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The Longer The Lead Time, The More Inventory In The System

Probably a better way to state this is the longer the lead time the more exposure and liability you have. I’m always amazed by the manager who says don’t ever run out of inventory, but never have more than 30 days of inventory. And they says this for a 16 week lead time item. I’m also amazed by the manager who want suppliers to ship instantly but with no exposure on the manager’s part to any inventory liability.

It is possible to not carry as much inventory. Just think of your supply chain as a pipeline and bring in materials as they are needed. This however will not get you away from the liability to the supplier for

the commitments they have to make to get raw materials into the pipeline so they can respond. Even if the raw materials are something, they normally stock, they still will have to extend themselves and take risk on your behalf for the volume aspect of things. If your volumes weren’t a large part of their business, they’d never work with you anyhow.

The reality is, if you manufacture on a continuous basis, you have to have a flow of inventory coming in. And if you do, you’re responsible for it. If the supplier says you aren’t responsible for it, you’re either darn lucky, or your paying for it in the price, or you have a foolish supplier who doesn’t care about their business. And the longer that flow stretches out over time the more you’re going to be responsible.

The only way to reduce this liability is to work to reduce lead times all along the supply chain.

Presented By

Chuck Nemer


One of the world's best trainers, mentor and supply chain coach

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