Supply chain management refers to the value chain from the supplier to the end consumer. Depending on the direction of the supply chain, there are two systems. The push system and the pull system. A company can trigger the production or delivery of products by orienting itself towards past values and thus producing with foresight or by waiting for a specific customer order.

Process in the Push System

Producer → Distribution centre (retail) → Sales branch

Producer: Based on estimates, decisions are made as to whether and how much will be produced. For this purpose, companies use market and sales data and, on this basis, generate forecasts.

Distribution centre: In retailing, a reorder point method is used based on existing inventory. Orders are placed on the basis of forecasts and a safety stock is maintained at the same time.

Sales branch: In the sales outlet, an order point procedure is carried out based on the existing shelf stock. As in the distribution centre, orders are placed on the basis of forecasts and a safety stock is maintained.

The push principle is also used when a new product comes onto the market or the availability of spare parts must be guaranteed. The danger with push systems is miscalculation. This can either lead to too much being calculated or to customer requests not being fulfilled due to shortages.

With pull systems, the decisions about the concrete delivery quantity and the delivery time are not made at the production location, but in the distribution center. The desired quantity is then drawn from the production site according to the “to pull” designation. With the pull system, control is decentralised.

Process with Pull System

Sales branch → Distribution centre (retail) → Producer

Sales branch: Ongoing inventory checks are carried out in the retail store. Automatic re-orders are placed according to actual demand via electronic data exchange. Identification of sales takes place by barcode and EAN code.

Distribution centre: In the distribution centre, the repeat order is passed on to production. The products are handled according to cross-docking. The distribution centre determines the specific quantity and time of delivery.

Producer: The products are produced at short notice and provided with a barcode and EAN code. Demand data such as sales and product movements lead to further forecasts.

The pull principle requires efficient information flows. A fast transfer of information is necessary for the receipt of the demand. Furthermore, production requires short throughput times.

For more information, see Individual planning for individual products.

Image source: Stern; License: CC BY-SA 3.0

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