of this strategy is Hewlett Package’s printer strategy (HP printer strategy). HP’s European division in the late 90s used this strategy to afford the different requirement for electricity voltage in European countries. The company separated the power module from the base printer. Instead of stocking finished printers at their European distribution center, they stocked base printers and country specific power modules (Fernandes, 2014)

In choosing the type of strategy that will be used, companies are primarily balancing the cost of inventory, resources, and fulfillment cycle time (Sehgal, 2009). The factors that will affect these conditions are: