Unit 7.6

Supply Chain Management (SCM) and the Push vs. Pull Models

IT 233: Business Information Systems

Learning Objectives

By the end of this session, you will be able to:

✅ Define Supply Chain Management (SCM) and its strategic importance.
✅ Identify and describe the five basic components of SCM.
✅ Differentiate between the push (make-to-stock) and pull (make-to-order) models.
✅ Provide real-world examples of companies that use each model.

What is Supply Chain Management?

Supply Chain Management (SCM) is the active and strategic coordination of all activities in the supply chain to gain a competitive advantage.

🎯 The Goal: Improve efficiency, reduce costs, and increase customer satisfaction.

SCM is a holistic discipline managing three key flows:

📦 Material Flow

Products, raw materials

📊 Information Flow

Orders, forecasts, status

💰 Financial Flow

Payments, credit

🌐 Visualizer: The Three SCM Flows

All three flows operate simultaneously — watch them in real time.

🌾

Supplier

📦

📊

💰

🏭

Factory

🏪

Distributor

🛍️

Retailer

😊

Customer

📦 Material Flow (→)

📊 Information Flow (↔)

💰 Financial Flow (←)

Material → Raw materials and finished goods move forward through the chain.

Information ↔ Orders, forecasts, and status updates travel in both directions.

Financial ← Payments and credit flow back upstream toward suppliers.

The 5 Components of SCM

A common framework breaks SCM into five core components:

Plan: The strategy for managing resources.
Source: Choosing suppliers and procuring goods.
Make: Manufacturing and production.
Deliver: Logistics and getting products to customers.
Return: Handling reverse logistics for returns.

We will now look at each component in more detail.

📐 Where "Plan, Source, Make, Deliver, Return" Comes From

The five components come from the SCOR model (Supply Chain Operations Reference), created by the Supply Chain Council in 1996.
It gives companies a common language to describe, measure and compare supply chains.
A sixth element, Enable (the rules, data and IT that support the others), was added later.
The model is now maintained by ASCM (Association for Supply Chain Management).

🎬 Watch: The SCOR Model

Component 1: Plan 🗺️

This is the strategic foundation of the supply chain.

Develop a strategy that balances demand and supply.
Create metrics to monitor efficiency, cost, quality, and value.
Focuses on long-term planning and infrastructure decisions.

⚡ Good planning ensures the entire supply chain is aligned with the company's business goals.

Components 2 & 3: Source & Make

Source 🤝

Identifying and working with suppliers.

Select suppliers for materials & services.
Negotiate pricing and contracts.
Manage supplier relationships & schedule deliveries.

Make 🏭

The manufacturing and production phase.

Schedule production activities.
Transform raw materials into finished products.
Includes testing, packaging, and release.

Components 4 & 5: Deliver & Return

Deliver (Logistics) 🚚

Getting the product to the customer.

Manage customer orders.
Coordinate a network of warehouses.
Schedule shipments and invoice customers.

Return (Reverse Logistics) ↩️

Managing the flow of returned goods.

Process customer returns (defective, excess).
Manage refunds and repairs.
Decide on restock, repair, or recycle.

🔗 Activity: Build the Supply Chain

Click the 5 SCM components in the correct order to build the supply chain.

→

Step 1 of 5

🎉 Perfect! Plan → Source → Make → Deliver → Return — that's the full SCM cycle!

SCM Models: Push vs. Pull

How does a company decide WHEN to make and move products?

Push Model (Make-to-Stock)

Production is based on forecasts of future demand.

🔮

Pull Model (Make-to-Order)

Production begins only after a customer order is received.

🙋

🎬 Watch: Push vs Pull

🔍 The Push Model: Make-to-Stock

Companies produce goods in anticipation of demand and "push" them into the market.

Advantage: Products are immediately available, leading to high customer satisfaction for common goods.
Disadvantage: High risk of overstock (costly inventory) or stockouts (lost sales) if forecasts are inaccurate.

Example: Fast-Moving Consumer Goods (FMCG) like Wai Wai noodles or Coca-Cola. Production isn't tied to individual customer purchases.

🚗 Real Case: When the Forecast Is Wrong

In early 2020, carmakers expected the pandemic to cut car sales, so they cut their orders for computer chips.

Chipmakers sold that capacity to laptop, phone and games-console makers instead.
Car demand recovered faster than forecast, and in 2021 carmakers couldn't get chips.
Factories were idled and millions of cars went unbuilt; car prices rose.

Push depends on the forecast. A wrong forecast plus long lead times means stockouts that last months.

🎬 Watch: The Chip Shortage and Car Makers

🔍 The Pull Model: Make-to-Order

A customer order "pulls" the product through the manufacturing and delivery process.

Advantage: Low inventory risk and high potential for product customization.
Disadvantage: Customers must wait longer to receive their product. Not suitable for all goods.

Example: Dell computers. Custom PCs are assembled to the components a customer selects online (pull); Dell also builds some standard models to forecast (push), so it uses a mix.

Push vs. Pull: At a Glance

Push Model ➡️

Trigger: Forecast
Focus: Resource allocation
Inventory: High
Customization: Low
Customer Wait Time: Short

Pull Model ⬅️

Trigger: Customer Order
Focus: Responsiveness
Inventory: Low
Customization: High
Customer Wait Time: Long

Many companies use a hybrid model, pushing core components and pulling final assembly.

🧶 Real Case: Benetton Waits to Choose the Colour

Italian clothing company Benetton faced a problem: which sweater colours will be fashionable this season?

Normally, wool is dyed first, then knitted, so the colour is fixed months early (push).
Benetton changed the order: knit plain, undyed sweaters in advance (push)…
…then dye them once early sales show which colours customers want (pull).

This is postponement: push the common part, pull the final, customer-specific step.

A Benetton Store

🧮 Worked Example: A Hybrid Bicycle Assembler

Illustrative: a Kathmandu workshop sells bicycles in 4 frame sizes, 6 colours and 3 gear sets.

Possible combinations: 4 × 6 × 3 = 72 different bicycles. Stocking all of them (pure push) ties up too much money.
Push part: import frames, wheels and gear sets based on a forecast. These are common to many models.
Pull part: paint and assemble only when a customer orders.
Result: the customer waits 2 days, not 6 weeks for an import, and the shop holds parts, not 72 finished bikes.

The push–pull boundary is the point where forecast-driven work stops and order-driven work starts.

🎯 Quiz: Push or Pull?

Score: 0 / 5

Q 1 of 5

🧪 Quick Activity: Where Is the Boundary?

For each business, which step is pushed and which is pulled?

A momo restaurant. → Push: make the dough and filling in the morning · Pull: fold and steam when ordered
A custom T-shirt printer. → Push: stock plain shirts in all sizes · Pull: print the design after the order
A cake shop. → Push: bake plain sponges daily · Pull: decorate with the customer's message

Application in Nepal 🇳🇵

Let's consider the local context.

Case Study: Daraz Nepal

Daraz operates on a complex hybrid model:

Push Element: For popular items ("Fulfilled by Daraz"), they are pre-stocked in warehouses based on sales forecasts to ensure fast delivery in Kathmandu valley.
Pull Element: For most third-party sellers, the order from a customer on Daraz.com.np "pulls" the product from the seller, who then packages and sends it to a Daraz hub for delivery.

This hybrid approach balances inventory costs with the need for quick delivery on high-demand products.

🛍️ Simulation: Daraz Order Tracker

Compare how the same order is fulfilled under Daraz's two models. Press Place Order to start.

📦 Fulfilled by Daraz (FBD) PUSH

Est. delivery: —

🏪 Third-Party Seller PULL