What is “push” and “pull” distribution? ver the past months a discussion has raged on the APICS Instructor community about the meaning and application of push” and “pull” methods of inventory replenishment in a multiechelon distribution environment. This blog represent the opening discussion on settling this controversy. Companies create a channel of distribution because they have datermined that the best way to serve the marketplace Is to have Inventory geographically close to the customer, As represented below, distribution channels consist of two basic flows: inventory flows from the plant or main warehouse through the various achelons in the distribution channel until the customer is reached, while information about channel performance, the customer experience, and financial settlement flows up the channel to the supply source. Creating a distribution channel affects inventory in ‘that each facility in each echelon acts as an inventory dacoupling point. Gee nee fete AU eT i Aue ec How many echelons exist in a supply channel is dependent on how deeply businesses penetrate into the marketplace. The desired level of penetration requires the formulation of strategies assaclated with capabilities and casts (staring Inventory and performing transportation activities), channel power (distribution of influence among channel players), and competitive actions (presence of competitors and buying alternatives). IF the customer is willing to wait for delivery, suppliers can limit the number of channel achelons. On the other hand, the pressure of competition or the nature of the product may force suppliers to create intricate supply channels, often using channel partners, to provide last mile delivery to the custemer. As the number of channel echelons grow, demand Information Is severed between the original supply source and the customer and is replaced by inventory buffers staged at strategic points in the delivery channel, The dacision to dacouple inventory from direct demand, however, comes with a price. Beyond Inventory carrying cost, channel members must shoulder the responsibility for inventory replenishment planning at each facility in each echelon. The more echelons in the channel, the higher the cast and the mora complex the replenishment process.My last blog introducad the issue of “push” and *pull” inventory management in a multiacholon channel environment, at first glance, managing distribution and retall Inventories seems to be 4 breeze compared te the complexities of managing manufacturing inventories. After all, isn't it just finished goods being moved around with very short lead times (itarally the time It takes for picking, packing, transportation, receiving, and put-aviay) measured in days, if not hours? In reallty, planning and managing distribution Inventories can be an extremely complex affalr. Perhaps the most critical criver is understanding customer demand in Gistribution and retail. Customers (and that is us!) have an “on-demand” expactation of these invantories. Regardless of the customer-facing strategy, businesses know that when the customer calls either you have it cor you dont. If you don't, customers can easily move to an alternate cupplier to fulfill thair needs. Rarely are there back orders (defined as a “product ordered but out of stock and promised to ship when the product becomes available”): ATP has no relevance. ‘An example Is a wholesale distributor of commodity grocery products F once worked with. T tried very hard to sell the company on the fabulous sales order back order functionality of the ERP software system I was reprasenting at the time. The planner told me that It vas unimportant. When asked how they handle 2 situation when a customer wants 100 cases of product and they only have 90, tha plannar told me that they ship the 90: tha other 10 casas are lost sales because the grocery buyer simply goes to an alternate wholesaler to complete the 100 cases that are required NOW to meet their on-demand customers! In this sense, distribution and retailing inventory management can be considered as @ game of ‘quantity,’ while manufacturing inventories can be considered as a game of ‘timing.’ The Holy Grall for distribution/retall Inventories ts to have sufficient Inventory always on hand when the customer wants it while keeping inventory stocks as low as possible. In contrast, manufact Inventories are only needed when thera Is a requirement for them.