Factors To Determine Supplier Delivery Frequency

Determining the best delivery frequency for suppliers into your facilities involves 3 key factors.

1. you need to to consider transportation costs. If your supplier ship frequently, you end up paying more in transportation per unit. What makes this analysis complex is that transportation rates are not linear. As you move from Truckload (TL) shipments to (LTL) market your costs per unit rise quickly. And, with truckloads, you need to also consider the capacity of the truck and explore to ship by train for long distance.

2. you need to consider the inventory costs. If your suppliers ship frequently, then you have less inventory. You have less cycle stock because each order needs to cover a smaller amount of demand. And, safety stock is lower because if you experience higher than expected demand, you can quickly get another order to make up the difference.

3. you need to consider supplier quantity discounts.

What makes this interesting is that the relationship between these factors changes over time. As oil price increases, the transportation costs are more important. As interest rates rise or your products have shorter life cycles, inventory costs become more important.