Forecasting & Replenishment

10 Lead Time Reduction Tips to Making Forecast Errors Less Painful

By John Kimball, Senior Consultant, Lanham Associates

How important would forecast error be if lead times from suppliers were one day? Your mantra would be “We don’t know what we need next month but I can get what we need tomorrow quickly.” Lead times of one day may be impossible in your business, but can you imagine one less day of lead time? And then one day less next month, and one day less the month after that?

We recognize that some organizations simply cannot reduce lead times due to factors that cannot be changed (such as offshore sourcing). But if you set stretch goals toward dramatic lead time reductions, you may surprise yourself with what you can accomplish. Below is a list of tips to help get you to explore the possibilities of lead time reduction:

#1 Make supplier proximity an important factor to reduce transit times. If supplier selection criteria include supplier location, you may find that it’s worth it to develop local suppliers simply because their lead times are shorter.

#2 Share planned and forecasted demand with suppliers to minimize surprises. Suppliers will reward you with better delivery performance and maybe lead time reductions if you share your forecasted usage of their items with them. (Our Advanced Forecasting and Procurement (AFP) solution has supplier collaboration tools to help with this.)

#3 Reduce the supplier base to improve communication. If you are communicating with fewer suppliers the quality of your communications can improve, which can result in a lead time reduction.

#4 Qualify alternate materials to better satisfy customer orders. If the item the customer orders is not in stock it’s always good to be able to ship an alternate item. The risk associated with a forecast error is offset by having the option of shipping alternate items.

#5 Switch to items that are commonly available. Purchasing is in the best position to know those items that are always available. Long lead time items replaced by commonly available items may only happen once the facts are known. Purchasing may be able to get sales, marketing, product developers and customers to see the value in having reduced lead times.

#6 Purchase kits from suppliers. Rather than having to keep stock of all the items in a kit, the lead time reduction benefit might pay for the extra cost of having the supplier provide a kit that includes all the items.

# 7 Reduce customer order entry time. The sooner the customer order is included in your planning system, the sooner you and your suppliers can respond. Anything from dedicating someone to order entry, to standardizing the order entry process, to using EDI to capture customer orders will go a long way to reduce order entry time.

#8 Reduce review time to replenish inventory. The time it takes to review and decide what to order as well as the time it takes to receive and make inventory available for use is all part of lead time. Using software systems such as Lanham’s AFP forecasting and replenishment planning system and ACE Warehousing can help.

#9 Consider milk runs. One way to get suppliers to deliver more often is to have a dedicated carrier make frequent, regular stops at a number of suppliers before arriving on your dock to deliver their product. The additional cost may be worth the reduction in both lead times and expediting costs.

#10 Drive a lead time reduction program from suppliers. Begin by asking why the supplier lead time is not shorter, what can be done to reduce it and when was the last time it was reduced. One strategy is to give preference to suppliers who are continuously reducing lead time so that your lead times continue to be improved.

If you have some best practices that have helped you improve your forecasting and replenishment process, let us know about them. We would love to hear from you. You can reach us at education@lanhamassoc.com.