Effective lead time management is a critical factor in securing supply chain efficiency and cost control, since lead time represents the total time required for a product or material to move through the supply chain, as measured from the time of ordering to the time of delivery.
Lead time typically encompasses various supply chain stages, including order processing, manufacturing, transportation, and delivery. It can be scrutinised at a high level, by looking at overall supply chain lead time, or with more granularity by zooming in to elements such as supplier lead time and customer-order lead time.
Supply chain lead time is a term denoting the time required for your company, or its partners, to execute supply chain processes to satisfy an order or request for products or materials.
Lead time measurement begins at the moment an internal or external customer places an order to the moment of final delivery to that customer and includes activities such as:
Why is lead time important? Well, the adage “time is money” is particularly pertinent in the management of product and material lead time. For example, the longer it takes to complete specific process cycles in the supply chain, the more resources are required to execute those cycles.
But there is more than just money at stake in supply chain lead time management. Lead times have a direct impact on customer service and satisfaction, and therefore on the reputation and competitive strength of your enterprise or organisation.
So perhaps it’s more accurate to say that there are both direct and indirect financial consequences attached to lead-time performance. For that reason, if no other, it’s incumbent upon every supply chain management team to strive for the elimination of bottlenecks, obstacles, and waste in the supply chain to avoid excessive lead times.
Even if it’s not a priority for your company to reduce lead time (after all, it’s possible that you have already successfully optimised it), it’s critical to measure it and ensure your internal and external customers are aware of it, so you can use that knowledge to support performance in service, inventory management, and supply chain coordination.
Let’s take a quick look at each of those areas, and how they benefit from accurate lead time measurement.
Regardless of whether you want to shorten lead time, or merely to understand it, your task will be easier when you can recognise how the concept applies to the supply chain overall, and to the various activities enabling a supply chain to function. So let’s move on, now, and take a look at the various types of lead time.
There are several types of lead times, each relevant to specific stages, process cycles, and activities in the supply chain. Here are some examples with their definitions:
A wide range of factors, both within and without your company’s control, can affect lead time in the supply chain, so even a concise guide would incomplete without a summary of the most important internal and external lead time influences.
You can refer to the following rundown at a glance in case you’d like to examine the impact of these factors on your organisation and its supply chain performance.
In most cases, the following factors are under the control of your company, giving you the opportunity to take direct steps to optimise lead times.
If your company relies on internal manufacturing or production processes, their efficiency, and the production capacity of your facilities will play a large part in determining your manufacturing lead time. Labour availability, equipment reliability, and maintenance policies in particular can either extend or reduce your lead times.
The primary impact of IM practices on lead time is inventory availability. If your IM practices are efficient, you should always be able to replenish inventory in time to avoid stockouts, which create acute inconsistencies in lead times.
Transportation efficiency affects customer lead times like no other factor. Over longer supply chains, the difference in lead time between goods and materials shipped by ocean, overland, or air freight is substantial, and should always be a factor when making transportation decisions. At a more local level, effective route planning and optimisation is a critical enabler for consistent lead times and hence, cost control and customer satisfaction.
In some cases, the following factors can be influenced by internal strategic measures, such as reshaping your logistics network to reduce distances or establishing solid relationships with suppliers to support a collaborative approach to lead time optimisation.
In the main though, they are outside of your company’s control, meaning you must mitigate them where it’s possible to do so—or live with them when it’s not.
The distance between suppliers and buyers affects transportation time, with longer distances often resulting in longer lead times. You’ll note that we already mentioned transportation mode choices as an internal influence on lead times, but sometimes you have no choice.
For example, ocean freight is often the only option for moving large shipments (container loads) of goods internationally. In that case, transportation becomes more of an external lead-time factor.
Then there are other aspects of transportation that can affect customer or supplier lead times, such as regulations, customs procedures, and weather or other conditions that impact transportation speed.
Sudden demand fluctuations can spectacularly mess with lead time consistency. For example, demand spikes can overwhelm production capacity, extending lead times considerably, while a sharp drop in demand can necessitate changes to transportation planning, with the accompanying knock-on effects.
You rely on your company’s suppliers to keep their promises relating to product and material lead times, so you know when to place purchase orders and when to expect delivery. If they keep their promises, you will be able to keep those that you make to your customers, ensuring their expectations are satisfied.
Natural disasters, supplier insolvency, political instability, wars, and other external events or conditions can disrupt supply chains, causing unforeseen delays and lengthening lead times.
Compliance with customs regulations and import/export rules can add complexity and time to the supply chain. In most cases the effect on lead times is detrimental, making it crucial to stay abreast of changes in these rules and regulations, and to factor them into lead-time calculation.
The more complex the product, the more time is likely needed for sourcing, manufacturing, shipping, and delivery. So if your company is involved in selling complex products, your lead times will not only be long, but also at increased risk of compromise from external influences.
Managing lead time, at least within the parts of your supply chain that you control, is not especially complex, but not always easy either, despite the apparent simplicity. While it might seem, for instance, that the key is always to try and shorten lead time, it’s not necessarily so.
It’s often more about optimisation than out-and-out reduction. Trying too hard to keep lead times to a minimum invites the risk of being caught out by those out-of-your-control factors mentioned above.
Perhaps the most important aspect of lead time management, then, is communication, particularly with your company’s external customers. The real key is to be realistic in establishing lead times, and to ensure that your customers know what they are, and why.
With the cementing of expectations, any progress in the longer term towards exceeding them is to be welcomed, but need not lead to unnecessary fragility of your supply chain.