What it means
In a traditional push system, a plant builds goods according to a forecast and sends them on to the next stage, whether or not anyone needs them. Such stock ties up cash and takes up space, and it can go out of date before it is ever sold.
If the forecast is wrong, the result is piles of unsold stock sitting in warehouses and on shop floors. In a pull system, the signal travels the other way.
When a customer order is shipped or a downstream station uses up materials, a signal goes back to the previous stage to make or fetch more. A common signal is the kanban, a Japanese word for a card or board.
A kanban card says what to produce, how much, and for whom, and no work begins without one, which keeps stock levels capped. Cards are returned to the earlier stage only when the contents are used, which makes the limit visible to everyone.
The financial benefits are significant. Lower inventory frees working capital, reduces storage costs and cuts the risk that goods become obsolete, while shorter production cycles let the business respond faster to changes in demand.
Pull-through systems work best where demand is fairly steady, set-up times are short and suppliers are reliable. They struggle when demand is very uneven or lead times are long, and many firms use a hybrid with push upstream and pull close to the customer.
The nuance is that low inventory also means low protection. With little stock in the system, a breakdown or a late supplier can halt the line quickly, so the system needs good maintenance and close supplier relationships.
Many firms therefore keep a small safety stock for the parts that matter most.
In practice
Real-world examples.
Example
An electronics assembler uses a pull system so that circuit boards are made only when the final assembly line has consumed the previous batch. Warehouse space for boards falls by half, and the company releases $600,000 of cash tied up in stock. The release of cash is booked as an improvement in working capital rather than as a profit.
Example
A bakery chain bakes bread in small batches throughout the day based on what has actually sold. Waste from unsold loaves declines, and the finance manager sees a clear improvement in gross margin. Lower waste is the main driver, since fewer loaves are thrown away at the end of each day.
Example
A furniture maker starts cutting and finishing a sofa only after a customer order has been confirmed. Showroom samples are the only finished stock, so the company carries far less inventory than its competitors. Customers accept a few weeks of waiting in exchange for a customised product.
Formula
Calculation
Number of kanban cards = (daily demand x lead time in days x (1 + safety factor)) / quantity per container
Suppose a bicycle plant uses 400 wheel sets a day. The replenishment lead time is 0.5 days, the safety factor is 10%, and each container holds 20 wheel sets. Demand during lead time = 400 x 0.5 = 200. With safety, 200 x 1.10 = 220. Number of cards = 220 / 20 = 11. The plant therefore circulates 11 cards, which caps wheel set stock in the loop at 11 x 20 = 220 units.Case study
Seen in the real world.
Brightwater Pumps is an illustrative, fictional manufacturer that built products against a quarterly forecast. Forecast errors regularly left it with $3,500,000 of slow-moving stock and rushed orders for items it had run out of.
The operations director introduced a pull system between assembly and the stores, using cards that triggered replenishment only when a bin was emptied. Finance helped to set the card numbers using average demand and lead times. The team ran a six-week trial on one product line before expanding to the rest of the plant.
Within a year inventory dropped by roughly a third and cash flow improved. The illustrative lesson is that pull production converts stock into cash, but it only works if demand signals and supplier deliveries are reliable.
Watch out
Common mistakes.
- Thinking pull production means no stock at all, when it means holding a controlled amount set by the number of cards or containers in the loop.
- Introducing it without reliable suppliers, which leaves the line stopped when a delivery is late.
- Setting the card numbers once and never revisiting them, even though demand and lead times change.
Questions
People also ask.
How is pull different from push?
Push produces to a forecast and sends goods forward, whereas pull produces only when a downstream stage signals that it has used up its supply.
What financial benefits does pull production bring?
It reduces inventory, storage and obsolescence costs, and it releases working capital that can be used elsewhere in the business.
Is pull-through production the same as just-in-time?
They are closely related, because just-in-time is the broader approach of delivering what is needed when it is needed, and a pull system is the usual way of achieving it.
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