Suppliers play a big part in the way you manage your parts inventory. While you ultimately choose which products to purchase, the way your suppliers operate unfortunately has a lot of influence on the way you manage your parts inventory system.
Supplier lead time is an example. Lead time is the delay that occurs between the beginning of a process and the execution of that process. In distribution, that means the time between when the order was placed and when the delivery was received. If lead times were zero, you wouldn’t be required to keep inventory on hand – you would place an order and receive it on the same day. In general, lead times have a huge variance, and each of your suppliers will likely have different lead times. If one of your suppliers has a long lead time, more product from that supplier will need to be kept on hand to cover customer demand while you await the arrival of the replacement inventory.
In order to cover demand during a long lead time, you need to have an estimate of what the demand for the product will be. This requires making a long range forecast, which, like weather predictions, are more inaccurate the farther you go into the future. This uncertainty means having to add a safety buffer, which possibly leads to excess inventory. Unfortunately, this cannot be avoided in certain situations, such as this one.
Another complication with lead times is their variability. Individual suppliers will have variable lead times, yes, but each supplier may have its own variable lead times as well. If something happens at the supplier’s warehouse or there’s a problem with their shipping processes, your normal two week lead time could become four weeks, etc. Shifts in lead times are unforeseeable and can lead to both too much and too little inventory, depending on the alterations of lead times.
The best way to deal with lead time difficulties is to have a very good relationship with your suppliers. Working closely with them is the best way to keep your inventory count where it needs to be.
The lowest level of collaboration means that you and your supplier exchange nothing more than basic information – your order and their projected lead time. This type of collaboration is what every business has with its suppliers and your goal is to move forward from this type of relationship. If you can get more and better information from your supplier, like real-time data exchange, your purchasing decisions can be made with the newest information available, thereby eliminating purchases based on old – now incorrect – information. If your suppliers have the same type of access to your inventory levels and sales projections, they can better anticipate when and what you’ll be ordering and can be prepared for your orders.
Want to have a better relationship with your supplier? Need help controlling your parts inventory?
Contact Acumen today – we can help.
