If you’re in business, you know supplier lead times can be a real pain point. Long and erratic lead times wreak havoc on your inventory levels and, ultimately, your fill rates.
But what exactly are the impacts of prolonged and erratic lead times on your inventory? Let’s take a closer look.
First, let’s define what we mean by “lead time.” Lead time is simply the amount of time it takes for your supplier to deliver goods to you. In a perfect world, lead times would be short and predictable. But in reality, they can often be long and erratic, which can severely impact your business.
Inventory is a very important aspect to your business. After all, if you don’t have the products your customers want, they’ll go elsewhere. With that, keeping a close eye on your inventory levels is essential.
Unfortunately, long and erratic lead times can make it challenging to maintain optimal inventory levels. If you don’t know when your goods will arrive, it’s hard to know how much to order. This can often lead to stockouts, which can be disastrous for your business.
Safety stock is another important consideration when it comes to inventory management. Safety stock is the extra inventory you keep on hand in unexpected delays. When lead times are long and unpredictable, you may need to increase your safety stock levels to avoid stockouts. However, this comes at a cost, as you’re tying up capital in inventory that may not be needed.
Fill rates are another critical metric to keep an eye on. Fill rates represent the percentage of orders that you can fill. When lead times are long and erratic, it can be challenging to maintain a high fill rate. This is because you may not have the products your customers want in stock when they place their orders.
Ultimately, you have no control over the lead time on purchase orders from your suppliers. That’s why it’s important to identify multiple strategies to deal with them.
It would be best to start by understanding the root cause of your supplier’s long lead times. Is it due to production delays, material shortages, or something else? Once you know the reason, you can work with your supplier to find a solution.
If long lead times are due to production delays, you may be able to negotiate longer payment terms in exchange for expedited shipping. This will give you the time you need to increase your safety stock levels without putting a strain on your cash flow.
If material shortages are the issue, you may need to look for alternative suppliers who can provide the materials you need promptly. This can be a challenge, but finding a solution that will work for your business is crucial.
The bottom line is that long lead times can severely impact your inventory levels and fill rates. By understanding the root cause of the problem and working with your supplier to find a solution, you can avoid these devastating impacts.