Inventory management is something that’s crucial for any business manager to stay on top of. When you have a system that works, that allows you to satisfy customer needs while still maintaining profits.
As such, you have two options: push inventory management, or pull inventory management. What’s the difference between push vs. pull inventory, and which one should you use? Here’s everything you need to know, so you can make the right decision for your business.
How Push Inventory Control Works
Firstly, what is push inventory control? In this model, you’ll be ‘pushing’ the stock that you have already to hand to your customers. That way, you’ll be pulling items from your existing inventory as the orders come in from them. In some industries, you may see this referred to as ‘build to stock’.
To be able to use this model, you’ll need to have enough stock to hand at all times, so you can fill orders when they happen. As such, you need to be forecasting what stock you’ll need to have in your warehouse, so it’s available when you need it.
When this is used well, you’ll be able to ship very quickly to your customers, which will help raise your reputation as a business. You’ll also pay less in manufacturing costs, as you’re more likely to be ordering in bulk.
The Disadvantages Of The Push System
While there are a lot of advantages to using the push system of inventory management, there are some downsides too. The biggest one is that you’ll run the risk of overstocking items. If they don’t sell as well as forecast, then you’ll have paid for them but still be sitting on that stock. That’s going to eat into your profits and make the system less cost-effective.
Because of this, you’ll also be paying out more for your storage costs, while you’re trying to sell off that stock. As such, you’ll want to keep this in mind when you’re considering push vs pull inventory management.
How Pull Inventory Management Works
On the other hand, there’s pull inventory management. This is a system that works better with a short-term approach. Typically, when you use this system you’ll order the item the customer wants when they order it from you. As such, you may have heard of this as ‘just in time’ ordering, or ‘lean inventory management’.
There are lots of advantages to using this system. “When you use pull inventory management as a business, you’ll have to pay a lot less upfront for your inventory,” says Angela Prower, a writer at Boom Essays. “That allows you to save money when starting up.” You’ll also be able to reduce losses on unsold items, as you’ll be storing much less.
The Disadvantages Of The Pull System
Just like the push system though, there are some downsides to the pull system too. These are things you need to be taking into consideration if you’re considering push vs pull inventory management.
As you’re not storing stock yourself, if you get a high rise in demand that you weren’t ready for, that’s going to lead to longer wait times. That’s something that could cause issues for your customers, and you may not want to take that hit to your reputation.
Also, remember that ordering just in time can lead to higher manufacturing costs, which will be passed on to you.
Using The Push-Pull System
As a business, you don’t have to pick between push vs pull inventory if just one doesn’t work for you. Instead, you can use a mixture of both systems.
“Using both systems can get complicated, so you’ll need a good inventory management system,” says Jason Brewer, a Paper Fellows and State of Writing journalist. “If you have more unpredictable demand though, it’s something you’ll want to consider.”
There are several ways in which both systems can be used. For example, as a manufacturer, you can stock raw materials in the push system, while selling finished goods through a pull system. That allows you to continually have stock making its way out with good lead times. Others may decide to keep a small amount of stock on hand as a safety measure and apply the pull dynamic to their reordering schedule.
Again, this can get complicated quite quickly, so you’ll need to ensure you have a good tracking system. That will help you stay on top of your stock and ensure that you know what’s happening at every stage in the process.
Push vs Pull Inventory: Which Is Right For You?
So, in this question of push vs. pull inventory management, which style is right for your business? It all depends on what you need when it comes to your customers and stock.
Push and pull inventory management are similar in that they dictate when you order stock, and get orders sent out to customers. You’ll also be keeping customer demand in mind as you order stock, as it dictates what you order, and when you order it.
However, they have a lot of differences too. Push inventory management will require you to forecast what your customers will want, order those goods and store them ready for their orders. With pull inventory management, you’ll instead wait for the orders to come in, and order the items then. As such, with push, you’re making educated guesses about what customers want, while with pull you’re waiting to see what the customer orders.
They’re also different as they require additional warehousing spaces. You’ll need a lot more warehouse storage space with the push method, as you’re storing those goods while you wait for orders. With the pull method, you’ll need a lot less space as you’re ordering just in time.
There are a lot of differences when it comes to push vs. pull inventory management, so you’ll need to use the method that makes the most sense for your business. There is also the option to use both, so keep that in mind when you decide.
Jenny Han is a writer for Term paper writing service and UK Writings, where she covers business inventory management needs. She’s also a contributor to the Dissertation writing blog.