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Essay On Inventory Management

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One of the most important aspects to consider when comparing the current purchasing strategy with the proposed one is the impact of direct deliveries from external suppliers to the central warehouse on the lead times of spare parts which are ordered by the warehouse planners. Lead times have a big influence on inventory planning and replenishment policies and lead time savings can be very beneficial for the business of a warehouse and the performance of a SPSC (de Treville et al. 2004). Hiller and Liebermann (2001) regard unnecessarily long lead times as a form of waste and minimizing or avoiding waste as a key component of superior inventory management. In the current setting, three stages of the SPSC are involved in the purchasing…show more content…
when the supplier is located closer to the warehouse than to the respective factory.
The lead time reductions which could be realized with a change from the current to the proposed purchasing strategy would lead to several improvements for the warehouse planning which are presented in the following. Shorter lead times would facilitate a more flexible and customer oriented planning and would lead to a reduction of uncertainty. According to the BAAS planners, this uncertainty could be reduced especially in the context of forecasting the demand during the lead time. Obviously, the lead time demand forecasts would be more accurate when the lead times could be reduced because the shorter the demand period which has to be forecasted is, the more precise will be the forecast.30 In addition, shorter lead times would consequently lead to lower demands during the lead time and would result in less variability. Lower lead time demands, less variability and a reduction of uncertainty would automatically reduce the necessary safety stocks at the warehouse. Hence, shorter lead times would also result in a reduction of average inventories, reorder levels and order up-to levels. Decreasing average inventories imply less capital tied up in inventory and higher stockturns. Moreover, less average inventories mean less inventory holding costs. The head of the BAAS planning department mentioned two additional positive aspects of shorter lead times. Firstly, large and
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