Lead Time Volatility: How to Navigate from Chaos to Control and Manage It Effectively

It might’ve been the fittest that survived during the pandemic, but the businesses that genuinely thrived were the most adaptable.

The aim of the game was to find creative ways to manage longer lead times. And those who created greater visibility in their supply chains often became the winners.

Since the tide turned on COVID, there’s been some relief. And not just because we no longer have to listen to the government instruct us how to wash our hands effectively.

For many businesses the pressure on delivery lead times has eased. Even if that’s only slightly.

For some however, the situation’s far from the old normal.

Even if there’s a lighthouse on the horizon that things could be back soon, it’s the unpredictability of it all that plays havoc with planning.

Lead times are still affected by global transportation networks, labour shortages, the war in Ukraine, natural disasters, and political unrest.

Will things now continue to improve? It’s possible. But far from certain.

But there’s an elephant in the room. And that elephant is your inventory.

Lots of businesses are sat on mountains of inventory they can’t shift. And they’re starting to feel the pinch.

What’s the solution to your supply chain woes?

In previous articles, we discussed some strategies to combat high inventory levels.

Today, let’s focus on addressing one of the main causes of the issue. How can you tackle volatile lead times?

Below, we’ll talk about the following considerations:

1. What are delivery lead times?
2. How do lead times impact your supply chain?
3. How can you analyse lead times to unlock supply chain improvements?
4. How can you mitigate the impact of lead time volatility going forward?

What are delivery lead times?

Delivery lead times consider the time it takes for a supplier to deliver their goods to a customer. This might be you delivering your products to your customer, or your supplier delivering their materials to you.

It’s a critical metric in supply chain management. Delivery lead times affect inventory levels, production schedules, and, most importantly, customer satisfaction.

You can break delivery lead time into a couple of key components:

Processing time:

The time it takes for a supplier to process an order and prepare goods for shipment.

Transit time:

The time it takes for goods to be transported from the supplier to your distribution centre.

How do lead times impact your supply chain?

If high inventory levels are a challenge in your business, there’s a good chance you are in this position because of unpredictable lead times.

The longer the lead time, the greater the risk of lead time demand deviation. As a business, you need to cover a greater amount of potential demand.

And if you can’t rely on getting stock as quickly as you need it, you need it on hand.

But that then creates a disparity when the demand fails to materialise. Your levels rise and your risk increases. And too much of your working capital becomes tied up in stock you might not be able to sell. This is even more damaging if that stock has a shelf life.

As a business facing longer lead times, you need to plan for much longer horizons. And if your delivery lead times are also highly volatile, that is even more uncertainty you need to account for.

This volatility in delivery lead times can have an impact on your supply chain in several ways.

1. Inventory management

Managing inventory becomes much more difficult with volatile lead times. It’s hard to know when to order more stock and how much of it you should have. You can very easily find yourself with too much or not enough. Both of these are costly scenarios.

2. Production scheduling

Similarly scheduling production becomes a much harder ball game. Production delays or idle time are a common challenge with long lead times. And the knock-on effect of those is lower production efficiency or soaring costs.

3. Customer satisfaction

How happy is a customer when they’ve paid for something they don’t receive? When orders constitute business critical stock costing thousands, it’s understandable they’re not delighted by delays. The more volatile the lead time, the harder it is to give accurate timescales on delivery. Let’s not forget, the unhappier your customer is, the more likely they are to not be a customer for long.

4. Supply chain risk

Anticipating, planning and mitigating risk throughout the supply chain is what sets some companies apart. The longer and more erratic the lead time is, the harder all of those become. And the more likely you are to make a costly mistake.

How can you analyse lead times to leverage supply chain efficiency gains?

Different items in your assortment will have different lead times. Analysing that difference is illuminating. By delving into the findings, you may be able to identify new opportunities to reduce your stock.

Let’s say you had a warehouse of products and collated them based on their given lead times (weeks). If you then worked out the average amount of inventory cover (weeks) for each group, you could quickly see where the inventory reduction opportunity lies. Take a look at the example below: