Why should replenishment lead time be considered in supplier selection decisions?
What will be an ideal response?
Answer: As the replenishment lead time from a supplier grows, the amount of safety inventory that needs to be held by the buyer also grows proportional to the square root of the replenishment lead time. Lead time performance by a supplier can directly be translated into the required safety inventory. Scoring the performance of suppliers in terms of replenishment lead time thus allows the firm to evaluate the impact each supplier has on the cost of holding safety inventory.
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