Effective supply chain management - improving product replenishment
The most effective way for businesses to reduce stock is by reducing the supply lead time. Lead time can be defined as the time it takes from when you first determine a need for a product until it arrives on your doorstep. If lead time was zero, inventory could be zero.
In a perfect world, imagine how simple business would be with a lead time of zero and orders being filled instantly. A customer could walk through the door of your business, place their order, and walk out happy with no delay. If business was this easy, you would require no warehouse space, no order follow-up, no inventory counting, no forecasting, no product damage, no obsolete inventory, fewer employees, less risk of theft, and less cost overall.
Of course the real world does not work like this, but the shorter the lead times, the less complex our inventory management will be. In general, you can expect the following reductions in inventory as lead times are reduced:
Note that lead time can be separated into three components:
- review time (could be reduced by better training for operators, employees)
- manufacture time (could be reduced by implementing new holders, equipments for bottleneck stations)
- transit time (could be reduced by layout design, equipment improvement)
Review time is the time it takes for your company to generate an order. Changing your order frequency from twice a month to once a week or even daily can cut total effective lead times substantially.
It should be clearly understood that lead time reliability is just as important as lead time itself. Short lead times with a high degree of uncertainty can force necessary inventories upward. Obviously this is something to keep in mind when selecting suppliers.
Reduction of product replenishment lead times is a core element of our supply chain management services.
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