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Dealing with a Chaotic Supply Chain – Part #2

Presented by: Jon Schreibfeder

We continue to experience disruptions in the supply chain.  Material that used to be reliably available now is often hard to come by.  Last month we began our discussion of developing accurate (or as accurate as possible) anticipated lead times for shipments from suppliers.  This month we continue our conversation by examining how to calculate meaningful anticipated lead times.

As we discussed in our last blog post, our recommendation is to set the lead times in your system equal to the longest normally anticipated lead time.  Here is how we suggest you calculate this critical replenishment parameter:

Examine all stock receipts from primary vendors over the past three to six months.  That is those vendors you deal with on a regular basis.  The information you will need for each transaction includes:

For each stock receipt, calculate the actual lead time for the shipment by subtracting the date the purchase order was issued from the date the purchase order was received.  For example, if the purchase order was issued on September 20th and received on September 30th, the actual lead time would be 10 days.

Compare the actual lead time to the lead time maintained for the warehouse/item in your ERP system.  If the actual lead time is greater than the system maintained lead time, the shipment was late in arriving. Keep track of the percentage of late shipments for each vendor as well as the average number of days each vendors late shipments arrived beyond the system lead time.  Note that recently we have found that for many organizations more than 50% of their stock receipts are late in arriving.

Examine the results for each of these problem suppliers to see if lead time problems involve specific items or product lines.  You may be able to increase lead times just for those products.

Accurate lead times are a critical component in the calculation of reorder points and minimum quantities in every ERP system.  You must monitor them in order to provide the best possible customer service and minimize stockouts.  In our next post, we will explore what to do when the material you need is not available.  In the meantime, if you have specific questions or need assistance, please let us know.


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