Lead Time Stretch Issue
Written on 9:02 AM by Shaun Hutchings
How can you PROACTIVELY prevent lead times from stretching in a situation like the one experienced in the SC Planning Game? This question should require much more time thinking and pondering than it does writing. Be sure to include in your response a discussion of WHY you your solution(s) would actually prevent lead time stretches in a real-life scenario like this.
I think that one of the best ways to insure that lead times do not stretch to an unhealthy amount for company is to work out a deal with the supplier before something like this happens. When I say work out a deal it could be in many forms from supplier management with report cards and a grading system to make sure the supplier is keeping it end of the bargain. Also things such as review meetings especially with executives to make sure they are both on the same page. And other resources we learned in class how to manage and work with a supplier. One of the biggest things I feel that will prevent this elasticity in lead times is within the contract that is drawn up with the supplier in the very beginning. Contracts legally bind a supplier and your company to keep their end of the bargain. With this legal bind this causes extra motivation to fulfill and complete their portion of the contract.
A good contract will contain the following:
· Agreed lead times for the delivery of specific orders
· Supplier bearing the cost of late/delayed shipments
· Supplier bearing the cost of goods damaged en route
· Advance notice of product shortages
· Advance notice of discontinued items
· Advance notice of product upgrades
· Advance notice of price changes
In a contract the biggest thing is to guarantee delivery time. Sometimes suppliers will make up unrealistic promises with their lead time to get your business, others may be hesitant and not want to close the deal with you because of the fear of not being able to fulfill the quoted delivery times. But I feel it may be important to pay a little extra to ensure that the lead times do not stretch because in the long run it may save thousands, even millions of dollars.
The reason why this would protect the system from lead time elasticity is because in a contract you can state that a supplier must be able to deliver their product within a certain period. You can be reasonable so they would be more likely to work with you but at the same time you need to calculate when the lead times start to be detrimental to the company. And when the supplier promises (in writing in the contract) to complete orders within that time they are more likely to push your orders through. Especially if you have something in the contract (like stated above) that the supplier would bear the cost of late/delayed shipment or products. This means if the lead time stretches above the contracted time allotment and demand plummets and during that time, the supplier would eat that cost of goods because of the late delivery times. This will protect you from having too much inventory like in the supply chain game. That entire inventory would then be the suppliers issue rather than yours. And suppliers do not want to end up with a ton of extra inventory or a ton of extra cost for longer lead times so they will do everything in their power to complete those lead times. This may fix the problem in the long run (meaning having too much inventory at the end) but this may not fix the problem that if demand is increasing and your supplier can not keep up with the demand then you just loose demand. You may place something in the contract too in regards to this issue but you have to choose your battles. You may not be able to win everything when you’re dealing with contract negotiations. So figure out what is more important to you and stick to your guns saying that you will not budge on this for lead time guarantee.
©2010, Shaun Hutchings, All Rights Reserved.
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