Lead Time is the amount of time between the placing of an order and the availability, after the receipt, of the goods ordered. It is a major factor that needs to be taken into account in order to achieve inventory optimization, and its control is most advantageous for retailers and wholesalers. Lead times, however, typically are shown to vary when examined.
A few supply chain examples that exhibit a standard lead time are:
- 3 months of lead time for an Asian manufacturer that has a warehouse in North America or Europe
- 1 week of lead time for a wholesaler ordering to a local manufacturer
- 1 day of lead time for next-day delivery for stores replenished by a regional warehouse.
A common principle is the longer the lead time, the higher the total inventory level. Total stock certainly includes inventory-on-hand in addition to inventory-on-order, and a longer lead time increases the dependence of the ordering company on using precise forecasts. To be sure, when next day delivery is available, an inaccurate order (too large or too small) can be fixed with two or three days by applying corrective measures. In the instance of shipments from overseas, inaccurate orders can penalize the business for six months or more.
In most companies, stock cannot be replenished immediately. Thus, to guarantee that the occurrence of stock-outs stay few and far between, demand planners need to anticipate how much stock is likely to be consumed between the current moment and the next replenishment, while also assuming that orders are passed right away. After all, one can expect that while items are in transit, stock levels will certainly be reduced.
One reason for varying your lead times is for stock-outs from your suppliers. When this occurs, suppliers have to wait until their own stock is replenished before shipping the items to you. Depending on their own lead times, suppliers’ stock-outs certainly can result in a dramatic increase of your lead time in comparison with the usual situation.
Another reason for varying your lead times, if they are measured in calendar days, is that suppliers may have a day or two closed every week (ex: no delivery during the week-end) which can increase the (calendar) lead time of respectively one or two days, and national holidays around the world can also increase the discrepancy between your lead time and special days on the calendar.
Standard safety stock models anticipate that lead time will be a constant that gets factored into calculations of optimized reorder points. To best optimize the process of making your lead time decisions, a comprehensive inventory management software is exactly what you need. SIMMS is the world’s leading stock software package. Visit www.simmssoftware.com or email firstname.lastname@example.org today for more details how SIMMS best suits your needs.