Lead Time Forecasting: Are Your Shelves Overstocked or Out-of-Stock?

Time is money – making lead time forecasting critical for your business. Over the next three weeks we will take a deeper look at lead times and the impact they have on today’s retail market supply chain.

A lead time of 60 days or more can become the largest influence in your safety stock due to variations in the actual lead times for receipted goods. The variations between actual lead times and also the differences between actual and expected lead times will need to be offset with the use of additional safety stock which lowers your profit margins significantly.

Do you find yourself looking at what inventory you have on the shelf while you wait for the slow boat to cross the Pacific? Do your suppliers provide an estimated lead time that quickly comes and goes and leaves you with overstock or out-of-stock? A recent study of a Top 100 North American Retailer showed lost sales of over a million dollars in gross margin due to inaccuracy in their lead time planning.

Poor Lead Time Forecasting: The Problem

Recent aggregate analysis of our retail clients showed the following:

If you average 21 days of lost sales a PO cycle from a major vendor, how much money are you losing each PO cycle due to inaccurate lead time forecasting? Are you overstock or out of stock?

The vendor’s estimated lead time is not always spot-on and even a little deviation in the actual lead time can leave you with too much or too little on your shelves.

The problems with vendor (supplier) lead time are:

  • You have no idea what the lead time is for your products.
  • Limited ability to view/ track open PO and past PO history without touching multiple systems.
  • Little ability to measure the business impact to lead time changes or even what changes occur
  • Lead Times change over time, they can:
    • Run long: you run out before the new product/replenishment arrives.
    • Run short: the product arrives before expected, and you now have overstock. Goods are just waiting for something to happen to them in the back room.

The iKIS Vendor Lead Time Forecasting Solution

Want to learn more about vendor lead time forecasting? Make sure to check back next week for Part 2 and Part 3 of the Lead Time Forecasting Series as we explore vendor lead times and how they impact your customer and your costs and profitability. Remember the additional lead time days and variations will lower gross margin and that may make a difference in where you source your products to get the highest possible gross margin return.

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