In business, getting access to and holding the inventory you need is key. Holding large reserves of inventory is one way to ensure your business has enough stock on hand, but a better solution may be to focus on reducing lead times in your business’ supply chain. Being able to order stock quickly takes away most of the pressure to get forecasting right. Here’s how:
Slim Down the Supply Chain
Working with multiple suppliers can be highly time consuming, and can also create frustrating inventory gaps where you have all of the inventory except for one crucial component from a small supplier. This is a common frustration in manufacturing inventory management.
If you work with a small set of suppliers, different products will ship together, helping to cut down on logistics and potentially reduce lead times. Working with a smaller group of suppliers also makes it easier to closely communicate with each one.
Choose Reliable Suppliers
Unless there is no other option, you should avoid partnering with a supplier who is known to be unreliable. Even if a supplier has good lead times 10 months out of 12, if they let you down once every 6 months, your business is likely to suffer. Counterintuitively, you may be better working with a supplier whose lead times are slightly slower but more consistent.
Once you have selected reliable suppliers, set clear timeliness expectations and settle on a metric to assess performance. Ideally, performance expectations should be formally set out in an agreement or MOU which you can point to if lead times slow. If performance slips and the supplier does not successfully remedy the issue, consider switching suppliers.
As a general rule, local suppliers’ lead times are shorter than overseas suppliers, owing to the need to ship products (generally surface shipping rather than by air) and clear the customs and excise process. Some businesses prefer to work with suppliers from the same town or city as benefits include ease of communication, but out of town suppliers in the same country as your business are likely to have similar lead times to suppliers in your city.
Reduce Ordering Time To Reduce Lead Time
Many businesses focus on supplier performance without considering ways their practices may affect lead times. In an ideal environment, customer orders would trigger supplier orders in near to real time. While this may not be practical for your business, a key way to reduce lead times is to place orders as soon as practicable once you have received a customer order.
Share Forecasting with Suppliers
It is likely that your suppliers also wish to reduce their lead times. By providing them with as much information as possible about expected demand, your suppliers may be better placed to prioritise their own workloads resulting in shorter lead times and a stronger supplier relationship.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.