Retail Inventory PULL Model Explained
In a Pull operating model, the stores can select which products and how much they will carry. This is typical in most co-op models (like True Value or independent grocers) or franchises like Hallmark stores. The store management selects among the breadth of products offered by the wholesaler(s) and decides what they will carry, where it will be merchandised and how much to carry. Replenishment is at the discretion of the store through store-orders. To automate the store orders, the sales data may be transmitted to the replenishing warehouse and automated orders are created to maintain a minimum store inventory level. Vendors who call on these retailers typically devote substantial sales resources to call on stores or store groups to influence new item selection, pricing, promotions and order levels.
The benefit of a Pull operating model is that the decision about product selection, quantities and timing should be so close to the customer as to better anticipate true sales rates. Thus, a store owner in Minneapolis can postpone receiving garden supplies until May while a store owner in Dallas can have them in February. Store management can meet niche product requests and better manage the inventory in the store for the actual store conditions.
The drawbacks are that there is little financial control in place to prevent poor decisions from scuttling store performance and stores can vary wildly in their presentation to customers. Inventory bulges and shortages can crop up unpredictably across the system. Vendors can wield control through relationships that may not be in the best interest of the retailer’s financial system. Purchases can be made without reaching full volume discounts. There is more unpredictability in the financial performance of the entire system. Vendors can multiply as each store finds their own source for common goods – and power buying opportunities that come when vendors are consolidated are bypassed.