O'Reilly logo

Accounting Best Practices, Fifth Edition by Steven M. Bragg Englewood, Colorado

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

16–39. Reduce Safety Stock by Shrinking Supplier Lead Times

A company goes to great lengths to reduce its internal lead times by a variety of just-in-time techniques, but it tends to accept the lead times handed to it by suppliers. These lead times are frequently not even based on the supplier’s actual production capabilities, but are simply the lead times announced by the salesperson with whom a company deals. The result is long lead times, which a company deals with by investing in excessively large safety stocks.

The purchasing department can shorten supplier lead times by including a reduced delivery time in its request for quotes. By specifying short lead times up front, a supplier realizes that this is an important criterion for a company, and must commit to it before there will even be any discussion of orders. This can have an added benefit for suppliers, since by being forced to revamp their internal processes to improve their lead times they will now have a new basis on which to compete.

Sometimes an even simpler approach to reducing lead times may have a positive impact—specify the exact date and time of expected receipt on the purchase order. By making it clear that the company has a high expectation of receipt within a very narrow time frame, suppliers become more aware of the importance of this issue.

This best practice does not mean that one should force impossibly short lead times on suppliers, just that lead time should be a prime focus of discussion with suppliers, ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required