Chapter 6.

Supply Chain Integration

Chapter 6
Supply chain integration
Chapter 7
Distribution strategy

Instructor: Dr. Son, Byung-Gak

logistics@city.ac.uk
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Chapter 6. Supply Chain Integration

1. Introduction
Effective integration of suppliers, manufactures, warehouses,
and stores => competitive supply chain
Effective integration of supply chain requires
Effective coordination of production, transportation and inventory
decisions
More importantly, integrating the front-end of SC (customer demand) to
the back-end of SC (production and manufacturing)

Main objective of the class is to illustrate strategies of supply

chain integration
Supply chain integration strategies: Pull, Push, Push-Pull

Chapter 6. Supply Chain Integration

2. Push, Pull, and Push-Pull Systems (Push SC)

The Old Paradigm: Push Strategies
Production decisions based on long-term forecasts

What are the problems with push strategies?

Inability to meet changing demand patterns
Obsolescence
The bullwhip effect:
Excessive inventory
Excessive production variability
Poor service levels
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Chapter 6. Supply Chain Integration

2. Push, Pull, and Push-Pull Systems (Pull)

A Newer Paradigm: Pull Strategies
Production is demand driven
Production and distribution coordinated with true customer demand
Firms respond to specific orders

Pull Strategies result in:

Decreased inventory levels at retailers and manufacturers
Decreased system variability
Better response to changing markets

But:
Harder to leverage economies of scale
Doesnt work in all cases

Chapter 6. Supply Chain Integration

2. Push, Pull, and Push-Pull Systems (Push-Pull SC)

Push-Pull strategy
A new SC strategy that takes advantage of Pull and Push system

A shift from a Push System...

Production decisions are based on forecast

to a Push-Pull System
Initial portion of the supply chain is replenished based on long-term
forecasts
For example, parts inventory may be replenished based on forecasts

Final supply chain stages based on actual customer demand.

For example, assembly may based on actual orders.

Chapter 6. Supply Chain Integration

2. Push, Pull, and Push-Pull Systems (Push-Pull SC)

Push-Pull Supply Chains

The Supply Chain Time Line

Suppliers

Customers

PUSH STRATEGY
Low Uncertainty

PULL STRATEGY
High Uncertainty
Push-Pull Boundary

Chapter 6. Supply Chain Integration

Consider Two PC Manufacturers:

Every end products

Build to Stock

Components

Forecast demand
Buys components
Assembles computers
Observes demand and meets
demand if possible.

A traditional push system

Build to order

Forecast demand
Buys components
Observes demand
Assembles computers
Meets demand

A push-pull system

Chapter 6. Supply Chain Integration

2. Push, Pull, and Push-Pull Systems (Selecting Strategies)

Selecting suitable SC Strategy
Higher demand uncertainty suggests pull
Higher importance of economies of scale suggests push
High uncertainty/ EOS not important such as the computer industry
implies pull
Low uncertainty/ EOS important such as groceries implies push
Demand is stable
Procurement and transportation cost reduction is critical
Pull would not be appropriate here.

Chapter 6. Supply Chain Integration

2. Push, Pull, and Push-Pull Systems (Selecting Strategies)

Selecting suitable SC Strategy (How about L L or H H?)

Low uncertainty but low value of economies of scale such as books
Traditionally Pull
However, high volume books and cds, => either push strategies or push/pull
strategies might be most appropriate

High uncertainty and high value of economies of scale

For example, the furniture industry
How can production be pull but delivery push?
Is this a pull-push system?

Pull
Factory

Push
Warehouse

Push

End
Customers
Customers
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Chapter 6. Supply Chain Integration

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Chapter 6. Supply Chain Integration

2. Push, Pull, and Push-Pull Systems (Selecting Strategies)

Selecting suitable SC Strategy
Demand
uncertainty

Pull

II

Computer

IV

Push

III

L
L

Economies
of Scale

Pull

Push

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Chapter 6. Supply Chain Integration

2. Push, Pull, and Push-Pull Systems (Selecting Strategies)

Characteristics and Skills (Locating Push-Pull Boundary)

Raw
Material

Customers
Push

Pull

Uncertainty: Low

High

Lead Times: Long

Short

Objective:

Cost Minimization

Service Level

Skills:

Resource Allocation

Responsiveness

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