A manufacturing company is experiencing stockouts of a critical raw material despite maintaining high inventory levels. The procurement team places purchase orders based on historical usage, but demand has become erratic. Which action should the supply chain manager take to improve material availability without increasing inventory costs?
Trap 1: Increase safety stock percentages for all raw materials by 20%.
This would increase inventory costs without targeting the specific material experiencing stockouts.
Trap 2: Switch from purchase orders to blanket purchase agreements with the…
Blanket agreements commit to a total quantity but do not manage the timing of releases based on demand.
Trap 3: Negotiate with the supplier to reduce lead time by 50%.
Reducing lead time helps but is not directly under the supply chain manager's control and does not address demand variability.
- A
Increase safety stock percentages for all raw materials by 20%.
Why wrong: This would increase inventory costs without targeting the specific material experiencing stockouts.
- B
Set up a reorder point with dynamic safety stock calculation in Demand Planning.
This allows the system to calculate safety stock based on demand variability and automatically trigger purchase orders when stock reaches the reorder point.
- C
Switch from purchase orders to blanket purchase agreements with the supplier.
Why wrong: Blanket agreements commit to a total quantity but do not manage the timing of releases based on demand.
- D
Negotiate with the supplier to reduce lead time by 50%.
Why wrong: Reducing lead time helps but is not directly under the supply chain manager's control and does not address demand variability.