Lead time in shipping is so much more than just delivery time. It includes the entire product journey, from order placement until the product reaches the customer’s doorstep.
Lead time management is a vital business management component. It ensures that the customer receives products as and when they need them. It also helps to keep inventories under control.
The longer the lead time, the higher the risk of stock-outs. Optimizing inventories in long lead-time environments is difficult. Excess inventories tie up capital and increase inventory holding costs. Businesses become less agile as demand forecasts can’t closely follow demand changes over longer periods.
Lead time management is the key to stock optimization. Optimized inventories will improve operational performance, lower holding costs, and lead to happier customers.
Definition of lead time in shipping
Lead time in shipping is the total time between order placement until goods delivery to the customer’s address. It includes every process needed to deliver the order.
Lead time in shipping starts with sales order processing. It moves on from there to production, where applicable, to packing, and delivery.
Delivery time covers the in-transit shipment time from the warehouse or distribution center until it reaches the customer’s delivery point. Lead time and delivery time differ since delivery time is just one lead time component.
Different categories of lead time
There are four lead time categories.
1.Customer lead time
The time from order confirmation to delivery. Customer lead time includes all processes needed to complete the order, including order processing, packing, shipping, and delivery.
2. Material lead time
The time taken to order and receive raw materials to produce goods. This includes the time to place the order, process it, and ship the materials to the production site or warehouse.
3. Production or manufacturing lead time
The time needed to manufacture a product once the materials arrive. Production lead time includes all production stages, from initial setup, through assembly or production until the final product moves into the warehouse waiting for shipment.
4. Cumulative lead time
Cumulative lead time is the total time to complete a product or order from start to finish. It is the sum of the customer lead time, material lead time, and production lead time. Cumulative lead time provides a comprehensive view of the full process from raw material procurement to final product delivery.
The importance of lead time in shipping
Lead time in shipping plays a vital role in optimizing inventories. Reduced lead time will deliver several benefits, including the following:
Customer retention
Shorter, predictable lead times improve the customer experience. Quicker delivery promotes trust, encouraging repeat business. Regularly meeting or surpassing delivery expectations will help your business retain customers.
Optimized inventories
Well-managed lead times allow businesses to optimize inventory. Now, you can reduce excess stocks without running the risk of stock-outs. Lower stocks cut storage costs and release capital invested in inventory, improving operational efficiency. Shorter lead times also mean you can quickly respond to changes in market demand and reduce obsolete inventory risk.
“Netstock has provided us with increased visibility and flexibility in decision-making. Our relationships with suppliers have significantly improved with clearer anticipated orders. They appreciate the transparency and reliability in our projections, allowing them to plan their production more efficiently.” – Eastern Warehouse Distributors.
Realistic delivery dates
When you understand your lead times, you can set realistic delivery dates. Reliable delivery estimates help you manage customer expectations and build customer loyalty.
Factors affecting lead time in shipping
Various factors can affect lead time in shipping. These include:
- Material shortages and supplier delays: Late material deliveries disrupt production schedules and delay order fulfillment. They have the potential to significantly delay production.
- Labor shortages and poor management: A skilled worker shortage or inefficient management will impact production, increasing lead times.
- Shipping delays and logistics issues: Transportation problems, customs clearance, weather conditions, and logistical inefficiencies may delay shipments.
- Production process efficiency: Streamlined and well-managed production processes can shorten lead times. Production inefficiencies, machine breakdowns, and bottlenecks can delay product completion and delivery.
- Inventory management practices: Optimal inventory levels ensure materials are available when needed, reducing the time it takes to complete orders.
- Supply chain synchronization: Coordinate and synchronize all supply chain processes to reduce lead times.
Strategies to reduce shipping lead time
There are a few strategies you can use to reduce shipping lead times.
Optimize inventory management
Two inventory optimization strategies have been developed with proven efficiency.
- Just-in-time inventory management: JIT is widely used to reduce lead times in manufacturing. Under JIT, materials and products are ordered and received as needed. This cuts excess inventories and reduces the time to manage and store surplus stock.
- Setting appropriate reorder levels: Establish reorder points to replenish inventory before it runs out. Automated systems set dynamic order points to respect seasonality and follow demand changes.
Streamline internal processes
Streamlined internal processes can reduce lead times. Consider the following:
- Outsourced pre-production tasks: Free up resources and reduce production time.
- Automate fulfilment and inventory processes: Automated systems can speed up order processing, picking, packing, and shipping. Automation also improves accuracy by reducing human input.
Partner with reliable shippers
Optimized stocks depend on reliable suppliers. Improve supplier performance through regular performance assessment and monitoring. Ensure that shipping partners consistently meet delivery expectations.
Include lead time requirements in supply contracts. Ensure that all parties understand your expectations. Stipulate penalties in the supply contract and take corrective actions when shipping partners and suppliers miss lead time requirements.
Consider drop shipping
Drop shipping saves time in the retail industry. Orders are shipped to the customer from the supplier, and the seller doesn’t have to manage inventory. There is no intermediate shipping and handling, and delivery times are considerably faster.
Use a reliable shipping platform
A reliable shipping platform automates shipping tasks, tracks shipments in real-time, and provides insights into delivery performance.
Key features to consider in choosing a shipping platform include:
- Real-time tracking
- e-Commerce platform integration
- Automated label printing
- Shipping rate comparison
- Customizable notifications
Simplify the supply chain
Consider consolidating your requirements using fewer suppliers. This will simplify the supply chain, reduce replenishment complexity, and speed up order coordination.
Coordinating and synchronizing deliveries ensures materials arrive on time and in the right sequence. Reliable deliveries reduce lead times, preventing production delays.
Enjoy the benefits of reduced lead times
Installing a lead time reduction program in your business could be your most important action this year. Improve your market response time with shorter lead times. Reduce costs and build stronger customer relationships.
Demand and supply planning software solutions like Netstock can help you streamline operations, improve lead time accuracy, and enhance supply chain performance.
