Supply chains are designed based on production, delivery to distribution centers and availability at the retail stores. The most common strategies for moving from upstream to downstream sites are push and pull strategies or a hybrid of both. Therefore, the pull and push factors are important elements in the strategic decision relating to supply chain design.
In a push-based supply chain, the goods are pushed with the help of a medium, from the source point to the destination site. The production level is set based on the previous ordering patterns by the manufacturer. The speculative nature of the push process results in high production cost, high inventory cost and high transportation cost because the firm would like to have a buffer at every stage. It is also time-consuming when responding to fluctuations in demand.
The pull-based supply chain is based on demand-driven techniques; the procurement, production and distribution are demand-driven rather than predicting. The downside of the pull system is that if there is an excess demand from the customer while the company does not have the capacity to match demand, it will lead to an opportunity cost loss. However, the lead time in the pull view of the supply chain is shorter.
A hybrid push/pull system is a combination of both. In this situation, the raw material can be processed into a common semi-finished product at a point where the next downstream operations are set off by customer orders. At the upstream sites, the production is determined by push-type production, while at the downstream sites, the production is controlled by pull-type production. The hybrid system often mitigates the conflicting issues of cost and delivery lead time.