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How do we compress supply lead time for key vendors?
Companies who are moving to a Demand Driven replenishment based supply chain often struggle with long lead times for supply of input materials. Longer lead times necessitate demand sensing for a longer horizon.
Their attempts to reduce vendor lead times often face obstacles. How do we make it smoother?
Let’s first understand why vendors need long lead times for supply of regular items. Most vendors start their work after receiving formal purchase orders. They order their input materials (unique items), plan production after receiving them, and arrange for dispatch. The whole process is time consuming and leads to high lead time.
What’s at the root of this issue? Our processes keep vendors in the dark when the next purchase order is expected. The order comes more like an event with no prior warning!
Should we share their material consumption data more frequently, along with the stocks remaining with us? In such a scenario, vendors can start their preparations in advance, even schedule their production run when our stock reaches closer to the ordering point. They will be able to dispatch the material as soon as they get the formal purchase order.
The reason for long lead time is, therefore, internal to us. We can modify our own process, treat vendors like true partners, and share consumption and stock data regularly. Vendors will likely respond with much shorter lead time commitments.
I have seen lead times getting compressed by 50-80% by following this simple practice.