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The lead- time gap

One of the major reasons for the build up of finished goods inventory is because of the long time that it takes to manufacture and deliver products. Ideally the customer would be prepared to wait the full amount of time that is required. If this were the case there would be no need to hold any stock at all. This of course happens only rarely for special made to order products. The vast majority of products are required either immediately as for many consumer products at the point of sale in shops or within a short timescale as for industrial product and also for consumer products when the retailer orders them in the first instance from the manufacturer.

The total time it takes to complete the manufacture and supply of a product is often known as the logistics lead time. Customers are generally prepared to wait for a limited period of time before an order is delivered. This is the customer’s order cycle time. The difference between the logistics lead time gap is illustrated in Figure 13.1. It is the existence of this lead time gap that necessitates inventory being held. The extent of the lead time gap measured in length of time determines how much inventory must be held. The greater the lead time gap the greater the amount of inventory that must be held to satisfy customer requirements. Thus the more this gap can be reduced the less inventory will be required. Recently there has been a move towards indemnifying different approaches for reducing this gap. A number of these approaches are described in the next section.

Inventory and time

High levels of inventory are used by many companies to hide a number of problems that occur throughout the supply chain. Companies may have sound and acceptable reasons for holding stock as outlined in the previous chapter but some may also used high levels of inventory to protect themselves from those problems that they are unable or unwilling to solve by more direct means. The implications of this are illustrated in Figure 13.2. This shows that there is significant waste in many logistics systems made up of unnecessary inventory the difference between A and B. This is used to cover up problems such as:

· Unreliable suppliers;

· Inaccurate forecasts;

· Production problems;

· Quality issues;

· Unpredictably high demand.

There is of course a very real cost associated with these high inventory levels.

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