Strategies for Dealing With Long Lead Times While Maintaining Optimal Stock Levels
When it comes to inventory planning, accounting for lead times is a critical component to ensuring you are maintaining optimal stock levels. Different suppliers and products may have different lead times, so knowing when and how much to order from each vendor can be the difference between having an item in stock to fulfill a customer’s order or losing out on a sale.
In this article, we’ll outline strategies you can employ to reduce unnecessarily long lead times, as well as tips for managing varying lead times between suppliers, so you can be sure you have the right amount of stock to meet customer demand.
What Are Lead Times?
Lead time refers to the duration it takes for a product to move through your supply chain, from when you place an order to when it arrives at your warehouse. It encompasses the time required for manufacturing, assembly, shipping, customs clearance, quality control, and other logistical processes.
Lead time is a KPI that can significantly impact businesses and their supply chain operations. Extended lead times can affect demand forecasting accuracy, inventory replenishment cycles, customer service levels, and financial planning. Depending on the product and the supplier, lead times can fluctuate greatly, so it’s critical for retailers, wholesalers, and e-commerce businesses to keep track of how long it will take between ordering an item from a vendor and when that item is in stock and available for sale to avoid stockouts or excess inventory.
Different Types of Lead Times
Lead times can refer to different parts of your supply chain, including how long it takes for you to get the product to your customer. Here are some of the most common lead times to pay attention to when planning, managing, and ordering your inventory:
Supplier lead time (SLT). Supplier lead time is the total time it takes for a supplier to ship a finished product to you.
Production lead time (MLT). Production lead time is the time it takes to produce a product before it is ready to ship.
Order handling lead time (OHLT). Order handling lead time is the time it takes to create a sales order after receiving a customer order. This is particularly relevant for direct-to-consumer businesses that don’t hold inventory and must place orders with suppliers as they receive them from customers.
Order lead time (OLT). Order lead time is how long it takes between receiving a client order to delivering it (it can be calculated by subtracting the dates of these two occurrences or by adding pre-processing, processing, and post-processing).
Delivery lead time (DLT). Delivery lead time refers to the time it takes for the supplier to ship and deliver the order to your warehouse.
How to Calculate Lead Times
Because your suppliers determine lead times, you don’t have much control over how long they might be. In addition, there are countless factors that can also affect supplier-set lead times for production and fulfillment, including shipping issues, material or labor shortages, natural disasters, and trade wars. That’s why it is critical to make sure you are monitoring the existing lead time performance averages of your suppliers and factoring that information into your ordering processes.
The most important metrics surrounding lead times are speed and reliability. Obviously, shorter lead times allow you to get products as quickly as possible after you place an order, making it easier to process those items into your inventory to be ready for sale. But reliability is also critical, as being able to consistently predict lead time allows you to accurately calculate when you should be placing your orders.
To calculate your total supplier lead time, use this formula:
Lead time = Order processing time + Production lead time + Delivery lead time
The Difference Between Lead Time and Related Terms
Lead Time vs. Cycle Time
Lead time and cycle time are often confused in project management and manufacturing processes. Lead time refers to the total time taken from the initiation of a process to its completion, including any wait time or delays. It represents the overall duration required to deliver a product or service. On the other hand, cycle time refers to the actual time spent performing a specific task or activity within the overall process. Understanding and managing lead and cycle times can help optimize efficiency and identify workflow bottlenecks.
Lead Time vs. TAKT Time
Lead time and TAKT time are two critical metrics used in process optimization, particularly in manufacturing settings. Lead time refers to the total time it takes for a product to move through a process or system from start to finish. TAKT time is a concept that focuses on the rate at which products must be produced to meet customer demand. It is derived from the available Net Production Time (NPT) divided by the customer demand rate. TAKT time is used by suppliers to establish a production pace that aligns with customer needs, ensuring a smooth flow of work and avoiding bottlenecks.
Strategies to reduce long lead times
Remove unreliable suppliers from your supply chain
Identify and eliminate suppliers who consistently fail to meet deadlines and cause supply chain crises. Relying on dependable suppliers will contribute to shorter lead times and smoother operations.
Share your demand forecasts with suppliers.
By sharing your demand forecasts with suppliers, they can better anticipate your needs and adjust their production schedules accordingly. This alignment between demand and supply can minimize lead times and ensure a steady inventory flow.
Prioritize domestic suppliers
Working with domestic suppliers often results in shorter lead times than with international suppliers. Reduced shipping distances and fewer customs procedures can improve delivery and overall efficiency.
Increase order frequency
Instead of placing large orders infrequently, consider increasing the frequency of smaller orders. This approach can help maintain lower inventory levels while allowing for faster replenishment and reduced lead times.
Refine your supply chain management
Continuously evaluate and refine your supply chain management practices to identify bottlenecks and inefficiencies. Streamlining processes, eliminating unnecessary steps, and optimizing workflows can shorten lead times and enhance overall operational efficiency.
Optimize your inventory levels
Striking the right balance between inventory levels and customer demand is crucial. You can reduce excess inventory and minimize the effect of long lead times by adopting efficient inventory management techniques, such as just-in-time (JIT) or lean inventory principles.
Improve communication with suppliers and customers
Effective communication with suppliers and customers is vital in reducing lead times. Clear and timely communication ensures that all parties are aligned on expectations, potential delays are identified early on, and necessary actions are taken to mitigate disruptions.
Identify and Solve Long Lead Times with Inventory Planner
Inventory Planner is a market-leading inventory planning software that offers reliable customer demand forecasting and inventory purchasing recommendations to avoid under- or overstocking and keep inventory levels optimal. It allows you to easily adjust lead times for each SKU, brand, product category, and supplier, so you can be confident that each lead time is always up-to-date and your purchasing recommendations are being calculated using the most current and accurate information.
Plus, with Inventory Planner’s advanced reporting, you can quickly identify overstock, best-sellers, and slow-movers, so you can optimize your purchasing cycles accordingly. This allows you to make sure you are buying enough stock of your best-sellers and not overbuying slow-moving products that will result in overstock that traps your valuable cash flow.
Inventory Planner factors in numerous valuable metrics aimed at helping you streamline processes, optimize inventory levels, and make data-driven ordering decisions to help you grow and scale.
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