Why reducing lead times is crucial for inventory stock

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Lead times are the single largest factor that influence the performance of your supply chain. It’s no question that longer lead times exhibit the notion that you will have to carry more inventory stock, and thus there is a real risk of shortage.

Why do lead times matter?

Longer lead times suggest that it’s harder to introduce new products or respond to dynamic market changes because you are holding inventory stock in the supply chain system at any given time. This also increases the foreseeable consequences of the any quality issues, as when a problem is discovered you may have up to weeks or months of inventory stock already on the way from your supplier. In addition to this, the accuracy of sales forecasted is compromised the further ahead you need to plan. Therefore, the longer the lead time, the greater the chance that what you ordered is not what your customer wants when it finally arrives.

Why are lead times long?

Lead times can be rather long, however there are ways to reduce them. But first you need to understand what makes up lead times. You need to think about why you are sourcing your materials from greater distances for example. The economic factors of sourcing products have changed over recent years as Asian wage costs and currencies have proliferated. While outsourcing your products may have looked like a cost-effective alternative previously, there is a greater chance that this has now changed. This is specifically true when you factor in the total supply chain costs associated with longer lead times.

What factors affect lead times

While actual shipping times may not be that long there are several factors that you need to take into account that affect lead times. These include delays in the order processing by your business, delays in the order processing of your supplier, suppliers that wait to receive your order before they order materials, poor capacity management by suppliers or agents, delays from completion of the goods to shipping, delays in freight, delays at the port where goods are received for clearance, and further shipping. Some of these delays can add days or even weeks to lead times.

Better your inventory control and reduce lead times

This is where you identify your value streams within your supply chain and map them out. Value stream maps primarily consider the process within one facility. An extended supply chain value stream shows the flow of products from your supplier sometimes all the way through the supply chain to your business. You may go further and extend this through your business to your customers. By having the whole picture of the product and information flows, the supply chain value stream map will give you a greater understanding of what makes up your businesses lead times. You can then develop plans to start to reduce these lead times. The key is to involve your supplier in this process because it takes a collaborative approach.

The main goal here is to reduce lead times as much as possible and make things more easer for everyone. Begin by evaluating the information flow from you to the supplier and the product flow from the supplier to your business. As you build relationships up with your supplier and increase trust you may then be able to hone in on your supplier’s internal processes, effectively reducing lead times even further.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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