It is not unknown that suppliers’ lead times from suppliers as well as internal procurement’s processing lead times are critical in determining the amount of inventory you need to keep: the shorter the lead time the less you need to keep, the longer the lead time the more you need to keep. Even more obvious is that those in your organisation who determine your stocking strategies will need to know exactly what these lead times are.
But this is not always obvious, writes Steven Freemantle, of SweetThorn Thought Leadership, in this month’s SmartProcurement. In fact, it is his experience that many SAP-driven supply chains have lead times that are inaccurate, inflated and often generalised.
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 task, 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The result is that outdated and inaccurate lead times are taken across from legacy systems, they are estimated and, worst of all, generalised: X-number of days for all local suppliers and X-number of days for all imports.
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
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 procurement, particularly if you are to serve your customers effectively and if you are using SAP to manage supplier performance.
1. Get your lead times accurate:
Update your lead times in SAP’s material masters to reflect your reality. Record the actual lead times without generalisations nor building in buffers and then contract with your suppliers to stick to these actual lead times.
2. Ensure that lead times are adhered to:
Once you have updated your material masters you can begin to manage your suppliers, using standard SAP reports, to ensure that they deliver 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.
3. Aim to reduce lead times:
Once your internal processes are stable and under control and you can more predictably send your suppliers inventory needs, you can move to reducing lead times. The obvious outcome of which is that less cash will be tied up in stock.
It is simple really, procurement’s function to keep demand and supply in balance is pivotal. To simplify it even more, procurement must be meticulous about balancing quantity and time. That is a buyer’s job – to get certain quantities of inventory into your organisation by a certain time. If your lead times in SAP are rubbish, then procurement will be in a constant struggle to meet your organisation’s strategic stocking strategies.
For more information on streamlining SAP in your organisation, please contact Steven Freemantle of SweetThorn Thought Leadership, on email@example.com.