Impact of increased lead times

May 6, 2022

Overview

Over the past 2+ years, we have experienced many shifts in business and supply chain trends, causing many changes to our expectations and process. As Planners we need to update our merch plans to incorporate the product mix changes and product flow shifts. These changes can cause both short and long term effects. We are all trying to figure out what the new KPIs and benchmarks will be, based on the fluctuating variables.

I am taking one element, lead time, in this article to dissect. Even with one element isolated, I quickly realized there are still so many variables and subjectivity that will shape the process. With that said, each business should expect to have nuances for this process.

Plan Goals

Here are the current variables:

  • We have 4 seasons: Spring, Summer, Fall and Winter.
  • We buy newness to cover each season.
  • We have a 90 day lead time.

KPI’s are:

  • 12 WOS at any given time (some will be higher for set up and lower for season shifts)
  • Annual turn of 4 (which is on par with the 12 WOS by month we established).

Starting Plan

Above is how the plan developed. We have a sales plan of 3,303, We are starting with 600 in inventory and based on the trajectory we will need 3,450 in receipts to ensure we meet the KPI's.

Lead Times Extending

It is currently the end of January in the plan year, and due to supply chain disruptions our lead times are now quoted at 150 days vs our 90 day expectation. This is a problem as we have placed all PO's through May.

I am going to need to rework the Merch Plan and OTB to account for this 60 days shift in receipts.

Things I need to take into account as replotting my plan:

  • How will this impact my sales?
  • What inventory position will I be in?
  • How will this impact assortment for the seasons?
  • What is the risk to the KPI’s?
  • Can I cut future receipts or is it too seasonal?

Original Plan vs New Plan

Original Plan

New Plan

Impact on Receipts

  • Receipts for Mar and Apr are shifting 2 months out.
  • Since it is before we need to submit my PO’s for Jul, whatever we planned to bring in for May and Jun will need to be relooked at as we will not be able to receive them until Jul and Aug (There might be material liabilities).
  • If we want to keep my annual receipts at the level when lead times were 90 days, this will cause a 35% increase in the 2nd Half receipts.
  • Can we cut down on Jul forward receipts or are the 2nd half sales dependent on them due to the seasonal aspect?

Impact on Sales

  • Annual sales dropped by 5% as we will not be able to make up for the potential loss in sales planned off of the new receipts.
  • Apr - Jun are impacted the most due to the 20% less available inventory.
  • Other variables that could cause further impact to sales:
  • Wrong assortment at the wrong time.
  • Needing to take discounts or markdowns.
  • Loss on acquisition momentum.

Impact on Inventory

  • Inventory levels will be down in Apr - Aug and then will spike in Sep as receipts start flowing.
  • My Average WOS increases by 3.4 weeks on the year and 2.5 on the 2nd Half.
  • My annual turn looks better but my 2nd Half takes a dip.
  • I am now starting my following year with 912 in inventory instead of the 747. Is this carryover risky?

Conclusion (subjective)

In this example we don't have all the info to make an informed decision but based on the above scenario, I would:

  • Take down the number of weeks I normal plan Newness (Fashion) items for to avoid risking having too many seasonal products pushing into other seasons. If I normally buy newness to be 12-16 weeks of supply I would cut down 9-12 weeks of supply until I am on a more stable cycle.
  • I would extend the weeks of supply I buy key drivers and core items to. This will help keep sales going if there are further delays coming down the road. I would add another 2-3 weeks I want to hold. So normally I buy core every 2 weeks and hold 4 weeks of supply. I would up increase this to holding 6 weeks of supply.
  • I would also run forecasts on my core items more frequently so I can monitor any increases or decreases driven by product mix shifts and marketing efforts.
  • My end goal would still be able to cut down on the extra cost I would be carrying over into the next year.

Thoughts?

Chris Conroy
VP of Planning