We all know that lead-times are critical in determining the amount of inventory we need to keep: the shorter the lead-time the less you need to keep, the longer the lead-time the more you need in stock. Perhaps less obvious, is that those individuals who determine your stocking strategies will need to know exactly what these lead-times are, and make sure they find their way into SAP, in order to ensure the right amount of stock is available in the warehouses at the right time.
How did lead-times get so out of control?
Most organisations begin their implementation journey with the intention of conducting a master data clean-up prior to going live. This is mostly an excel-based exercise involving the cleansing of data for an upload into SAP. However, as implementation pressures mount this vital task takes more of a back seat and is ultimately relegated to a last-minute haphazardly-executed activity, justified by a pending revisit of the master data settings after going live (which, too, seldom ever happens).
The result is that outdated and inaccurate lead-times are taken across from legacy systems, they are estimated and, worst of all, generalised: so many days for all local suppliers and so many days for all imports. In-house production lead-times often seem to get the same treatment, where it usually takes one or even zero days to produce anything.
I sometimes wonder if companies implementing SAP understand the significance of those lead-time fields (let alone all the other master data settings) and whether they might have delayed their go live until all master data had received the scrutiny it deserves.
How do you get your lead-times under control?
You’ll need to begin the lead-time clean-up process by finding owners of lead-times across your value chain. There are many lead-times in SAP that will affect your inventory holding strategies, such as:
- Production lead-times (order preparation time, queue time, setup time, run time, move time, inspection time, and put-away time)
- Procurement processing times
- Supplier lead-times
- Goods-receipting and processing times
- Sales-order shipping, routing and transporting lead-times
- … and several others
In each of the business functions you will find standard SAP reports that will tell you how well you are managing your lead-times. Recording your lead-times in SAP is critical for keeping the right levels of inventory at the right place, particularly if you are to serve your customers effectively.
There are 3 steps in gaining control of your lead-times:
- Get your lead-times accurate
Update your lead-times in SAP’s master data to reflect your reality. Record the actual lead-times without generalisations or building in buffers. Then contract with your suppliers and business partners to agree and to stick to these actual lead-times.
- Ensure that lead-times are adhered to
Once you have updated your material masters you can begin to manage your suppliers, business partners, and plan-actual deviations, using standard SAP reports, to ensure that everyone delivers according to their agreed lead-times.
There are standard tools inside SAP that enable you to update lead-times, automatically, in accordance with what happens in reality. But these tools must be used with caution. If your internal process, such as purchase order approval or goods receipting, is not up to speed, then the lead-times calculated in these SAP tools will be distorted. In the past I have also written about the importance of housekeeping. If you have these challenges, then the results of these lead-time management tools cannot be trusted.
- Aim to reduce lead-times
Once your internal processes are stable and under control and you can more predictably manage your inventory needs, you can move to reducing lead-times. The obvious outcome of which is that less cash will be tied up in stock.
Why bother?
It is simple really, supply chain’s function to keep demand and supply in balance is pivotal. To simplify it even more, supply chain must be meticulous about balancing quantity and time. That is a buyer’s or planners job – to get certain quantities of inventory into, or out of your organisation by a certain time. If your lead-times in SAP are rubbish, then your supply chain will be in a constant struggle to meet your organisation’s strategic stocking strategies and effectively service your customers needs.
