What is Lead Time Supply Chain and Why is it Important

What is lead time in inventory management?

Lead Time Supply Chain

The inventory management system of any company proves to be the basis of its success and prosperity. Therefore, it is undoubtedly crucial that you have an effective inventory management system in your company. Lead time supply chain and other calculative measures can be taken to optimize your inventory. In addition to this, you are always required to deliver the goods and services right on time to the customers when needed the most because it is only the inventory that will either establish or collapse your firm.

Similarly, to develop faith and credibility with buyers, it is also essential that the prospect of a lead-time supply chain in your company must be as fast as feasible. Plus, it contributes a lot to making or breaking relationships with your customers. Plus, as quickly as the supply chain lead time is, you will be able to offer the services more effectively to your customers. That is what we will cover today in this article, all about your company’s lead time supply chain and how you can work to reduce it as much as possible.

 

What Is Lead Time In Supply Chain Management?

Lead time is the period on which you make an order to your supplier to send you some inventor until that inventory arrives on your business’s shelves and is sold out to the ultimate consumers. This can be understood more clearly with an example; like when you want some grocery items, you make a list for them. The time spent making a list and going to the grocery store to buy those items will be your lead time. 

Furthermore, the prospect of a lead time supply chain plays an essential role in fastening the order process and delivering goods right on time to the customers. In addition, lead time in the supply chain varies in different products. You will have to consider the exact time of how long it takes to prepare the product you ordered and then deliver it to your company’s warehouses. The lead time refers to the time from your booking order to your vendor or supplier to when it arrives at your location and is finally delivered to the consumer. In every business, the lead time is preferred to be as short as possible because any delayed response would induce irritation in your clients, which will also interrupt your company's operations.

Importance of Lead Time Supply Chain:

Your company’s inventory lead time must be handled effectively to satisfy all of your customers. If you notice a product is gaining popularity in the market, you should order it in the correct quantity from the supplier to complete orders on time. Fast order delivery equals pleased customers, and who doesn't want that?

If your orders aren't shipped regularly at the stores, the company won't continue providing the customers at the appropriate and needed time, resulting in client loss. However, you may eliminate this issue by ordering goods more regularly, avoiding the pitfalls of stockouts, and better managing your inventory lead time.

 

Calculating Lead time:

The lead time of your business's inventory is easily estimated by predicting how long it takes for the vendor to approve the request until it arrives in your warehouses and is then sent to your clients. You should do everything necessary to limit the lead time of your stock as much as practicable so that the orders will not become stalled and start building up in the pending section.

It is no secret that to run your business successfully, you must verify your vendor's order processing responsibilities to ensure that you submit your order well within an acceptable amount of time, allowing your supplier to check and process it without causing you any delays.

The accurate formula for estimating your company's inventory lead time is as follows:

 

Lead time = the delay in the re-ordering time + the delay in the supply time. 

 

How To Reduce Lead Time In Supply Chain

It is evident that if we order something as a customer, we would prefer to attain that specific product within a minimal amount of time. Customers are always impatient, and there is nothing wrong with this because as fast as you are served, you will prefer that store or provider in the time to come.

Similarly, when running an e-commerce store, we must provide the products to the public on time. Therefore, your lead time must be reduced because it will help you work more effectively in serving the buyers at the right time. You can not expect the customers to wait forever because they get impatient quickly. Therefore it is your core inclination to maintain the lead time of the supply chain by using modern and digital techniques so that you can compete with your competitors and meet the needs of your customers efficiently. 

Many companies hire expert services for taking guidance and assistance regarding how to maintain and reduce the lead time in the supply chain. However, in the current era, nothing is impossible. Everything is available over the web. You can choose from numerous opportunities and opt for the best that suits you and your business.

Some of these practical ways are discussed as under:
 

  • Automated Inventory System:

Using modern technology while conducting the everyday activities of your company would be effective in terms of fastening the production process and improving the quality of your products. Once digitalized, your records are kept accurately without any risk of miscalculation. Moreover, you can check how many orders are received and how many are still in transit. This will also help you estimate the lead time of your supply chain. 

If one uses the most up-to-date and enhanced inventory management system, it may also assist you to control the lead time of your company's inventory. It can be thought of as implementing automated software for successful inventory control so that orders are accurately built, accepted, and forwarded to suppliers at the appropriate time. As a result, your stock and the supply chain's lead time will be reduced. Similarly, implementing automated technology in your company will save manual work, allowing you to focus on other aspects of your organization.

  • Minimization of Orders:

It is a known fact that when a company orders a product in bulk, keeping a view of future sales will create problems for your business. In terms of storing those products, the maintenance and repair costs are constantly charged until they are sold out. This results in the reduction of your business's profit.

Optimizing the number of your orders is the first step in reducing your company's inventory lead time. You should always approve the excellent order, and it can be delivered on time. Well, let's face it, delays and waiting orders will only cause discomfort to your firm and end up losing consumers. As a result, accept orders that can fulfill within the stated time frame first, and then place orders with suppliers at the appropriate processing time so that your lead time is not extended.

  • Offering Incentives to the Suppliers:

Suppliers are those most influential people who will provide you with the products and services ordered to you by the general public. Therefore, it is crucial to keep these suppliers happy. In addition to this, if your company consistently delivers things on schedule, it should offer a specific incentive to its vendors, such as a bonus. Similarly, a corporation may insert a penalty clause in the supplier contract to follow the agreed-upon requirements.

Maintaining a solid relationship with your suppliers is critical for reducing lead times. Still, if they consistently fail to fulfill your orders on time, you may need to take other measures to protect yourself. Consider rewarding them with a bonus or additional incentive if they deliver your orders ahead of schedule or penalizing them if they're late. This may assist your providers in adhering to the terms you've already agreed to.

  • Relationship with customers:

A business runs successfully only when it works according to the demands of its customers. If you give importance to the needs of your audience, you will be able to reach the goals of your business.

It would not be wrong to say that customers are those people on whom the entire profit of your business is based. Therefore, knowing your public is your essential task to expand your business’s sales. Any company could flourish if it works according to the demands of its customers and provides them with what they require.

A seller can sell anything he wants, but you must sell what your customer needs. To get to know your audience, you could conduct surveys and questionnaires with the public so that you can keep the check of what you should do in the future for growing the sales of your business.

Conclusion

The lead-time supply chain is of critical importance when you are talking about the inventory of your business. The lead time is calculated by estimating the time in between when you make an order of merchandise with your supplier and the time that inventory is sold out to the public. The lead time of your supply chain must be as much reduced as possible because the more lead time there is, your firm will face the problem of pending orders. You must be cautious about what other inventory control methods and techniques you use for your company's operations.