Nearly every business owner grapples with how much inventory to keep in stock. Should you prepare for surges in customer demand by keeping a substantial safety stock that exceeds typical sales needs? Or should you adopt a lean inventory strategy that aligns stock to actual demand in real time?
After weighing options, an inventory manager may opt for a push inventory system or a pull inventory system, each of which anticipates demand with stock on hand. Here’s a rundown of both the push and pull inventory control systems, and tips on picking the best inventory control method for your business.
What is a push inventory management system?
A push inventory management system, or inventory control system, is a method of managing inventory in which products are produced or manufactured based on anticipated consumer demand. In a push system, goods are made in advance and “pushed” through the supply chain to distribution points and retailers, often in larger quantities than immediate demand. The amount of inventory sent out to a retailer is based on estimates of future demand.
Companies that adopt a push inventory system often maintain a large amount of buffer stock to accommodate sudden surges in customer demand. While push systems mitigate stockouts, they entail the risk of excess inventory, which can lead to higher storage costs and product obsolescence. Still, many businesses consider this an acceptable tradeoff, valuing the reliability of a push-based supply chain that consistently replenishes existing inventory.
What is a pull inventory management system?
A pull inventory management system relies on market demand to determine inventory levels. Products are restocked in response to consumption. When inventory levels fall due to a surge in customer orders, a pull inventory system replenishes stock levels through a responsive pull-based supply chain.
The term “pull system” comes from the idea that restocking is triggered by inventory depletion or customer requests—essentially “pulling” products through supply chains.
Businesses constrained by limited storage space for surplus inventory and that possess agile, dependable supply chains to quickly respond to customer demands, often favor pull systems. Inventory management software is typically employed to automatically reorder products when stock falls below a minimum threshold. The downside is that rapid resupplying often comes with higher manufacturing costs—usually because products are ordered in smaller quantities or because of the quick turnaround time required—which may be prohibitive for smaller businesses.
Push vs. pull inventory management systems
When choosing between push and pull inventory systems, consider your typical sales cadence, storage space, and the accuracy of your demand forecasting. You must also consider the unique nature of both push and pull systems.
Here are the key differences and similarities between push and pull systems.
Production and restocking processes
- How they’re similar: Push and pull strategies are designed to meet customer demand and maintain an adequate inventory level. Both involve planning and forecasting and using supply chain management software to ensure the availability of products.
- How they’re different: In push inventory, production and restocking processes are initiated based on forecasts and anticipated demand, often leading to larger production quantities. In pull inventory, consumption triggers restocking, resulting in a more demand-driven approach.
- How they’re similar: Both systems balance inventory levels to avoid stockouts or excess inventory.
- How they’re different: Push inventory often results in higher inventory levels, since goods are manufactured and distributed before the exact demand is known. Inventory managers who opt for a push system prioritize meeting customer demand, even at the risk of overstocking. Pull inventory typically results in lower inventory levels, and products are produced and restocked only in response to confirmed orders or specific demand. Here, managers may be more concerned with inventory costs, specifically the higher storage costs associated with excessive supply.
Flexibility and responsiveness
- How they’re similar: Both systems can be adjusted and fine-tuned based on changing market conditions, customer preferences, and feedback. Inventory managers in both systems can analyze data and make refined predictions for future demand.
- How they’re different: Push inventory systems may be less flexible, as production is based on advanced inventory forecasting, making quick adjustments more challenging. Pull inventory systems provide greater flexibility as they respond directly to real time demand, enabling quicker adjustments in production or restocking (contingent on a reliable supply of raw materials and goods).
Risk of overstocking
- How they’re similar: Both systems carry the risk of overstocking, which can lead to increased carrying costs and the possibility of obsolescence, also known as dead stock.
- How they’re different: The push method creates a higher risk of overstocking than the pull method because its production process is based on forecasts and a fixed production schedule, whereas the pull method responds to demand.
Supply chain efficiency
- How they’re similar: Both systems aim to optimize supply chain efficiency by streamlining processes, alleviating bottlenecks, and enhancing lead times while minimizing delivery delays.
- How they’re different: Pull inventory systems typically represent a lean inventory management approach (minimizing stock to reduce waste and improve efficiency). They enhance supply chain efficiency by aligning production and restocking with sales volume, minimizing inefficiencies.
What is a push-pull inventory management system?
A push-pull inventory management system is a hybrid system that combines elements of both push and pull strategies to optimize inventory levels and meet customer demand. Different stages of the supply chain use either a push or pull approach or a combination of both, depending on specific customer demand and manufacturing processes, striking a balance between a push system’s proactive nature and a pull system’s reactive nature.
Here’s how it typically works:
The push aspect of a hybrid push-pull system involves forecasting and planning based on anticipated demand or historical sales data. This push is often used for long-term production planning and maintaining a baseline inventory level. For example, a clothing store may see a high sales volume of socks, so it orders more on a push basis to ensure they’re always in stock.
In a push-pull system, the pull component involves replenishing products in response to real-time inventory turnover, sales, or other demand signals. Most businesses use a pull strategy to minimize excess stock. For instance, the clothing store may find not all the units in a t-shirt line sell equally well. It might employ a push approach for consistently popular black-and-white t-shirts while using a pull system for occasional sellers like orange and green t-shirts.
How to choose the right inventory management system for your business
- Understand your demand
- Consider lead time and supply chain efficiency
- Evaluate cost implications
- Assess flexibility and responsiveness
- Consider a hybrid approach
Here are five tips for choosing between a push and a pull inventory management system:
1. Understand your demand
Analyze your historical sales data and demand patterns to determine whether your products have consistent and predictable demand (suitable for push) or fluctuating and uncertain demand (suitable for pull).
2. Consider lead time and supply chain efficiency
Evaluate the lead time required to restock inventory and the efficiency of your supply chain. A pull system might be more appropriate if you can quickly respond to customer orders and restock in a short time—such as if you use a local manufacturer with an efficient production line. If your lead times are longer, or if it’s hard to forecast demand reliably, a push system might be the better choice.
3. Evaluate cost implications
Stocking your store requires upfront investment, but push and pull systems have different cost considerations. Push systems may lead to overproduction and excess inventory, incurring carrying costs. On the other hand, pull systems may result in high manufacturing fees or shipping costs due to frequent reordering.
4. Assess flexibility and responsiveness
Assess how quickly you need to adapt to changes in customer preferences, market trends, or unforeseen events. Pull systems, like the Kanban system, just-in-time (JIT) system, and materials requirements planning (MRP) system, offer greater flexibility and responsiveness to changing demand, enabling quick adjustments. Push systems, while efficient when things go as planned, may be less flexible in responding to unforeseen shifts in demand.
5. Consider a hybrid approach
A hybrid system allows you to optimize inventory levels, improve flexibility, and efficiently manage all types of demand. If you study other inventory models in your industry, you may find many hybrid push-pull system examples that source core products through a push approach and more niche products through a pull approach.
Push vs. pull inventory FAQ
What is the difference between a push system and a pull system?
In a push inventory management system, you order stock based on anticipated consumer demand forecasts. A pull system responds to demand and only restocks products after they’ve been sold.
What is an example of a push and pull system?
For an example of a push-and-pull system, imagine a computer manufacturer. The company might order materials with long lead times, like semiconductors, on a push basis. It might concurrently order products with variable demand and short lead times, like custom chassis, on a pull basis.
Which inventory management system is better for a small business?
Choosing between a push or pull inventory management system depends on multiple factors. A push system may be preferable if you have ample storage space, or your suppliers have extended lead times. A pull system may be best if you’re looking to reduce storage costs and have suppliers who can rapidly fulfill orders.