Trimming Lead Times in the Supply Chain

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In a stock-based business, accessing and taking control of inventory is crucially important. Without sufficient inventory, your business will miss out on sales, production lines will slow and you’ll fail to meet customer expectations. Longer lead times also aggravate quality assurance issues; if you discover a manufacturing issue when a shipment arrives, you are likely to have several weeks’ or even months’ worth of inventory ordered and en route. Most businesses take these risks seriously, which is why they hold large buffers of safety stock- smoothing out seasonality and unreliable supply chains. This is an expensive solution; holding large reserves of inventory involves paying for more warehouse space, insurance and handling costs. Is there a better way?

Efficient businesses are increasingly looking towards lean inventory control. A key aspect of lean inventory is reducing lead times. A product’s lead time is the span of time from the date you order to the date you receive the inventory. Maintaining low and consistent lead times allows your business to carry smaller reserves of safety stock. Here are four ways to get lead times under control.

Fewer, Better Suppliers

Too many businesses juggle a large number of suppliers that consistently fail to meet their needs. Businesses often choose to work with multiple suppliers to spread the risk of a supply chain failure, or because they can get a better price on different products from several different firms. Partnering with many suppliers complicates inventory control as- placing, tracking and receiving multiple orders can be time consuming, particularly if your firm’s procurement processes are not highly automated.

Fragmenting your business between multiple suppliers also reduces your relative importance. Instead of being a cornerstone client for a small number of suppliers, your business becomes a second tier client for a larger number of suppliers.

Service Delivery Standards

Without clear expectations, suppliers are less likely to deliver inventory on time. A supplier is likely to service clients with agreed service expectations before supplying its other clients, particularly if there are incentives for meeting (or failing to meet) those expectations. In exchange for a larger book of business, require suppliers to meet mutually agreed service delivery standards. Measure supplier performance and hold suppliers accountable for on time performance.

Keep Suppliers Informed

Like you, your suppliers are likely to be keen to balance their procurement and inventory with customer demand. One option to reduce lead times (and to make inventory control easier for your suppliers) is to share inventory forecasting with your suppliers. Rather than peak demand rippling back through the supply chain, sharing forecasting allows them, and their suppliers, to respond ahead of time.

Reduce Order Times

Although lead time is typically thought of as the time between an order being placed and goods being received, the time that it takes to place an order is of as much practical significance for your business. Procurement and purchase approval processes are unnecessarily detailed in many businesses; although checks and balances are important, it is also important to remember that these processes should facilitate rather than hinder inventory control and procurement.

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Melanie - Unleashed Software

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.

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