Are You Making These Mistakes With Lead Time

Lead Time is a critical link in your supply chain that can create big mistakes like overstocks and out of stocks. The industry answer to these mistakes has been Lead Time tracking. In fact, Lead Time Tracking has become a cottage industry where companies offer to track lead time and make a supplier pay a fee when they don’t conform to guidelines like on-time and fill rates.

Numerous studies have shown fines for bad behavior have made little impact toward improving business. The shocking fact from many studies is that overstocks and out of stocks occurred at an alarming rate when on time deliver and 95% + fill rates were achieved! The biggest mistakes found were the replenishment orders were placed on a date to soon or to late in relation to the days supply on hand. Sadly, most companies don’t use lead time as a key metric in their supply chain to determine an item order point. Most inventory replenishment systems today are driven by plans or open to buy spreadsheets which are top down methods to determine the item order date. There are better answers…

A simple Lead Time Test Case:

  1. Your product has a demand forecast to sell 100 units a day for the next 45 days.
  2. Lead Time of 7 days is needed from the date you place the purchase order until the date the goods are available to your consumer.

Question: How many units do you have on the shelf the date you place the replenishment order?

I hope you gave the answer 700 units; your item order point is 700 units. If you have any less than 700 units on the shelf, you will run out before the order arrives. If you have more than 700 units, when the order arrives, you will have overstock. This is also why top down or plan based systems fail to maintain inventory as effectively (profitably) as bottom up, service based systems.

Where are Safety Stock and Lead Time Connected?

What about safety stock? Some companies claim that lowering lead time will decrease safety stock. Lowering lead time will decrease the inventory on your shelf, no matter what. Remember, Safety Stock is the inventory you keep on hand to avoid lost sales. Safety stock should be based on your service level goal, your forecast accuracy, and the size of your forecast across a set number of days. Ideally. safety stock plus lead time will be your item order point.

Download A Free Lead Time Forecasting Kit — in this article:

Learn more Lead Time improvements, download our Lead Time Forecasting kit with articles, Excel workbook, and Slides to get started.
Why Your Lead Time Process Delivers Major Out-of-Stocks and Steps to Fix

Optimizing your Supply Chain One Step at a Time

Efficient supply chain management requires optimization of inventory. Excess inventory adds unnecessary expense while inadequate levels translate into lost sales. Thinking strategically with lead times are one effective way to anticipate and prepare for customer demand, states Laura Stuart in Holiday Season Service Lessons For Retailers. One way to tackle the issue of maintaining adequate inventory levels is to accurately forecast “lead time”.

The following are some additional tips for reduction in lead time.

  1. Reduce Transport Time
    Work with carriers to manage transit times. If it takes less time to transport the goods, you will need fewer units on the shelf while you wait for the replenishment. Reducing transport time will mean lower levels of inventory.
  2. Efficient Order Creation
    Analyze ways in which order creation, order receipt and reorders can be made more efficiently. Inventory Optimization software is a great starting point.
  3. Reduce Administrative Errors
    Reduce errors attributable to improper paperwork by ensuring that a clean process is in place for generating correct documentation for customs purposes. Often delays occur in customs due to faulty paperwork.
  4. Measure Actual Lead Time
    Collect data regarding the actual time required to fulfill orders with suppliers by line item. Track suppliers as they fulfill requirements. This data can be used to forecast lead time.

Order Management Systems with Lead Time Forecasting

An order management system that has user defined workflows, alerts and order optimization is a great place to start. Modern systems that have lead time forecasting as a module will reduce paper work, improve accuracy and smooth payables across a month.

Lead Time Forecasting Software Reduces Inventory Costs

Reduce inventory costs with Lead Time Forecasting software. Modern Lead forecasting software can track every line item for every purchase order, the date the order is placed, ready for pickup, arrival and close dates. Additionally, modern Lead Time forecasting software will use the purchase order data to update real time lead time forecast and to determine the best date to place your inventory replenishment orders. Users should be able to configure custom alerts for lead time issues based on days, dollars or units to manage only the important lead time problems. The combination of lead time forecasting and exception management lead time saves you time and money.

Lead Time Forecasting that Connects End to End

Lead Time is a critical link in your supply chain; are you ready to ‘Tighten the Links in Your Chain’™ Contact Us to learn more about lead time forecasting opportunities in your business and request a demo of our Lead Time Forecasting Solution.

Learn More

Copyright © Data Profits, Inc. 2014 All Rights Reserved.