Lead time delays and supply variability are supply chain facts of life, yet inventory-carrying organizations are often caught by surprise when a supplier is late. An effective inventory planning process embraces this fact of life and develops policies that effectively account for this uncertainty. Sure, there will be times when lead time delays come out of nowhere and cause a shortage. But most often, the shortages result from:
- Not computing stocking policies (e.g., reorder points, safety stocks, and Min/Max levels) often enough to catch changes in the lead time.
- Using poor estimates of actual lead time such as using only averages of historical receipts or relying on a supplier quote.
Instead, recalibrate policies across every single part during every planning cycle to catch changes in demand and lead times. Rather than assuming only an average lead time, simulate the lead times using scenarios. This way, recommended stocking policies account for the probabilities of lead times being high and adjust accordingly. When you do this, you’ll identify needed inventory increases before it is too late. You’ll capture more sales and drive significant improvements in customer satisfaction.
