Lead Times in Inventory Management

With JIT (Just in Time) supply chains we really have come to a point where customer service is in jeopardy. The problem is our cavalier approach to the lead time component of order points.

The lead time is the total elapsed time between when a part reaches the order point in the warehouse location and on the computer and when the warehouse location and the computer system have been updated with the receipt. This time is broken down into several component parts.

  1. Order Lag Time
  2. Order Review Time
  3. Placing the Order
  4. Supplier Processing Time
  5. Shipping and Transportation Time
  6. Physical Receiving Time
  7. Record Updating Time

Each of these elements has a discrete time consumed in their execution. Yet even with good information on each of these elements we still have a problem with the lead time.

We use ONLY one lead time for each vendor in our business systems. You might be saying to yourself “so what.” Well we can have parts that are regularly available and have a stock replenishment time that is consistently within a week. At the same time we will have parts that are in short supply, for whatever reason, and the replenishment time can be a month or two. With only one lead time per vendor we will either have too much of the readily available parts or too little of the parts that have supply irregularities. There is, however, a simple solution.

Calculate the lead time for each and every part not just for the vendor. This means that you will match the supply chain performance with your performance and can accommodate variations of delivery so that you can supply good availability to your customers. Think about it.

There have been substantial changes in inventory management software and tools yet we have lagged behind with this one simple item. Calculate the lead time for EACH part and not just for each vendor. You will be pleasantly surprised by the results. The time is now…