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How to Ensure Component Supply, Manage Lead Times, and Handle Inventory and Warehousing?

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We were asked about how to ensure a stable supply of components, manage lead times, and handle inventory and warehousing.

So, from strategic procurement to vendor-managed inventory, here are some practical tips to help optimize your supply chain operations.

 

If you prefer listening to reading…

Listen to the audio here.

 

Here’s a summary of some of the points made in the episode, but listen for full details:

Ensuring Stable Component Supply.

If you lose access to one of your product’s parts, it will cause problems in production. To ensure a stable supply:

  1. Select readily available standard components and prioritize double sourcing over making custom parts with just one supplier.
  2. If custom parts need to be developed and manufactured, work with a ‘good supplier,’ give them a forecast, and require that they keep some inventory of the parts they make (vendor-managed inventory).  A good supplier is a more mature company with staying power, with a proper planning system, business continuity plan, etc.
  3. Source strategically and keep enough inventory to suit your needs, for some it will be JIT manufacturing where you don’t keep inventory yourself and for others, you will keep a certain amount at hand. (05:45)

 

Managing Lead Times (components and production).

For standard components that can be sourced from various resellers or distributors, the lead time should be very short and you will not have to scramble much if there is an issue with one source. For specialized components with long lead times, you need to take that into account and order in advance. Larger quantities should equal larger discounts. If custom components must come from a very specific supplier, sourcing the right supplier, managing them, doing a feasibility study, and providing a forecast will help build a good relationship and enable them to provide the parts you need when you need them.

Production lead times for finished products can be challenged if you think they are too long, but you should probably visit the factory and assess why their lead times are as long as claimed. Are they efficient? Are materials and parts stored in order, clean, and not dusty? If a supplier is disorganized this could result in delays and long lead times. Also, do you have supply chain transparency and know where the materials and components come from? Are your suppliers being delayed by their suppliers? Lacking knowledge over these points means you’re not in control of your supply chain and you will not know what contributes to longer production lead times. (17:39)

 

Handling Inventory and Warehousing.

More inventory allows you to reduce the risk of supply chain disruptions, such as when COVID shut down factories in China. Knowing that moving to a new supplier may take several months, you need to assess if holding enough components for this period would be prudent. If your current supplier has been providing some defective parts, bear in mind that your inventory will all need to be inspected. Inventory will also provide a buffer if the lead time for products is long, but your customers expect a short lead time from you…a juggling act to have the right amount in stock therefore becomes necessary.

VMI might work for you, although it is a cost you will need to bear. If you dropship products directly from China, maybe your inventory can all be there and shipped out directly. A Hong Kong warehouse provides the benefit of being ‘outside of China.’ Some businesses will ship everything to a regional distribution center, such as Amsterdam to serve European customers, and keep inventory in that way. (27:07)

 

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