Reducing Supply Chain Lead Time

If you’re in the business of supply chain, logistics or purchasing, referring to the last couple of years as “challenging” is a gross understatement. Inflation, war and pandemic have caused market conditions to shift rapidly and forced companies to showcase their creative side when it comes to avoiding the worst pitfalls. 

One of the major effects of the pandemic was the huge supply chain bottleneck due to lack of staff and available containers for oversea shipments from Asia. This situation highlighted two crucial aspects of supply chain management; the vulnerability of not having options in terms of where to carry out manufacturing and; the need to reduce lead times. And, although we are very much still in the state of crisis management, it would be foolish not to take advantage of the learnings we’ve had so far. In this article, we want to dive deep into the area of lead times and provide 5 concrete tips that can help you improve in this area.  

Defining lead time and the advantages of reducing it

Lead time is, simply put, how long it takes to produce a product, from order placement with supplier to end delivery to customer. Usually, you separate between production lead time and transportation lead time, since these operations are normally carried out by different parties. 

Decreasing lead time brings about numerous advantages, such as improved customer satisfaction, decreased waste of resources, faster replenishment of sold-out items, and increased delivery accuracy - all of which are fundamental in the success of any business. However, in order to reduce lead times, it is necessary to identify strengths and weaknesses in your supply chain operations and to keep in mind what your overall business strategy and goals are.

With that in mind, let’s get to the good stuff.

5 tips to help you decrease lead times

1. Multiply Purchase Order Frequency

Instead of buying in big bulks, consider ordering from suppliers more regularly by placing smaller orders more often. This method of ordering can help improve your inventory turnover, thus saving you money in holding inventory. A downside may be increased purchasing and transportation costs due to not reaching MOQ. However, if you consider the risk of not having goods at all, you might find it a good compromise.

2. Improve Supplier Relations 

To ensure  successful supplier relationships, it is necessary to be forthright and honest with your trusted suppliers, as you will likely be engaging with them for a prolonged period. Openness and dependability is vital to make sure that communication related to production planning is running smoothly and can be hugely effective in increasing efficiency in production.

Share your demand forecast with your suppliers 

As demand forecasting can reveal increases or decreases in demand, suppliers should be informed accordingly and well in advance. Doing so will increase flexibility and prevent production bottlenecks, whether it be through acquiring more raw materials or increasing production capacity. 

Include lead time in your supplier agreement

To guarantee the shortest lead time possible, it is wise to have a contract in place with your supplier, stating the terms and conditions of the manufacturing and transportation processes. This will not only help to optimise your operations, it will also enable you to evaluate your supplier's performance.

Increase partnership with domestic suppliers 

Although there are some products only available from foreign sources, local producers can be a good option in terms of providing raw materials and manufacturing services. Going local can help to shorten transportation lead time, eliminate customs management, and decrease tariff costs that come with international sourcing.

Remove Underperforming Suppliers From Your Portfolio

Cutting ties with a supplier is never an easy decision, but it may be necessary on occasion. If a vendor is not dependable in their time estimates or repeatedly delays shipping, it can be extremely frustrating for everyone involved, from your team to your customers. Having to constantly adjust the lead time you offer customers due to an unreliable supply can negatively impact your business's reputation and cause further disruption in your supply chain.

Measure Supplier performance

It is important to have a process in place for how to review and evaluate your suppliers. By working with this in a consistent and structured manner, with data-backed facts, you will be able to achieve efficiencies. Make sure to establish key performance indicators and data points to evaluate supplier performance, as well as a corrective and preventive action plan. We guarantee that this will be a win-win for you and your suppliers, as it will help to highlight risks and enable you all to improve.

3. Eliminate Manual Order Entry and Processing

Automation can help to eliminate mistakes caused by manual operations and incorrect assumptions, reduce lead time and free your team of redundant tasks. Moreover, it can provide more accurate metrics for data collection, tracking, and reporting - which can help to improve your understanding of the business and make more precise estimates of lead times. Are your orders getting delayed because of misunderstandings? How quickly can you submit an order to a supplier? Has the supplier ever failed to deliver an order?

Review your current tools and make sure they support your overall goals and ambitions, as well as facilitate automation.

4. Try Out Different Shipping Methods

Exploring different shipping methods can be beneficial for you if you have been using the same forwarder for a long time. Examining the costs of different rates from different freight forwarders can be a great starting point. Additionally, looking at the advantages and disadvantages of using road, rail, ocean, and air transportation to transport your shipments is also an option. Although it may take some research and effort to investigate these various methods, the payoff could be a reduction in both lead times and costs.

5. Increase Warehousing Productivity

When your warehouse is in disarray, you compromise your inventory reliability, which in turn can lead to inadequate order fulfillment and influence your forecasting accuracy. By investing in arranging your storage area, you can quickly enhance your warehousing effectiveness.

With this in mind, there's a lot that can be done, but don't jump on all initiatives at once. Start now but start small, and you'll find that you'll be able to enjoy the roi's of your work sooner than later.