Inventory Management Advice

Making better use of the data in your inventory system

Reducing effective lead times is a good starting point for improving inventory management. One reason is that most improvements in that regard do not require any computer programming. Another is that, even if there are major problems hindering the achievement of good inventory management, reducing lead times will reduce the impact of those problems.

It should be realised that the lead time is not just the time from when an order is sent to the supplier until the supplies are received. It starts from when an item should be ordered (i.e. when it falls below its reorder point). It ends when the supplies are on the shelf and ready to be picked. Every component of the lead time should be examined for the possibility of shortening it.  Start by tracking the progress of a few orders to see where the main hold-ups are. Individual ones will be dealt with in subsequent posts. The following table shows the percentage reductions in active inventory which can be expected to result from reductions in average lead times:

Percentage reduction in average lead time
Percentage reduction in active inventory
 10%  5%
20%  11%
30% 16%
40% 23%
50% 29%
60% 37%
70% 45%
80% 55%
90% 68%

For the rationale behind the above table, see the comments at the end of the article entitled “Active Inventory“.

Everybody who is involved in the purchasing process should be made aware of the effect on active inventory of the time involved in their part of the process.