Pull based supply chain systems based on principles of JIT or Lean have been talked about since the eighties. These systems have been implemented in several industries with a fair degree of success. However, not all implementations give the desired benefits of flexibility, improved service levels and reduced waste. Sometimes implementation is forced down the throat of unwilling vendors by the larger and stronger buyer organization. If the desired benefits are evident and convincing why is it necessary to force this system on any organisation? What are the factors that bring about a successful implementation of the pull system?

To start with for some reason many people associate pull systems with no inventory. The logic is that since it is pull based and not dependent on a forecast which will have an error, no safety stock is required. This is not true. Safety stock is kept for taking care of demand uncertainty. In a push based system replenishment is done as per the forecast and hence safety stock will be as per the forecast error. In a pull based system, replenishment is done as per sales, but there is a replenishment cycle time coupled with a transit lead time. Safety stock is hence required for taking care of the demand uncertainty in the supply response time which is the sum of these two factors. If this time is equal to a month, the SS is then as good as the safety stock of a push based system and there would be no inventory cost reduction. For inventory benefits to occur, the system needs to have a fast response time to any change in demand – short transit time and short replenishment cycle time which implies high frequency of replenishment. Pull systems work well only in systems where both these factors are there. If these are not present, the distribution network may have to be redesigned and several networks evaluated to determine the appropriate one suitable for introducing pull based systems and overall reduction in supply chain costs.

One other misconception with many managers is that forecasts are not required because the replenishment is based on a sales based pull system and not on forecasts. Now in any manufacturing environment forecasting and the corresponding stock build-up is done at some level or the other. In built to stock it is done at a FG level, in assemble to order at a WIP level and in a made to order at a RM level. Forecasts are a prerequisite to this stock build-up and is required for any business to function smoothly without reacting to circumstances. In a pull based system, the daily replenishment happens based on stock depletion due to sales. But stock build-up itself at the appropriate level is based on forecasts. The term X days of inventory is associated with the number of days the stock will last based on the forecast. In many businesses, it makes sense to freeze the forecasts for a certain period of time. For example if the forecast accuracy does not improve significantly with coming closer to the month of forecast, there is no additional value added by reviewing the forecast closer to the month. In such cases it is better to freeze the forecast for a longer time horizon – say a year or 6 months and save precious people work time. A system where the forecast is frozen works like a pull based system because the only thing supply reacts to now is the sales at the end of the supply chain

Another concern area is that the transportation cost will go up. This is expected, because as mentioned before, a pull based system works only when the reaction times are small which means higher frequency of replenishment. There would be a reduced requirement for keeping inventory and one needs to see the trade off between the two to decide the optimal frequency level.  The lower inventory cost is supposed to more than balance the increase in the freight cost. However, if this does not happen, one has to either abandon the pull system or think of alternative ways of controlling the increase in freight costs. It may be better to use a different mode of transport – for example express mode. One can look at ways of consolidating loads with products from other industries with the help of the logistics provider. Another way could be eliminating loading or unloading costs at a warehouse and directly shipping to customers after consolidating loads across multiple customers. If nothing works, one then just has to live with the existing costs. A conversion to a pull system may not give the cost reduction benefit, but is unlikely to increase overall costs if the frequency and inventory level maintained is the same. It may still be better to have a pull system for the other benefits that it provides

Pull based systems offer many benefits. The immediate and probably most talked about benefit is the reduction in inventory. What is probably less realized is that this is brought about only by a significant reduction in the supply response time and without which it is not possible. Other benefits are the pressure it puts on supply reliability. Supply reliability needs to be up to mark for the successful implementation of any pull based system. Without the opportunity of hiding supply lacunae by passing of supply unreliability to the sales forecast inaccuracy, key supply issues come to the fore. An organization should look up on this as an opportunity to set right its delivery capabilities. A major benefit is improvement in service levels in terms of stock availability and a reduction in unplanned inter warehouse transfers. This happens because stock is now available to sales people based purely on sales and not based on promises or their ability to put pressure on the supply team. One probably overlooked benefit is the huge improvement in planning productivity and efficiency. That much of less time is spend in negotiating for the forecast. Normally an organization spends a large amount of time on this. Paradoxically, the stronger the processes in an organization, the larger the time probably spent on negotiating, reviewing and correcting the forecast by managers at all levels – junior, middle, senior and top management. The fight is also across the supply chain – sales, planning, manufacturing and procurement. This is particularly so where there is a misalignment with the “budget” for which another large chunk of time is devoted to anyways once in a year. Without this daily tug of war, managers can probably concentrate on the only thing that really matters – servicing the end customer.

The benefits provided far out weight the so called disadvantages of pull systems. This has been accepted and implemented in many industries in the last two decades – both by copying without understanding the principles and so without reaping the benefits and by uniquely applying to their businesses and getting a full return of the benefits. It is a question of time before managers across other industries also adopt this and it becomes accepted as a standard way of doing business.