Senior Supply Chain Business Manager
In today’s world, businesses face numerous challenges when it comes to making stocking decisions and ensuring continuity of supply for long lead items. These items require longer lead times for production, procurement, or transportation and often come from Asia. Having moved from a just-in-time supply chain to a “just-in-case” heavily stocked supply chain during the pandemic, businesses are now keenly looking for opportunities to optimise stocking, while ensuring no stock outs.
Long lead time items, typically components destined for factories in the west, require careful planning and management due to factors such as:
- Complex manufacturing processes
- Transportation delays
- Regulatory compliances
- Climate change
- Geopolitical challenges
Without accurate forecasting to interpret potential implications for end customers from these issues it can result in a tendency for overstocking to provide a risk buffer or lead to stockouts resulting in excessive carrying costs or lost sales opportunities.
Additionally, long lead times have increased vulnerability to supply chain disruptions (e.g. pandemic, trade wars or unique events like the blocked Suez in 2021). Unavailability of critical items severely impacts production, and ultimately customer orders. These industry wide impacts can result in a bullwhip effect, which can have impacts varying from, but not limited to, pricing volatility, extended lead times, increased supply chain complexity, supplier closures, increased working capital costs, constraints on cash flow and forecasting challenges.
When trying to mitigate these risks companies face the risk of tying up significant capital in inventory. This can expose a company to potential stock obsolescence due to engineering changes, leading to inventory write-offs and financial losses. Furthermore, larger inventories, while helpful in protecting against stock outs, carry much higher logistics costs. Companies require comprehensive multifaceted strategies to manage long lead items effectively, including risk mapping, mitigation of known risks, contingency planning for natural disasters and geopolitical events.
The Role of Third-Party Specialists: Third-party specialists can play role in helping businesses navigate the challenges and risks of stocking long lead items. These specialists, like Exertis Supply Chain Services bring expertise in supply chain management, demand planning, and inventory optimisation. By leveraging their knowledge, their experience, and their advanced materials requirement planning (MRP) IT systems, they can assist in many ways:
- Identify demand patterns, optimise order quantities, and develop effective replenishment strategies.
- Evaluate and qualify, where practical, alternative suppliers, thereby reducing the reliance on a single source.
- Third-party specialists can provide valuable insights into industry trends, market dynamics, and regulatory compliance, enabling businesses to make informed decisions and minimise disruptions.
- In new innovative ways 3rd parties can protect your balance sheet by not only being willing to buy and supply the inventory, but by being willing to carry that inventory you need in your supply chain for extended periods.
- Optimising the carbon footprint of the supply chain by reducing the reliance on costly expedited shipments to close supply gaps, utilising green energy transportation and warehousing and shipment consolidation.
In summary stocking long lead items requires careful planning and execution to ensure continuity of supply. Once the risks are understood, companies can proactively implement new ideas in their own process or indeed seek assistance from third-party specialists. Companies like Exertis Supply Chain Services, and others, bring expertise, technology, capital, and industry insights to help optimise inventory levels, enhance supply chain resilience, and mitigate risks.
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