Share this article
Follow us on Linkedin
What glues the physical supply chain together? What makes plan to delivery happen?
Sourcing at different stages of the value transformation connects the flows of goods and services across any end-to-end supply chain network, from suppliers and vendors to distribution centers delivering to customers.
Timing of sourcing plays a key role in how supply chains support time to market business strategies, fundamental to creating high customer satisfaction and loyalty. Also, the timing of sourcing plays a critical role for the timely execution of production and assembly processes, not to mention the delivery of raw materials from multiple suppliers and vendors.
The timing of sourcing is measured as the commonly known metric named lead time. Measured in hours, days, weeks or months, lead time is measured depending on applicable use cases. Some examples include:
- From order date to received date measuring the longest path lead time.
- From ship date to delivery date measuring carrier lead time.
- From raw material received date and time to finished material release date and time measuring a production process lead time.
The topic of sourcing lead time in supply chain management matters to multiple supply chain audiences:
- Procurement teams look at vendor/supplier lead times when negotiating contracts or measuring vendor/supplier performance.
- Production managers look at vendor/supplier lead times to determine production schedules.
- Deployment/supply managers look at plant/processing lead times for distribution of work-in-process and finished materials.
- Transportation managers look at carrier lead times when negotiating contracts or measuring carrier performance.
- Supply chain managers look at customer lead times as part of service level performance to customers.
What these audiences share and care most is to have a supply chain prepared to respond to changes and variations in sourcing lead times. Too often, they live the day-to-day challenges of supply delays and disruptions, fighting fires when sourcing lead times deviate from expectations, shortening inventory availability, and scrambling to prevent out of stock situations and protecting service levels to key customers.
But how do we prepare supply chains for disruptions in sourcing lead times?
It starts with supply chain planning. Advanced planning systems can consume lead time inputs for supply and inventory planning decisions.
However, often, a gap exists between planned lead times and actual lead times. Planned lead time inputs are not frequently updated or don’t mirror operational realities of actual lead times. As a result, even though lead time inputs are used in planning, plans still don’t minimize the firefighting at time of execution.
Fortunately, a solution exists to close this gap and build robust supply chain plans that lead to better supply chain execution performance.
SAP recently released a function in SAP Integrated Business Planning for supply chain named Supply Lead Time that help businesses calculating supply lead time at every sourcing relationship of a supply chain, e.g., vendor sourcing, production/assembly sourcing and internal distribution sourcing.
Join me in reviewing the details.
SAP Integrated Business Planning for inventory (“SAP IBP for inventory”) generates time-series inventory plans based on an optimization function that consumes lead time inputs such as:
- Transportation Lead Time: Internal transportation distribution lead time measured in weeks.
- Transportation Lead Time Error CV: Coefficient of variation of transportation lead time with input values equal to or greater than zero.
- Production Lead Time: Internal processing/production lead time or vendor/supplier lead time measured in weeks.
- Production Lead Time Error CV: Coefficient of variation of production lead time with input values equal to or greater than zero.
These lead time inputs drive the calculation of the Supply Variability Safety Stock component of Recommended Safety Stock and other inventory planning outputs such as in-transit stock key figures and Target Inventory Position. Hence, the robustness of the inventory plan produced by SAP IBP for inventory depends on how close these lead time inputs reflect the actual operational lead times.
SAP IBP Analytics Story Planner: Inventory Analysis of Safety Stock Drivers.
As mentioned, a gap between planned lead time and actual lead time can be detrimental to your plan expectations. For example, it can lead to undermining or overestimating inventory working capital savings.
SAP IBP Analytics Story: Inventory Analysis comparing base scenario to operational lead time scenario.
Do you want to learn more on how the SAP IBP Supply Lead Time function work?
Do you want to learn how you can adopt improved lead time input assumptions to your inventory plan?
Let’s talk.
