Information and Physical Transit Time
Inventory Efficiency is generally based on data extracted from your ERP. Transportation Transit Time is the ERP parameter used to offset the planned receipt date in order to calculate the ownership transfer date (based on the INCOTERM), or, at least, the planned shipped date from the supplier.
This date is maybe not the one when your ERP In-Transit inventory will be updated based on the information of the material quantities actually transferred for different reasons:
- ERP Transportation Transit Time defined the shipment time and not the ownership transfer date, which is a common mistake. For example, if you are using a FOB INCOTERM, the Transportation Transit Time has to show the date when the material will be transferred on the Boat, not the date when it will be shipped from the supplier;
- The supplier does not have real time communication with you nor has communicated with you at least within the day;
- You do not update your ERP as soon as you have the information of the transfer.
EDI messages like Advanced Shipping Notice can be an answer to insure that your ERP will be updated real time. Anyway, if your supplier is sending ASN by EDI at the time of ownership transfer, you have to check if it will be processed immediately by your Information System and updates your ERP. In some cases, this update is postponned to the following day because its process is part of the night job streams.
It is interesting to create a document like the following one in order to define the transportation parameters used in your Efficiency calculation, based on the description of your physical and information transportation processes:
Formalizing Information and Physical flows in the same document allows to define the right parameter values to be used in the Inventory Efficiency calculation.
The following examples explain specific cases shown in the document above:
1.
In this example, the Information Transit Time is the same but the Time Between 2 Deliveries is different from Monday to Wednesday and from Wednesday to Monday. You will have to use the maximum value: TB2D = 3.
2.
In this example, the Information Transit Time varies as well as the Time Between 2 Deliveries. You have to choose the situation where Total Lead Time is the maximum, i.e.: Information Transit Time = 6, TB2D = 2.
When you have more than one situation giving the maximum Total Lead Time, with different TB2D, you have 2 solutions:
- if you intend to find which delivery frequencies have to be increased, it is better to choose the situation with the lowest TB2D to increase "artificially" MOQ/Production Batch ratios;
- if you are not planning on increasing delivery frequencies but decreasing them for references with a ratio greater than 2, chose the case with the highest TB2D.
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