Sub: Finance Topic: Reliability
The components of supplier reliability cover both response time and quality. The more often asupplier is unreliable, the greater is the tendency for its customers to hold more safety inventory tocompensate for supplier incompetence. By changing suppliers or improving existing supplierreliability, a business can reduce its safety inventory levels in the knowledge that the supplier cansupport the business efficiently. The main variables are as follows:
the lead time from a supplier receiving an order and being able to deliver it.Sourcing supplies from another continent to drive down cost may be advantageous at one level,but it is likely to extend lead time (for transportation) and require higher inventory levels to coverfor uncertainty and potential delay. The risk of delays in supply can be passed back to the supplierin the form of guarantees and penalties, but the supplier providing the guarantee is likely to passon the cost in its pricing, as it will with any fulfillment obligation imposed on it. The way to reduceresponse time and unit cost is to work with the supplier on how efficiencies can be achieved.
supplier error (failures in fulfilling an order to specification);short or delayed delivery (the inability to supply on time and in full, which is critical in supplierperformance
failure on this measure can be one of the biggest contributors to holding safetyinventory);Product quality (supplies that are not fit for purpose, damaged, fail in service or not tospecification).