Order lead time is an important part of your supply chain management, inventory management, and warehouse management processes. A
nd reducing your lead times helps build trust among your customer base and keeps them coming back to your brand again and again.
Keep reading to learn more about the benefits of lead time reduction and how to optimize lead times for your direct-to-consumer (DTC) brand.
Lead time reduction refers to shortening the time it takes for a product to leave the manufacturing facility and arrive at its final destination.
The focus is on optimizing the purchase order processing and shipping so it takes fewer days, weeks, or months to complete. Short lead times are an indication of the brand’s supply chain efficiency.
There are lots of benefits to reducing your lead times. But some of the most notable are shorter waiting periods, improved control over the supply chain, and fewer wasted resources.
As you might’ve already guessed, lead time reduction is directly tied to shorter wait times – for you and your customers.
The idea is to limit the amount of time between when an order is placed and when it’s received. That way, your brand wastes less time waiting for products to arrive.
Besides boosting your brand’s productivity, shortened waiting periods also help reduce shipping times since the products you need are more readily available.
When you leave order lead times up to your suppliers, there’s a chance they won’t work as quickly as you’d like.
That’s to say, they may not work within the time frames you’d hoped for because there’s no one holding them accountable to work faster.
But when you take the time to invest in building stronger supplier relationships, you’ll have much greater inventory visibility and control over what’s moving in and out of your supply chain.
Lead time reduction can highlight where waste accumulates throughout your supply chain.
For example, you might notice the transport of finished products isn’t well-organized. And as a result, you’ll want to rethink your distribution routes or work with more convenient fulfillment centers.
With lead time reduction, you can cut out unnecessary steps (or stops) along the supply chain. This way, you stop wasting your company’s time, money, and other valuable resources.
When you’re not waiting as long for replenishment orders to arrive, you recover much quicker during a stockout (or possibly avoid these situations altogether).
Plus, when stockouts are no longer a concern, you can enjoy a steady revenue stream and maintain optimal inventory levels at your warehouse.
And fewer stockouts also mean greater fulfillment and delivery workflows, ensuring you always have the products your customers are looking for.
Delivery accuracy (the consistency between a customer’s order and what’s actually delivered) is the main ingredient to your brand’s success.
But when dealing with long lead times, it can be difficult to maintain this accuracy and keep up with delivery schedules.
Fortunately, lead time reduction boosts delivery accuracy in a big way. By waiting less time for inventory replenishment to arrive, you can keep up with consistent shipments for your customers (and ensure order accuracy).
Let’s face it: Shorter lead times will always work in your brand’s favor. Especially seeing as quick delivery windows help improve the customer experience. And as a result, it increases brand loyalty and overall customer satisfaction.
Say your company has a lead time of 1 week, whereas a competing brand has a lead time of just 2 days.
There’s a good chance that customers will spend their money with your competitor (assuming that pricing and product quality are equal between your brands).
Rather than miss out on potential revenue opportunities, your brand’s best interest is to improve your lead times and give customers the convenient experience they’re looking for.
Need a bit of guidance on reducing your lead times? You’ve come to the right place!
We’ve outlined 16 proven methods that’ll improve lead times across your entire supply chain — from forecasting to fulfillment and everything in between.
Mapping out your entire process will involve measuring the total lead time (plus variance). Plus, measuring and evaluating the lead times of your individual steps. This way, you know what lead times you’re currently working with.
You can’t exactly reduce your lead time if you don’t know what this time frame is. That’s why it’s good to begin by measuring the actual order lead time you have going on.
Calculating your lead time is pretty straightforward with the following formula:
|order lead time = [delivery date – order entry date]|
The delivery date is the day the order arrives at your warehouse, and the order entry date is the day the order was originally placed. Remember that you’ll also have to look for lead time variables like labor shortages or extreme weather events, as well as know how to calculate downtime if you’re involved in the manufacturing of any of your products, as these external situations can create inconsistencies in the flow of goods in, out, and through your supply chain.
Remember that you’ll also have to look for lead time variabilities like labor shortages or extreme weather events. These external situations can create inconsistencies in the flow of goods in, out, and through your supply chain.
