Lead-time and Lead-time AnalysisLEAD TIMELead time mean time that lapses between raising of a PR by user deptts or stores and receipt and acceptance of materials at stores for issue to user departments.

Its Importance in Inventory Management

Lead-time is very importance in determining inventory levels which depends upon the length of lead-time.

Lead-time and Lead-time AnalysisLonger the lead-time, higher will be ordered quantity & higher resultant average inventory

Elements of Lead Time Administrative lead- time for finalizing purchase order.

Suppliers lead time to make materials ready for dispatch.

Lead-time and Lead-time AnalysisTransit lead time i.e. the time taken for transportation of materials from sellers works to buyers place.

Administrative lead-time of bulk breaking, inspection and completing receiving activities.

Impact of Lead-time on InventoryWorking Inventory:Size of order depends on length of lead-time, longer lead- time, larger order quantity. Calculation of inventory carrying cost is on half of ordered quantity/ value.

Safety StockWhen the demand during lead-time is fairly stabilized:

-Safety Stock = K D

Impact of Lead-time on Inventory

Where K is service level and D is demand during LT

Value of K, which is constant, varies between 1-3. & depending upon criticality and degree of safety / service level required (keeping in view stock-out cost of each item).

Impact of Lead-time on InventoryIf value of K is 1, it shall provide 84% service level i.e. there is 16% chance of stock-out inspite of providing safety stock.

Value of K as 2 shall provide 97.7% service level,

-as 3, 99.87 % service level. -For 100% service level, value of K shall be 3.9.

Impact of Lead-time on Inventory

If demand during lead LT or length of LT is highly fluctuating and irregular calculation of safety stock shall be K

Where K is constant and value depends as above and is standard deviation of demands during LTs.

Longer the LT more will be requirement during this period & higher will be safety stock

Impact of Lead-time on Inventory

On contrary if LT is smaller, lesser will be requirements during LT and reduced safety stock.

In view of above facts, LT has direct bearing upon inventory holding, both working and safety stock.

If we are able to reduce length of LT, it shall result in reducing stock levels.

HOW TO REDUCE LEAD -TIME

Lead-time consists ofAdmn Lead-Time Supplier Time for Transit time Receiving & Of finalizing Arranging supplies of delivery InspectionOrders_____________________________________________________

L1 L2 L3 L4Order Genesis Order receipt Goods Supplied Goods & Manufacturing Received

Total Lead-time = L1 + L2 + L3 + L4

HOW TO REDUCE LEAD TIME

L1 and L4 correspond to internal activities and are controllable.

L2 and L3 are largely uncontrollable by buyer but can be reduced to some extent if systematic efforts are made in this direction by establishing

-Right sources of supplies-Selecting proper mode of transportation & -vigorous expediting

Steps to reduce Lead timeAdministrative LT of finalizing Purchase Orders

Ensure that PRs are complete in all respects so as to initiate immediate procurement action

Rationalization of procurement procedures and sufficient delegation of powers at lower and middle levels.

Steps to reduce Lead timeFinancial limits for OT (NIT) should be increased

More and more items shall be standardized with standardization of sources of supply

Lesser dependency for spares on OEM development of alternative sources.

Import substitution.

Steps to reduce Lead timeMore and more items should be declared as stock item and brought under automatic replenishment system.

Finalization of long-term rate/running contracts

Finalization of terms and conditions with suppliers specially those from whom buying on PAC basis.

Steps to reduce Lead timeUpdating list of approved vendors for various categories of items including evaluation of vendors performances.

Specifications, pre-qualifying requirement for the bidders and quality plan shall be clearly spelled out.

Emphasizing adoption of E -Buying

Steps to reduce Lead timeDELIVERY LEAD TIME OF VENDORSPost order progressing and expediting with vendors.Prompt clarifications to vendors queries.

Prompt PDI, if required. (Pre-dispatch Inspection)

Prompt approval of samples, if requiredGood buyer/ seller relation including prompt payment

Steps to reduce Lead timeTRNSIT LEAD TIME OF TRANSPORTATION

Select most suitable mode of transportation.Efficient collection group with stores.

Post dispatch monitoring expediting deliveries of consignments unduly delayed deputing chasers / tracers.

Prompt retirement of documents if negotiated through bank.

Steps to reduce Lead timeADMINISTRATIVE LEAD TIME OF BULK BREAKING, INSPECTION AND RECEIVING ACTIVITIES

Prompt bulk breaking (opening of packages and checking of contents of incoming consignments)

Prompt inspection of materials at stores by user or by independent inspection cell.

Steps to reduce Lead timeMaking available inspection, testing and other requisite facilities to inspection people.

Prompt handing over of materials to custody group.

Vigorous follow up of settlement of discrepancies replacement supplies / repair etc.

OVERALL VIEW OF LEAD-TIME IN PRIVATE AND PUBLIC SECTOR

Lead- Time in private sector is lesser than in public sector organizations.

Reasons for longer led time in Public Sector

Accountability on part of PSU operating within parameters of well formulated and laid down procedures including long period taken in adjudication/ Evaluation of offers.

OVERALL VIEW OF LEAD-TIME IN PRIVATE AND PUBLIC SECTOR

Tendency to share responsibilities sometimes-unnecessary consultation, references and cross-references.

OT (NIT) beyond a certain monetary limits, longer time for purchasing, at time unproven suppliers on lower quoted rates get order, delays in supply- sub-standard/ poor quality materials resulting in higher rejections

OVERALL VIEW OF LEAD-TIME IN PRIVATE AND PUBLIC SECTOR

Lack of good buyer / seller relations

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