Introduction
Every business needs effective replenishment of its inventory to ensure smooth flow and profitability. The article explores lead time and shows the importance of setting up accurate lead times. This paper will give a summary of the article. It will, therefore, highlight all the main points noted by the article. On the same note, the paper will express the opinions of the author.
First the article defines the anticipated lead time. According to the author, this is time (days) which a business takes to replenish its stock from primary suppliers. The necessity of this process is to ensure that there are no stock outs. For this to happen it is important to ensure accurate lead time. The author shows that, for example if a business has a demand of two items per day, and anticipated lead time of seven days. Stock can be ordered when there are at least fourteen items in stock. If fewer items in stock were less than 14, it would mean that the business would have a sold out before the delivery of new stock.
Systems
There are systems that can calculate anticipated-lead-time. They normally do this by calculating mean of lead time and supply items. Though this is good in business, several problems may be encountered. First, mean lead-time does not effectively cover demand specifically when the lead time connected with items received is more than the lead time. Secondly, if an item lead time is less or more promptly, the past stock receipts do not show anticipated-lead time. In this case it may require several instances of item supply to give accurate time required.
Factors to consider
Businesses need to remember that 1) there is time to realize the need for replenishing. 2) There is the time to ship supply. 3) Time for supplier to process order and 4) time to prepare stock for sale for example unpacking. In accordance to this, an abnormal long time may be ignored when it happened once, for example, in a case where a supplier may have forgotten to send the supply.
There is a need for businesses to order an item or product quantity goes to its reorder level. This quantity is calculated as; stock in hand-the stock committed for customer + the current replenishment items. This means that stock available should cover the demand during lead time. This operation is, however, hampered by some conditions as when suppliers may refuse to sell one product or a specified quantity for the business to get agreed whole-sale prices. This order size which the author refers to ‘target by’. Businesses need to note their order cycle, this is the time (days) which it takes to sell an item and reach the target buy from the supplier.
Businesses most of the time have a problem of purchasing according to their traditions. In this case, business has a mentality that they replenish a certain item after a given duration. More worse is when businesses happen to have review cycle for all of their suppliers. This trend directly causes bad customer relations and causes them to increase even their stock unnecessarily. These effects results due to the following circumstances discussed below.
Shortcomings
Enterprise resource planning tools (ERPs) or computer systems cannot advice business to make a small order than the anticipated demand. The systems will request for orders of even unneeded items. For example, a business with an order cycle higher than the time it needs to meet target order. Most systems lack intelligence to work out shortcut but rather work with what they are set to do. For example, if the ERP is set at a four weeks order cycle, there will be purchases after this time even though it would have been wise or able to make orders even more times a month.
A very short order cycle gives businesses ability to make orders as they wish; this can be explained by the fact that there are small amounts of safety stock. The businesses also stand a chance to add even new item or special ones without having to wait. Businesses need to understand the difference between anticipate-lead time and order cycles. Order cycle shows ability to order an item while fulfilling the supplier terms of quantity. On the other hand, anticipated lead time sums up time for placing a purchase request, delivering order and business to prepare the item for sale.
Conclusion
In conclusion, businesses are reminded of the best habits when doing their purchases. First the business should at least twice a year calculate their order cycles. Secondly, business needs to place special items or non-stock items in consideration when planning and working on target order. The goal is to replenish stock in good quantity and at the right time to maintain customer expectations.
References
Harrington, T., Lambert, T., & Vance, P. (2006). Implementing an Effective Inventory Management System. Emerald, 3(1), 27.
Schreibfeder, J. (2010). Achieving Effective Inventory Management (5 ed.). New York: Routledge.
Schriebfeder, J. (2013, January 11). Accurate Anticipated Lead Times Prevent Stockouts. Retrieved October 17, 2014, from EIM: http://www.effectiveinventory.com/?s=Accurate+Anticipated+Lead+Times+Prevent+Stockouts