Once you’ve calculated your actual order lead time, you can evaluate the lead times of individual steps throughout your supply chain. This might mean examining your manufacturing or production processes or how long it takes to deal with customer returns.
For example, to calculate manufacturing cycle time (the time it takes for an item to go from raw materials to a finished product), you can use the following formula:
|manufacturing cycle time = total amount of goods produced ÷ time of production|
If your company can reduce cycle time in manufacturing, you can enhance productivity and better manage logistics issues. Both of which can reduce your lead times.
As you assess all your different lead-time components, you’ll want to pay special attention to how you can optimize the order-to-delivery and new product planning processes.
The order-to-delivery process covers the entire flow from when a customer places an order until they get those products. Optimizing this process radically improves the customer experience. But it also has a positive effect on your lead times.
You can optimize the order-to-delivery process by placing orders earlier and having more consistent, timely communication with your primary or backup suppliers.
As you plan new products, the last thing you want to encounter is long lead times or production schedules as soon as the item launches. Typically, this is caused by overordering the first few shipments.
Luckily, leveraging proficient operations software can give you a better idea of how much of the new product to order. This way, you don’t have to worry about having too much (or too little) on hand or accidentally lengthening your lead times.
Better supplier relationships translate to preferred treatment from those suppliers and result in short lead times.
So, how can you win your supplier’s favor? You can work with local suppliers, sign contracts with individual suppliers, consolidate who you’re working with, and be more transparent about your production planning.
If your brand works with suppliers based overseas, you might look into partnering with local suppliers instead. When you form a partnership with a domestic supplier, you can automatically reduce your lead times by several weeks compared to shipping from a foreign country.
But if you do go ahead and switch suppliers, just make sure you have enough safety stock to carry you through the changeover (in case of a supply delay).
Signing a lead time contract is a great way to hold your suppliers accountable for delivery. That’s because, with this contract, both parties acknowledge the same lead time and agree to the same delivery date.
With this documentation in place, you can keep an eye on what your individual suppliers (and you) are doing and ensure they’re following through on your agreed-upon plan.
But the best part? Lead time contracts can also improve your supplier relationships by identifying areas that need improvement (so they can actually get fixed).
If you’ve never thought about consolidating your suppliers, now might be the time. Consolidation occurs when you reduce the number of suppliers you’re working with in favor of fewer vendors (that are hopefully more reliable).
By allocating more resources to a smaller number of suppliers, you’ll be placing bigger purchase orders with these suppliers and will likely receive better product prices. Plus, you reduce the risk of late shipments (since you have fewer vendors to manage).
With that said, if you do go the route of consolidating suppliers, be sure to double-check that your vendors can scale with your business as it continues to grow. Otherwise, switching suppliers will be another big move when your brand outgrows your current production partners.
Transparency is integral to the health of your supplier relationships — but this transparency has to begin with your production planning.
When you team up with an operations platform with production planning capabilities, you can map your growth plans and inventory needs for the next year. And you can do it without ever having to use a spreadsheet.
From there, you can share this 12-month plan with your suppliers so you can negotiate better vendor contract terms and work on reducing your total lead times.
Your best options to optimize product ordering include decreasing order quantity (while increasing frequency), reducing inventory backlog, testing out new shipping methods, placing timely purchase orders, and monitoring your inventory levels in real time.
Placing smaller orders with greater frequency can reduce your order lead times. One way to do this is by communicating your ops plans to your suppliers, then making a verbal or written commitment to order most of your products from them.
In exchange for this loyalty, your brand can request to place smaller production runs. Or, if your vendor has a strict minimum order quantity (MOQ), ask them to hold a portion of that inventory (so you don’t accrue premium carrying costs).
By placing smaller, more frequent purchase orders, you’ll naturally shorten lead times and greater supply chain efficiency. That’s because smaller orders take much less time to process.
If you’ve always relied on the same shipping method, it might be advantageous to look into other options. After all, there is a whole slew of choices out there to consider.
