Supply Chain Strategy



Here’s a diagram of the effect of lead time and demand uncertainty on supply chain strategy.  Pull strategy works when lead times are short and high demand uncertainty makes building to forecast wasteful.  Dell is an example of this approach.  The number of feature combinations is high and customers are willing to wait a few days to get exactly what they want.  Push makes sense when lead times are long and demand is stable.   Canned soup is an example of where customers won’t wait for the fresh soup to be made and delivered.  Books were examples of the push strategy, but are now moving toward pull as print-on -demand and ebook readers proliferate.  When demand is known and lead times are short Continuous Replenishment or rate-based supply make sense.  Suppliers get point-of-sale data to release shipments on an agreed upon frequency to maintain inventory targets.  Throughout the continuous replenishment supply chain production and distribution operate on pull, and push at the retail outlets.  Positioning inventory strategically is complicated when lead times are long and demand is uncertain.  Strategic Inventory analysis can help sort out how much stock to carry, and where.  The point in the supply chain where risks can be pooled or demand aggregated is usually the place for some statistical safety stock.