There is growing recognition that a reduction in supplier lead time variability has a bigger impact on inventories and supply chain performance than do equivalent decreases in average lead times.
But can this perception be quantitified? The answer is Yes, as nicely discussed during a recent Videocast on our Supply Chain Television Channel on Schneider Electric's journey using Inventory Optimization software.
To view the full Videocast on-demand, go to: Videocast - Inventory Optimization at Schneider Electric.
This link will take you to a page that allows you to view the Videocast, download the slides or a podcast of the QA session, and more.
During that project, assisted by Dr. David Simchi-Levi's company OPSrules, this specific analysis was performed, as shown in the graphic below.
Source: W. James Watt, OPSrules
The left side of the X-axis represents reductions in both lead time averages and variability, plotted against changes in required inventory levels on the Y-axis.
As can be seen, a 50% reduction in lead time variability results in potential inventory reductions of about 3%, while a similar reduction in average lead times would reduce required inventory levels by less than 1%.
While this analysis is specific to Schneider's individual scenario, OPSrules' Jay Watt said during the Vieocast QA that lead time variaibility having a bigger impact on inventory than the length of the lead time itself is generally the case.
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