PUSH, PULL AND PUSH-PULL SYSTEMS, BULLWHIP EFFECT AND 3PL

1. PUSH, PULL AND PUSH-PULL SYSTEMS, BULLWHIP EFFECT AND 3PL

2. PUSH BASED SUPPLY CHAIN • With a push-based supply chain, products are pushed through the channel, from the production side up to the retailer. • The manufacturer sets production at a level in accord with historical ordering patterns from retailers. • It takes longer for a push-based supply chain to respond to changes in demand, which can result in overstocking or bottlenecks and delays, unacceptable service levels and product obsolescence.

3. PULL BASED SUPLY CHAIN • Procurement, production and distribution are demand driven so that they are coordinated with actual customer orders, rather than forecast demand. • In a pure pull system, the firm does not hold any inventory and only responds to specific orders enabled by fast information flow mechanisms (POS data) to the various supply chain participants. • It leads to reduction in system inventory level, enhanced ability to manage resources and a reduction in system costs. • It is difficult to implement if the lead times are very long and it is difficult to take advantage of economies of scale in manufacturing and transportation since systems are not planned ahead.

4. PUSH-PULL SUPPLY CHAIN • In a push-pull strategy, the initial stages of the supply chain are operated in a push based manner while the remaining stages employ a pull based strategy. • The interface between the push based stages and pull based stages is known as the push-pull boundary. • Example: manufacturer builds to order : postponement or delayed differentiation

5. BULLWHIP EFFECT The bullwhip effect is the uncertainty caused from distorted information flowing up and down the supply chain.

6. Who is affected? • Nearly all industries are affected! • Firms that experience large variations in demand are at risk. • Firms that depend on suppliers upstream or distributors and retailers downstream may be at risk.

7. Results of the bullwhip effect • Excess inventories • Problems with quality • Increased raw material costs • Overtime expenses • Increased shipping costs • Customers turning back sales orders • Lengthened lead time • Lost sales

8. METHODS INTENDED TO REDUCE UNCERTAINTY, VARIABILITY, AND LEAD TIME: • Vendor Managed Inventory (VMI) • Just In Time replenishment (JIT) • Strategic partnership • Information sharing • smooth the flow of products • coordinate with retailers to spread deliveries evenly • reduce minimum batch sizes • smaller and more frequent replenishments

9. THIRD PARTY LOGISTICS • A third-party logistics provider (abbreviated 3PL) is a firm that provides outsourced or "third party" logistics services to companies for part, or sometimes all of their supply chain management function. • Third party logistics providers typically specialize in integrated warehousing and transportation services that can be scaled and customized to customer’s needs based on market conditions and the demands and delivery service requirements for their products and materials.

10. ADVANTAGES OF 3PL • Focus on core strengths • Provides technological flexibility • Provides other flexibilities (regional warehousing, lowering inventory levels)

11. LIMITATIONS OF 3PL • Loss of control over the logistics function • More distance from clients • Discontinuity of 3PL provider • Differences in opinion or perception of the service level of 3PL provider.