The Influence of Lead Time

One of the most important aspects of spare parts inventory management, in fact any inventory management, is the lead time. Lead time has a major influence on how much stock you hold.

Lead time is one of two key factors in determining your cycle stock quantity.
Lead time variability is one factor impacting your safety (or buffer) stock quantity.
Lead time has a major influence on your re-order quantity.
Lead time is a influential factor in determining spare parts criticality and the associated risk management.

Understanding lead time is very important and it’s no wonder that there are so many discussions on lead time. But why is it that lead time and the elements that make up lead time are so misunderstood?

Visit any online forum, such as the SparePartsKnowHow.com LinkedIn group, and you will find questions on lead time. In my work I am constantly asked to clarify the elements of lead time. Most of these enquiries are seeking validation that the actual lead time for a spare part is more than the time quoted by the vendor. Well, of course it is!

Dock-to-Stock Time

The lead time is made up of all of the actions and delays that occur between when the item reaches the re-order point to when it is restocked. The processes will be different at different companies but, as a generalization, lead time includes: the time it takes to realize that the ROP has been reached, the time to advise procurement to repurchase, the time to place the purchase order, the time for the vendor to deliver and the time to restock the item both on the shelf and in your system. This last time element is often referred to as the ‘dock-to-stock’ time.

In my experience this is usually the most overlooked component of lead time.

It is often considered that once a part is delivered to site that is the end of the lead time calculation. But the most rudimentary evaluation of this tells us that is not true.

For many sites the dock-to-stock time can be significant and the worst that I have seen first hand is about four weeks. Yes, you read that correctly, four weeks to get from being delivered to being listed as available and on the shelf.

There is at least one obvious impact of this extended dock-to-stock time: the need to hold more stock. In the case of the four week delay, if they expect items to be in stock and available, then that company effectively needed to hold an extra month of stock for everything in its inventory. That is a lot of money.
But the real issue about unduly long dock-to-stock time is not just about the extra money, it’s actually more important than that!

The real issue is not just about the increased risk of damage to items that are not stored properly. It’s not just about the potential impact on reliability. Its not just the potential that items are misplaced. (All issues that I have seen in companies that don’t have short dock-to-stock time.)

The real issue is confidence, or rather the lack of confidence.

Think this through: what happens when the users of spare parts know that there is almost always a backlog of parts waiting to be entered into the system and stored on the correct shelf? They lose confidence in the spare parts management system. They assume that the storeroom is inefficient and often extend that to mean incompetent. This leads to three problematic behaviors:

• It creates a problem between the storeroom and the users
• Users will seek to overstock the storeroom holdings in order to make up for storeroom inefficiencies
• Users will seek to search through the backlog of items looking for something they need – often resulting in ‘shrinkage’ as itemsthat are not actually booked into the store cannot be booked out of the store.

Put another way: users won’t trust the storeroom, you will be overstocked and your data will be inaccurate.

A fourth, less common, problem is the creation of additional admin work as storeroom personnel seek to manage the backlog. Yes, really. This is what happened at the company with a four week dock-to-stock time. They created a secure delivery area, inside the storeroom, so that users couldn’t gain access to items delivered but not yet booked in. Then they kept track of these items in a separate ledger. Believing that they then had full visibility (the storeroom that is) they then took their time booking in stock. It became a ‘time filler’ activity, something that you do when there is some spare time. Hence the four week dock-to-stock time. This is a true story!

Of course, you may not be experiencing this type of delay. And of course the issue is storeroom personnel levels and capacity to process, not incompetence.

But, the issue of managing and minimizing dock-to-stock time is very real and perhaps far more important than you may think.