Implementing pull systems in a retail environment

The Road Less Travelled by Puneet Kulraj

With slowdown in auto industry, the capacity utilisation for component vendors has dropped significantly. Most auto components companies are now looking at ways to increase sales from the "recession proof" Aftermarket. The article highlights a radical new approach to increase sales in Aftermarket in a sustainable way.

Push or Pull? : The ongoing debate

Every sales manager of an auto spare parts company faces a moment of truth in the last week of every month – on one hand he has to meet his sales targets but on the other hand the stocks available with him is not exactly what the market wants (either in terms of quantity or range). Faced with this conflict, he uses his “influence” with the distributor to sell volumes more than the immediate requirement. In return, the distributor gets some additional discount/scheme or extra credit period as a sweetener to “deal” with problem of excess stock. This way of managing sales is typically termed as “push sales”. The push sales syndrome is best seen in a skewed sales pattern across the month – the last week is usually more than 50% of the month’s sales. The week beginning next month, the sales dip again as the dealer does not have free cash to buy more.

(The entire logistics industry supplying trucks to consumer goods industry face an overload of requirements in last week of every month.) Many of them tried the trick of converting the month end measure into weekly measures to break the skew. However the “monthly” production planning method comes in the way of breaking the skew as the SKU set arrival gets skewed. But with dealer off take also being skewed, the push pattern is a self-reinforcing cycle. The sales managers know the problems of push based supply chain. They also intuitively understand that if they stop the push strategy and supply only as per pure consumption (or only immediate requirement) they will have a much consistent sales pattern across time periods. Most of them know the advantages of smoothening the sales on receivables and capacity planning.

The know-how of how to implement pull is readily available and is also advocated by many consultants. However most players in consumer goods industry are still operating on the “push mode”. One of prime reasons why most companies do not switch to some form of pull distribution is the fear of sale loss. If they implement a pull system and supply what is immediately required, the fear is that the released working capital will be used by the distributor/retailer to buy more of competition products and hence the sales of company implementing the pull system will be jeopardized. This fear of losing immediate sales is holding back organizations to switch from "push" to "pull" mode of sales.

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