Chapter 19

From Push to Pull

The pattern

Most people are aware of the shift from a vendors’ to a buyers’ market and the corresponding need for change towards demand-driven selling, but the challenge remains of how to adapt to these findings with a proper business model. The From Push to Pull pattern focuses on the ‘customer is king’ paradigm, making it central to all decisions within the enterprise, be they related to research and innovation, new product development, production, logistics or distribution (WHAT?, HOW?).

Figuratively speaking, we may imagine the customer pulling on a long rope that sets all company processes into motion and so shapes the value proposition. This is in direct contrast to the push strategy, which follows a ‘make-to-stock’ approach. If a company wants to switch from ‘pushing’ a value proposition on its customers and employ a ‘pull’ strategy instead, it needs to have a flexible and responsive value chain (HOW?). As a result, inventory costs go down and non-value-adding activities are eliminated. The pull philosophy consequently has to be implemented at every phase of the value chain. The production process, for instance, will take a very different shape depending on where along the value chain the decoupling point is set. This point determines from which point on to implement a pull strategy and let production be dictated by present demand. In other words: the decoupling point determines the push-to-pull boundary. From Push to Pull obliges a change in perspective towards producing only what customers want in as efficient a manner as possible.

A pull strategy can be applied to all other aspects of the business – for example, to product development processes (HOW?). Open innovation and engineer-to-order projects are two ways of including customers at the very earliest phases of development without having to involve intermediaries or other third parties.

When customers actively ask for products from a company, this may also be considered a pull strategy. Specific marketing or similar means can be used to pique customers’ interest and bring them to actively suggest a product. This approach is often used by consumer goods manufacturers, who market their goods directly to customers and thus increase the retail demand for their goods. In turn, this means that retailers will be more inclined to allocate these goods shelf space. To implement the From Push to Pull business model successfully, it is imperative to examine carefully each step of the value chain and to establish the optimal points at which to integrate and interface with customers in order to attract them to the company’s offerings.

The origins

The terms ‘push’ and ‘pull’ originated in logistics and supply chain management. Toyota has become synonymous with the implementation of pull strategies in production and logistics. In the period following the Second World War, the company developed a production system that was the key to Toyota’s ascent to becoming one of the largest car manufacturers in the world. The Japanese economy was characterised by weak domestic demand and massive shortages of resources. The response of manufacturers was to attempt to produce goods as efficiently and economically as possible. The Toyota Production System employed the Supermarket model (#49) to set off demand-driven production, replenishing the inventory on demand so that internal inventories were reduced to a minimum. Introduction of the Toyota Production System obliged the company to reorganise its entire value chain in such a way as to reduce waste and costs, all the while maintaining a clear customer focus. Strategies such as just-in-time (JIT) production, minimising of cycle times, reducing inventory by applying Kanban logistics, or total quality management (TQM) are central to customer-oriented manufacturing. Thus, Toyota is able to react very rapidly to changing customer needs and market situations. Since Toyota only produces what customers order, each fabrication step is initiated directly by the one before – the whole process is set off by a customer’s order. In addition to reducing inventory costs, this approach also avoids overcapacity so that unused capital can be employed more gainfully elsewhere. This production system proved to be so successful that it is still considered state of the art to this day.

Subsequently, a whole array of instruments and methods came together to form a business model that still serves as an example for many companies today. Toyota’s business model has been much imitated, for example by Bosch where the pattern has a similar name (Bosch Production System, BPS), or further developed, as by BMW for its premium models.

From Push to Pull: the concept of the Toyota Production System

The innovators

Geberit is a Swiss multinational that develops products for the sanitation industry. Founded in 1874, the company for a long time relied on demand from wholesalers and hardware stores. In the late 1990s, the company found itself facing various challenges in its field of business: a large number of commodities that had little potential for innovation or differentiation plus pressure on prices as a result of stagnant demand. In 2000, the company finally succeeded in breaking with the dominant industry logic, which previously had depended heavily on intermediaries such as hardware stores, and established a new business model. Geberit henceforth pursued the concept of disintermediation and sought to establish direct contact with its customers, in other words to develop an appropriate From Push to Pull business model. Geberit came to recognise that its customers were not the hardware stores, wholesalers, or end users of sanitation systems, but that it needed to target the decision makers in the construction industry – architects, builders and plumbers. This permitted the company to eliminate intermediaries in distribution to a considerable extent. In addition, Geberit developed a number of instruments that afforded greater inclusion of customer feedback and integration into the new product development process. The methods employed ranged from free training, full customer support management and appropriate software support to greater presence during the assembly phase. With the introduction of the From Push to Pull business model based on disintermediation, Geberit achieved a true shift in perspective: instead of ‘pushing’ products on to hardware store shelves, its products were now being ‘pulled’ by a target group of qualified customers.

In the fashion industry, the From Push to Pull model has been embraced by Spanish apparel and accessory retailer Zara. The company sells its clothes at affordable prices in its retail stores and online. Zara is known for its ability to rapidly offer collections in line with the latest fashion trends. The fashion retailer achieves this by employing over 200 designers and droves of fashion observers around the globe to ensure early recognition of the latest trends and developments. New collections are designed quickly and put together in company-owned production facilities, from where they can be swiftly expedited to Zara’s shops and online stores. Zara’s retail stores are generally located at select locations in city centres to attract a large number of walk-in customers. In this way, Zara’s shop windows serve as advertising space and the company is spared from having to fund expensive advertising campaigns. While Benetton pioneered the introduction of elements of the business pattern to the fashion industry, it was Zara who perfected its implementation. By virtue of its flexible customer-oriented business model, Zara overtook its competitor Hennes & Mauritz (H&M) in 2006 as the world’s top-selling fashion retailer.

Another company that has shifted the prevailing industry logic from push to pull is Amazon. With the launch of CreateSpace, in combination with Kindle Direct Publishing (KDP), Amazon has innovated the publish and print industry. Instead of publishing a certain number of books upfront and, thus, stocking up inventories, Amazon has introduced a pull strategy with the on-demand publishing platform CreateSpace; books are only printed on demand when customers purchase them. As a result, no upfront costs have to be paid and inventory costs go down. KDP complements this feature by providing authors with a self-publishing platform to publish books in both digital and print format for free and sell on Amazon to millions of readers.

When and how to apply From Push to Pull

From Push to Pull aims to challenge your entire value chain. A major goal is to eliminate waste that creates no value for the customer. You can use such a customer-centric approach regardless of the industry you are in. For manufacturing companies with little product variety, stable consumption and high inventory costs, the biggest potential for application rests at the front end of the value chain, in production and logistics.