May 2017

Supplier Lead Times Impact Inventory Management

By Dhinesh Selvaraj

Lead time is a key component of replenishment policies. Shorter lead times are desirable, but getting shorter leads from suppliers is challenging. On the other hand, longer lead times result in higher on-hand and in-transit inventory. Additionally, longer lead times limit the supply chain response to changing demand, variability, and uncertainties. On-hand and in-transit inventory make up a big chunk of the total costs, on top of purchasing, transportation, warehousing, packaging, and even expedited shipping costs at times. Inventory is required for demand variability, lead time variability, and service levels but lower inventory or days on-hand is a key to resilient and responsive supply chain.