Pull vs Push Systems and Dealing with Capacity
When building or transforming a business, it’s essential to look into as many change options as possible, so you can choose the one that would suit the particular business the most. Implementing change should never be done for the sake of it, and it should always strive to serve the company’s competitiveness, efficiency and productivity. If you are going to invest time and effort in building or transforming an organization, it needs to be profitable.
When it comes to process management, and especially dealing with production, capacity and inventory, there are two main approaches to making your operation work – push and pull. If you are going to be working on your organization’s structure, you need to be familiar with both, so you could implement the one that is going to be beneficial for you, given your current situation.
You could say that push systems and processes are the more traditional option. If we look at the majority of production facilities, we’ll notice that they require mostly external input to continue production at a steady pace. When a company has implemented a push system, they make forecasts about the expected demand, and make sure they keep production at a level that would be high enough to meet that possible future demand. Besides quantities, companies that employ this mode of operation need to predict exactly which products and models will sell more, and adjust quantities preemptively. The reason most businesses use a push system is because it is easier to implement, and it seems like the most useful and intuitive approach. In fact, many businesses think a push system is the only logical approach.
A push system comes with some obvious disadvantages, once you understand what the alternatives. While a company could employ a lot of sophisticated mathematical forecasting models, none of them can be fully reliable and consistently accurate. Six Sigma techniques can be useful, but the assumption is that historical patterns will be representative of the future, and over the long run, that won’t be the case. In the end, the market is driven by humans who are emotional and sometimes illogical beings, and demand can vary greatly in unpredictable ways. This often leads to overproduction, which in turn inflates storage costs, production costs, and might often lead to additional waste due to spoilage.
Those disadvantages are pretty significant, and make it quite difficult to manage capacities efficiently. Generally speaking, this is a model that can be employed only when the capacity available easily exceeds the market demand, and the business is not particularly limited by storage or production costs. Still, if that is the case, the inefficiencies and waste created through this method still impact the organization’s overall productivity and competitiveness, but allow it to meet significant client demand on short notice.
Still, there are certain types of businesses that might find this approach quite beneficial and it might allow them to meet larger than demand with smaller production capacities. This is very much the case with seasonal products where the company can have a small daily capacity but through proper planning and forecasting could ship very large quantities when their product is in high demand.
While push systems forecast the demand, and thus try to produce and push specific quantities to the market, pull systems rely on the opposite approach. In pull systems, the pace of production is dictated directly by customer demand for each specific product. The production process is always triggered by a customer order, so companies relying on this approach produce only the quantities that are going to be properly utilized. If such a system can be successfully implemented, it leads to significant waste reduction and process optimization, so a business can utilize its production capacity in full, as very little is produced without real customer demand. The success comes from the fact that when problems occur, the problems are evident, and the process automatically stops. This makes each problem more painful, but that forces the organization to improve, in order to avoid these issues from occurring in the future.
Of course, pull systems come with their own set of challenges. For instance, it’s much easier for a pull system to be pushed out of capacity by large demand peaks, because there aren’t significant quantities that are produced in advance and kept in storage. Additionally, failures in the supply chain or other unfavorable occurrences and factors could easily lead to orders being delayed. This can have a severe impact on customer satisfaction, and thus hurt the company’s reputation and profitability. Pull systems require very strong communications between your customers in order to manage high peaks in demand and supply chain risks. Even though pull systems are more complex to setup and maintain, the effort will result in better overall performance in the long run.
The Spectrum In Between
While both approaches have their own advantages and disadvantages, the most efficient way to utilize a company’s production capacity is to use a hybrid approach initially, then slowly transition to a Pull System as your supply chain and customer relationship matures. This allows large and efficiently-organized businesses to take the best of both worlds – having the ability to meet high and changing demand, while allowing the market to dictate their production pace. This creates the so-called push-pull systems.
While the push and pull approaches are both relatively straight-forward, they are both worth exploring and considering. Clearly defining each one, with its own set of strengths and weaknesses, allows an organization and its leadership to craft or choose an efficient medium between the two.
Most organizations and businesses start with a full push system, then slowly add pull elements like kanban, and continue to add more pull elements over time. The most competitive approach might be to have specific forecasts based on historical data (push system), but have your production schedule controlled more and more by customer demand (pull system), as the pull system matures.
What system does your organization use?