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What is Pull Strategy and Does it Benefit eCommerce?

31 Dec, 2020 | Business Tips, eCommerce

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In any business, the goal is sales. You’re aiming to get your product into the hands of as many consumers as possible. There are a variety of approaches you might take to market your product and get those sales rolling. One of the most popular strategies is referred to as the “pull strategy.”

Pull strategy has been a valuable asset to business owners for years, but with the continued growth of eCommerce, we’re in new territory in many ways. So, can pull strategy prove successful within the eCommerce world? Is there another strategy that may prove more beneficial? If pull strategy does work, how exactly can you utilize it? Read on to find out. 

 

What is Pull Strategy?

Pull strategy is an inventory management system that relies on and responds to real-time customer demand. For instance, let’s say a customer places an order on your website. If your company uses the pull strategy for inventory management, you’ll make or obtain the products in question at that time. You won’t have much in stock beforehand and only make or obtain the sold items when they have been purchased by a customer.

This method of inventory management can work well for products that can be manufactured or replenished quickly. It also works well for products with an uncertain demand, as well as products that don’t benefit from economies of scale. In other words, if the overall manufacturing price per item does not decrease when producing large quantities of an item, the pull strategy might be a good fit for your business.

 

Pull Strategy vs. Push Strategy

You can probably guess that the pull strategy is the opposite of the push strategy. In this method of inventory management, business owners built their inventory in advance in order to anticipate customer demand. So for instance, a company that sells snowshoes may make or procure additional inventory in the fall months to prepare for the higher demands of winter.

Push strategy can also be used in response to historic trends. If a company sells a product that’s not traditionally seasonal but finds that, for several years in a row, they’ve sold more items during August and September, they’re likely to stock up on merchandise throughout June and July to anticipate this trend.

This strategy is popular in large part to its simple logistics. You don’t have to worry as much about ordering and shipping components multiple times in a given period, and you’re a lot more likely to have high-demand items in stock. The push strategy also allows for a lower manufacturing cost per item. However, there is a higher storage cost associated with the push strategy, and there’s a bigger likelihood of overstocking, which could be a waste of money.

 

Pros and Cons of Pull Strategy 

The advantages of a pull system are plenty. First, with no excess inventory (or not much), you won’t have to find extra storage space, let alone pay for that space. When your inventory levels are reduced, you’ll save time and money on storing and tracking your inventory. You can spend more time actually making products and serving customers as opposed to counting your stock.

You can also help to reduce waste through the pull strategy. If you have excess product and then decide you no longer want to list that product on your site, you’re then stuck getting rid of the extra. You may try to sell these extra products at an extreme discount, but at that point, you may wind up losing profit between the loss on the product itself as well as the cost of shipping it to the customer. But with the pull strategy, none of this is an issue.

The pull strategy does have its disadvantages, however. Namely, you will leave yourself unprepared for random demand increase. Let’s say a post on your company’s social media channel goes viral. You’ll get a lot of extra interest and plenty more orders. While this is great news, it can be a hard scenario if you’re using the pull strategy. You may have to work overtime to fulfill customer demand or be forced to make your customers wait.

Additionally, one misstep in your supply chain can spell disaster. If there’s an issue with one of your suppliers and they can’t get your part to you on time, then you’re stuck waiting. If you had excess inventory, then you could continue to meet customer demand while the issue is resolved. However, pull strategy doesn’t allow for this extra inventory and could leave you delaying orders and scrambling for a solution. 

 

How Does Pull Strategy Benefit eCommerce?

The benefits of the pull strategy are only increased when applied to the world of eCommerce. Since you won’t have to include storage costs in your budget, you’re able to lower the price of your goods, increasing your profit margin and attracting more customers. Your profit margin simply increases even further when you’re running an eCommerce operation with little overhead as opposed to the higher cost of running a retail location. 

One of the biggest benefits of eCommerce in and of itself is the ability to attract a global audience. When selling online, you’re not limited by your location. If you’re selling a product that only appeals to a very specific audience and may not do well in a small local market, using the pull strategy can help you move product more quickly and increase interest from around the world.

If the products you’re offering are complex, such as electronics, the pull strategy may not be the best option for you. The same goes if your products are timeless and don’t warrant frequent replacement. However, for simple products that follow ever-changing trends, such as clothing, the pull strategy can be an excellent tool for your eCommerce business.

 

How to Implement Pull Strategy in Your Business

You’ll first want to consider if pull strategy would truly be useful within your business. If you don’t have a lot of storage space and have minimal working capital to purchase extra inventory or storage space, then pull strategy may be right for you. This method of inventory management also works well for those with a small clientele. Finally, you may consider the pull strategy if you partner with a local manufacturer who can replenish your stock quickly and keeps your fees low (since you’ll be ordering quite often).

Before you begin implementing pull strategy within your business, your customers should be aware of potentially lengthy wait times for their orders. Since you’ll need more time to gather your components from various suppliers to complete customers’ orders, be clear right from the beginning that it may take longer than normal to fulfill their requests. This forthrightness goes a long way in establishing healthy and loyal relationships with your clients. 

If you’re not ready to make the jump to solely using pull strategy, you may be able to step into the process slowly. Consider using pull strategy only for items that you can’t afford to keep much stock of, but that you genuinely believe will attract the interest of your customers. For items that have already proven themselves to be best sellers, you may consider a push strategy.

 

Additional Inventory Management Strategies

These strategies aren’t the only ways you can choose to manage your inventory. Some other popular methods include:

 

  • Push-pull
  • Just in Time
  • FSN

 

As you can probably guess, the push-pull strategy is a combination of the “pull” and “push” methods. You might also hear this concept referred to as “lean inventory management.” In this strategy, businesses use the economic order quantity (EOQ) formula to figure out how often they should order inventory, helping to strike a balance between items in stock and reduced storage costs. 

The “Just in Time” method is a version of a pull strategy. Here, materials are ordered and received only as they’re needed. So, when an order is placed, only then will the business order the necessary parts to complete the order. There’s almost no storage involved, and demand has to be forecasted accurately to ensure the supply chain continues flowing smoothly. Toyota popularized this method in the 1970s, so you may often hear this strategy referred to as the “Toyota Production System” or TPS. 

Another method of inventory management that may serve you well is FSN, or Fast, Slow, and Non-Moving. This strategy relies on the fact that not every component of your inventory is needed at the same rate. Some are required often, some are only required occasionally, and some can be done without altogether. This method divides inventory into these three categories to use as a reference when it’s time to place an order.

 

Master Your Inventory Management with DEAR Systems

Whether you opt for the pull strategy, the push method, or any other form of inventory management for your eCommerce operation, DEAR Systems can help. We’ve created the most cutting-edge cloud ERP software to help you take control of your inventory. In addition to our inventory management services, our software can also help you with purchasing, accounting, sales, automation, and so much more. Contact us today to start your 14-day free trial!

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