Monitoring Unusual Lead Times
The anticipated lead time is the length of time (usually expressed in days) it will take to replenish the inventory of a stocked item. Last month, we advised you to manually maintain anticipated lead times based on the longest normally anticipated lead time for the product. For example, if the lead time for a product ranges from two to three weeks, set the anticipated lead time to 21 days. But, if anticipated lead times in your system are manually maintained, how does a buyer know when the value for a particular product needs to be updated?
A good computer system should identify unusually long and short lead times and bring them to the attention of a buyer. Unusual lead time analysis begins with the system comparing the lead time associated with each just-arrived stock receipt to the existing anticipated lead time for the product. If there is a significant difference between the two values, the appropriate buyer should be notified. A significant difference might meet any of the following criteria:
• The lead time for the most recent stock receipt is less than 50% of the existing anticipated lead time. For example, the anticipated lead time for a product is 10 days and actual lead time associated with the latest stock receipt is less than five days.
• The lead time for the most receipt stock receipt is more than 50% greater than the existing anticipated lead time. Perhaps the anticipated lead time for a product is again 10 days but the actual lead time associated with the latest stock receipt is more than 15 days.
• The lead time associated with the latest stock receipt is more than a week greater or a week less than the existing anticipated lead time.
When notified of a possible unusual lead time, the buyer should contact the supplier to determine if the lead time associated with the most recent stock receipt is actually unusual (i.e., due to a factor that probably will not reoccur) or indicative of the anticipated lead time of future shipments:
• If it is unusual, no action is necessary.
• If it is a good prediction of the lead time of future shipments, the anticipated lead time for the product in your replenishment system should be updated to reflect how long you anticipated it will take to receive future shipments after they are ordered.
Remember that avoiding stockouts is to a great degree dependent on reordering products at the right time. Accurate anticipated lead times are a critical factor in effective stock replenishment.