Friday, May 11, 2012

Supplier Lead Time and Inventory Stock Levels

There have been numerous opinions written about Supplier Lead Times, Just-In-Time inventory, Safety Stock, Inventory Levels, Consignment Inventory, Forecasts and of course systems to manage the whole inventory cycle.

What is important?  What are the challenges?  What is important to you and your business?

·       Inventory on hand to meet manufacturing and/or customer demand.  Your customers want you to have everything they want when they want it.  Your sales people want that too, but for a different reason.  Finance departments want the inventory on hand only if it used or shipped in a “reasonable” time period. 

·       Good relationships with your suppliers.  You want them to have what you need when you need it.  If there were no lead times, then you would not need much stock on hand, money tied up in inventory or shelf/floor space needed to keep the inventory.   

·       Multiple or redundant supplier relationships.  Your technology department has redundant systems to keep operations running in case of failure.  Avoid a single point of failure.  When possible you need that for your supply chain too.  There are earthquakes, floods, explosions that factor in a global economy.  Do not fool with Mother Nature.

·       How much safety stock is actually needed?  Forecasted and historical customer demand and the above mentioned supply chain issues factor in this number.  These numbers can be calculated manually for a few items, but what about thousands of items?  Are you purchasing standard stock items or special order items? 

·       Do you keep inventory or do you negotiate a consignment inventory handling?  Do you have the physical space for someone else’s inventory?  Real estate and the taxes, insurance and other factors associated with property leased or purchased can factor heavily on product profitability.  Even if you already have the space, is this the best solution?  Is your business important enough for your suppliers to offer this service?  There is paperwork and inventory counting and billing issues with consignment solutions.  It is not worry free.  In the right case it does ensure you have needed inventory available when you need it.

·       What about lead times?  Are these short term problems or are the issues symptomatic of deeper supplier problems?  Do you temporarily or permanently increase stock levels and absorb the associated overhead or do you work to resolve the issues?  Is your supplier being truthful with you?  How do you actually work these issues out?  Are the problems actually in your organization?

·       How frequent are the problems?  How often do the problems actually affect production or shipment?  In a perfect world safety stock levels will take into account the fluctuations of the supply chain.  Do you have the ability to create your own penalties for late shipments?  

·       Increased inventory levels, given enough resources, is a relatively simple solution, but comes at increased cost.  What are the actual costs with inventory shortages?  How often do they occur?  Extra inventory carrying costs last all year(s) long. 

·       Are you providing an accurate forecast to your suppliers?  Is your supplier just a vendor or a strategic partner?  There is a business axiom that says “What gets measured, gets managed”.  Are you tracking and measuring your purchasing, receiving, production and shipments?

How well does your technology system address these and the other hundred or so challenges?  What exactly is your challenge?  Every company struggles at different points at different times?  How can you learn from their mistakes and successes? 

How well does your trusted advisor address your needs?
Dolvin Consulting works with Manufacturers, Distributors and Specialty Retailers who struggle with warehouse and inventory control issues.  In simplest terms if you have “Boxes on Shelves”, then we can help.  Contactus today.  We have a vested interest in your success.

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