In An Unpredictable World

Planners hate uncertainty.

In the Operations Management Body of Knowledge, there is much discussion about lead times, time fences, and the length of time goods spend intransit. Of course, such discussions are valid, as it is in the best interest of the firm to reduce inbound lead times from suppliers within expense constraints. (Two days inbound lead time is always better  than two months, but we must not blow our brains out on air freight bills in order to achieve that goal!) Short lead times allow the firm to be more flexible, respond more quickly to changes in downstream market demands, and to reduce safety stock.

Of equal importance to the absolute lead time, however, is the degree of variability in inbound lead times. If I, as a planner, am faced with a European supplier who ships to Canada by sea, and the total order turnaround time is consistently four weeks door-to-door, I am a pretty happy camper. I can plan purchases with confidence that goods will be delivered in full, when I expect them to arrive. And I can keep safety stock at a minimum.

But, if the actual lead time is 4 weeks one month, then 6 weeks the next, then 8 weeks, then 7 weeks, I cannot plan appropriately. The result, in order to protect customer service levels, is inflated safety stock.

There are things to watch for as indicators of this problem. The objective is OTIF ("On Time In Full"). There are ways to correct it.

It can be done!