When customers can purchase with one click, they want the product to arrive just as fast. But complications often arise, impacting your lead time — the time it takes from order placement to delivery.
Understanding lead time helps you identify potential friction points in your supply chain. This knowledge also lets you proactively implement new strategies that increase efficiency, reduce waste, and get your products into the hands of paying customers sooner.
What’s lead time?
Lead time refers to the interval between the initiation and completion of a process. In the manufacturing industry, the term refers to:
- The time it takes to get inventory to your warehouse
- The time it takes to get an order in the hands of customers
You can look at lead times holistically, considering how long it takes to receive an order, manufacture the goods, and ship them to the customer. Or you can use various lead times to understand how efficient specific areas of your supply chain are (or aren’t).
Either way, tracking lead times is a critical aspect of inventory control. Knowing this metric helps you maintain adequate inventory levels while simultaneously avoiding overstocking. Without this knowledge, your orders could be too early or too late based on current demand, leading to complications for your warehouse and distribution teams.
Types of lead time in the supply chain
Familiarizing yourself with the various lead time types will help you make more informed decisions regarding shipping and fulfillment processes. In turn, this information lets you proactively remove bottlenecks, facilitate short lead times, and better serve customers.
Product lead time
Product lead time, or manufacturing lead time, refers to the time it takes to yield a finished product. This metric considers several processes, including:
- Planning
- Sourcing materials
- Manufacturing
- Quality control
- Assembly
- Delivery
- Delays
This is one of the most important lead times to track for inventory management purposes, but accurately tracking it might require revamping your inventory management solution. A comprehensive and flexible solution like Fishbowl simplifies product lead time tracking and helps you improve overall operational efficiency.
Delivery lead time
Delivery lead time tracks how long it takes to move a product through distribution and transportation channels. The clock stops when the customer receives your product.
This type may include the following:
- Picking and packing
- Scheduling transportation
- Transit
- Customs clearance
- Delivery delays
Tracking delivery lead time is crucial because once you notify a customer that your team has received their order or that you’ve kicked off the delivery process, the anticipation begins. If you meet or exceed initial delivery estimates, you’ll develop a strong brand reputation and build customer loyalty.
Order lead time
Order lead time refers to how long it takes to fulfill an order after a customer places it. While this metric and delivery lead time overlap, the former adds a few steps to the calculation, including:
- Order processing
- Production
- Inventory management
- Fulfillment
To keep order lead times low, carefully monitor production capacity, distribution networks, and inventory levels. Even a seemingly small variation in any of these factors can extend lead times and potentially frustrate customers.
Material lead time
Material lead time tracks how long it takes to source necessary raw materials and components. This type typically covers:
- Placing orders with your suppliers
- Processing purchase orders
- Transporting materials to the manufacturing facility
- Inspecting and preparing materials for use
For years, material lead times weren’t a key concern for manufacturers, as components and raw materials arrived month after month like clockwork. But global events over the last few years, including ongoing geopolitical conflicts, have stretched U.S. material lead times.
While many of these factors are out of your control, you can mitigate their impacts on your lead times by diversifying your supply chain. Using a combination of nearshore, offshore, and — where possible — domestic suppliers can significantly increase supply chain resilience.
Cumulative lead time
Cumulative lead time looks at the big picture, covering every stage of the product development process, like:
- Manufacturing
- Procurement
- Production
- Quality control
- Transportation
- Delivery
By tracking cumulative lead time, you can better understand overall supply chain efficiency and how it impacts your bottom line.
Essential components of lead time
Generally speaking, lead time can be divided into six components. Since any could be the source of a delay or the key to improving overall efficiency, note the importance of each:
- Pre-processing time: The time it takes to receive a request and then create a purchase order.
- Processing time: The time it takes to procure or produce the order.
- Waiting time: The time it takes to acquire materials and components.
- Storage time: How long goods are stored in a warehouse before they’re ready for delivery.
- Transportation time: The time it takes to deliver goods to your customers.
- Inspection time: The time it takes to check products for damage or defects before delivery.
Not all lead time types include these phases — delivery lead time doesn’t account for waiting time, for instance. However, understanding each one ensures that when you do track any of the previous lead time types, you consider the right crucial components.
Long versus short lead time
Lead times are considered “long” if they’re significantly greater than the industry standard — or what your team defines as normal. By contrast, short lead times are more condensed than the industry standard, demonstrating that you’ve achieved efficiency gains in one or more processes.
While you can’t always shorten lead times due to factors outside your control or other roadblocks, strive to beat the industry standard and stay on the low side of acceptable ranges.
Factors that affect lead time in the supply chain
Multiple factors impact your lead times, including:
- Material delays
- Labor shortages
- Supplier disruptions
- Software inefficiencies
While supplier disruptions, labor shortages, and material delays aren’t under your control, the tools you use to manage inventory are. Investing in quality inventory management tools will help you better understand supply chain trends, mitigate risks, and deliver more customer value.
How to combat and avoid long lead times
Here are five strategies to help you avoid long lead times to keep customers happy, preserve your reputation, and protect your bottom line:
- Plan ahead: Map out manufacturing and customer service processes to plan for possible bottlenecks and disruptions.
- Consider air freight: If you’re in a pinch, have goods shipped via air freight so they will arrive faster.
- Diversify your supplier network: Connect with nearshore suppliers less impacted by global disruptions.
- Have contingencies in place: Keep supply reserves on hand and backup partners on speed dial so you can adapt to shifting circumstances.
- Adopt modern inventory management technology: The right inventory management software makes all the difference, helping you quickly respond to changes.
While you can implement some of these strategies immediately — like mapping out processes and creating contingency options during the planning process — others take time. For instance, diversifying your supplier network requires identifying quality partners, vetting them, and negotiating favorable contracts for all parties.
But taking lead time reduction seriously pays off. You’ll enjoy:
- Increased product output that leads to higher yearly return on investment
- Happier customers who receive their products quicker than expected
- Improved processes that reduce misunderstandings and increase employee productivity
Reduce long lead times with Fishbowl
Want to leave long lead times behind for good? If so, Fishbowl, which offers both desktop and cloud-based inventory management solutions, is just what you need. With Fishbowl, you can effortlessly control stock, warehouse, sales, delivery tracking, and manufacturing processes.
And take advantage of Fishbowl Manufacturing, which connects parts, people, and procedures throughout the manufacturing process. From tracking product and material handling to optimizing project capacities, Fishbowl manages everything in one convenient application so you can maintain a holistic operational view.
Check out Fishbowl today and learn how to reduce your lead times.