Push and Pull Production Systems Jeff Strabala 1

Push and Pull Systems Definitions: Push Systems = goods are produced in expectation of Customer demand. Pull Systems = goods are produced only as a result of Customer orders 2

Push and Pull Systems Production Methods are on a continuum • Companies may actually use multiple types • Dependent upon customer and industry PUSH Make to Forecast (MTF) PULL Locate to Order (LTO) Amend to Order Hybrid Build to Order (BTO)

Push and Pull Systems Make to Forecast (MTF) Types of Products Standard only, no ability to customize Planning Method Annual based on Estimates Supplier Ordering MRP type automated system Production Level, Stable if good forecast, or start/stop Highly Efficient when running Inventory Level Orders & WIP Inventory High FG Inventory +/- if Plan accurate Customer High availability of only Standard Products Sales & Marketing High Marketing, Price discounts, obsolete 4

Push and Pull Systems Locate to Order (LTO) Types of Products Standard only, no ability to customize Planning Method Same as MTF Supplier Ordering MRP type automated system Production Level, Stable if good forecast, or start/stop Highly Efficient when running, LTO orders compete with forecast schedule Inventory Level Orders & WIP Inventory High FG Inventory +/- if Plan accurate Customer High availability, Can select Products thru internet visibility Sales & Marketing High Marketing, Price discounts, obsolete 5

Push and Pull Systems Amend to Order Types of Products Standard + Moderate Custom Products Planning Method MTF + ability to insert Custom requirements Period x period adjustments Revert to MTF @ low volume Supplier Ordering MRP type automated system Adjustment capability more robust Production Moderate Flexibility needed Shorter Lead Time than LTO Mostly Efficient when running, Inventory Minor variation in Supply & WIP Inventory High FG Inventory +/- if Plan accurate Customer High availability for Standard Products Limited Custom ordering but suffer Lead Time Sales & Marketing Moderate Price discounts, Some obsolete 6

Push and Pull Systems Hybrid Build to Order Types of Products Standard + Moderate Custom Products Planning Method MTF for high volume low variation BTO for low volume / high variation product Supplier Ordering MRP or Kanban-type automated system Adjustment capability robust Production Moderate Flexibility needed Shorter Lead Times, Higher Efficiency Inventory Moderate Supply variation Lower WIP Inventory Medium FG Inventory and reduced Lead Time Customer High availability for Standard Products Limited Custom ordering but suffer Lead Time Sales & Marketing Some Price discounts, Some obsolete 7

Push and Pull Systems Build to Order Types of Products Fully able to build exactly to Order Custom Products are accommodated fully Planning Method Flexible for ANY volume / variation Planning critical to balance volume, work Supplier Ordering Kanban-type automated system Adjustment capability robust – high visibility Production High Flexibility needed (Labor + Process) Shortest Lead Times, High Efficiency Inventory Real-time Supply variation (Supplier capable!) Lowest WIP Inventory Lowest FG Inventory and shortest Lead Time Customer High availability for Standard Products Limited Custom ordering but suffer Lead Time Sales & Marketing Almost NO Price discounts, obsolete 8

Push and Pull Systems EXERCISE: Identify where your company is on this continuum PUSH Make to Forecast (MTF) ? Locate to Order (LTO) PULL Amend to Order Hybrid Build to Order (BTO)

Push and Pull Systems Final Notes: 1. Ideal situation is based upon Industry and maturity in each company’s LEAN journey 2. Goal of Pull systems = TPS a) Highest Quality b) Lowest Cost c) Shortest Lead Time 3. There can be a difference in “Overall” method and “Internal” (Department / Line) methods within a company Example 1: Toyota overall = Hybrid, but theplant Assembly operation is a True Pull activity 10