Longer lead times in the supply chain can cause a series of negative effects for both the customer and the seller. In fact, lead time is the single biggest factor influencing the performance of your inventory control processes and supply chain in general, which means managers need to take care to reduce it as much as possible.
Firstly, this article explains the series of factors that can increase lead time, and further, explains the negative effects of long lead times in the supply chain on your business. Lastly, the article offers a selection of tips for reducing lead time, primarily by implementing an extended supply chain value stream map.
The shorter the lead time, the faster your products can be sold and the easier it will be for your company to increase profits. Shorter lead times are beneficial for all parties, and this article will help you to identify the causes of longer lead times to illustrate how you might reduce them.
The basics of lead times
Lead time is the time it takes between the initiation and completion of a production process for a product or products. This includes the order placement, sourcing of materials, manufacturing and delivery of the final product.
Lead times can be particularly long if you are sourcing materials or products that are a long distance away. For example, many manufacturers source raw materials from overseas, and many customers buy final products in different countries.
However, other factors can increase lead time unnecessarily as well, such as delays in order processing, inefficient capacity management by suppliers, delays at the receiving port and much more.
Other factors may include decisions to give your product a low priority or poor internal processes at the suppliers’ end. Delays at the freight forwarder or the use of non-direct shipping routes may also increase lead time. These factors can significantly influence your inventory control processes, and your supply chain in general.
Reducing lead times for better inventory control
A useful method for reducing lead times is implementing a map that traces the flow of products from your supplier, from their supplier and all the way through the supply chain to your business. This is what you might call an extended supply chain value stream map. This map will be even more useful for reducing lead times if it also traces the flow of products through to the customer.
In being able to trace the entire process, an extended supply chain value stream map will give you full oversight of the entire order, and make the process of inventory control much smoother and easier to navigate. Moreover, this will give you a much clearer understanding of the specific events that are increasing lead time.
With this knowledge, you can easily develop a future state map to start to reduce lead time. As this is an attempt to make lead time shorter for all parties, it is a good idea to involve your supplier and build their trust first.
You may be best off initially looking at the information flow from you to the supplier and the product flow from the supplier to you. This will give you some key information about how the process first begins, and therefore will give you a head start in attempting to reduce lead time overall.
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.