You can start by comparing the cost of flat rate, priority, 1st-class, 3-day, 2-day, and next-day shipping. Or, you can weigh the pros and cons of using the road, rail, ocean, and air transportation for your shipments.
Investigating all these different methods is going to require some time and energy. But if the outcome is a reduction in your lead times (and a rate that better suits your budget), it’s worth the up-front effort.
It’ll be tough to achieve shorter lead times if you’re not in control of your reordering process. The key is to place timely POs that give your suppliers plenty of notice to fulfill that order – before you go out of stock.
Luckily, leading operations software like Cogsy supports single-click purchase order creation. In other words, it’ll generate a unique, optimized PO catered to your brand’s specific inventory needs.
What’s more, platforms even deliver automatic replenish alerts, so you know when’s the perfect time to reorder. That way, you steer clear of stockout situations (and your customers can always find what they’re looking for).
Another great way to optimize your product ordering is with the help of real-time inventory updates. More often than not, these updates are best delivered via an operations partner — especially one equipped to track your inventory around the clock. (Call us biased – but we love Cogsy for this.)
Using this kind of operations platform, your team will have incredible visibility into inventory levels, customer orders, product movement, and more.
This real-time data is a big player in order lead time. That’s because it allows you to stop ordering products you don’t need and make smarter purchasing decisions moving forward.
Online retailers can improve forecasting accuracy simply by analyzing historical sales and customer demand data, and being sure to account for seasonal changes in demand.
To predict your brand’s future, you’ll first need to look at its past. Historical sales data is the backbone of inventory forecasting. And analyzing this information is necessary for projecting the future demand for your products.
As you comb through your previous sales data, you’ll likely discover sales trends and buying patterns that can guide your reordering efforts.
You might also notice that certain SKUs are underperforming compared to what you previously projected. Meaning, you’ll want to order fewer of those items in the future (or discontinue them altogether). And others are over-performing, and you’ll need to order more.
Either way, this information makes your future forecasts that much more accurate. And with these more accurate forecasts, you can work with your suppliers to prepare for this demand, so you’re not stuck with longer lead times when you change the size of your production runs.
Seasonal demand often occurs around Black Friday/Cyber Monday, and the weeks leading up to Christmas. However, seasonality can affect your inventory needs at any time of year, depending on what you sell.
It’s important to recognize and account for these seasonal shifts since they will greatly impact your demand planning.
Say you sell sunscreen, for example, and you see a spike in demand every Summer. Then, you’ll want to inform your suppliers about this and place your orders months in advance (in case any delays pop up with lead times or order fulfillment).
This way, you protect your bottom line from seasonal stockouts and keep your cash flow steady during your busiest, most profitable time of year.
When you want to increase your warehousing efficiency, some practical places to start include reorganizing your storage space and automating your operational processes.
A disorganized warehouse makes it difficult to see what inventory you have on hand. This makes it a challenge to reorder the right products.
That’s because a messy space is more vulnerable to human errors that affect your inventory accuracy. And it can throw off your forecasting estimates.
When you take the time to reorganize your storage space, you can immediately increase your warehousing efficiency.
Plus, you can set your team up for continued success by using uniform bins and pallets (and properly labeling all of your products). That way, your newly organized warehouse space stays organized.
Another way to improve your warehousing strategy is by automating internal processes.
For example, you can use operations software to automatically calculate your reorder points. The best ops tools like Cogsy will, then, remind you when your inventory levels approach that reorder point.
Automating these types of processes takes the guesswork out of replenishment, so you reorder in plenty of time to bypass potential bottlenecks in the supply chain.
Lead time is the interim period between when a retail brand places an order with its supplier and the shipment is received at the brand’s warehouse. A short lead time is considered 2-4 weeks, while a longer lead time might last several months to an entire year.
Reducing lead time is important because this supports less wasted resources, faster recovery during stockouts, and increased customer satisfaction. In addition, shorter lead times also translate to improved control of your supply chain processes.
Lead time is how long it takes for a supplier to complete a customer’s order. In other words, it’s the time between order input and order fulfillment. Cycle time, however, is how long a team spends to produce or manufacture an item (up until that product is ready for shipment).