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.

 

Lead Time Watch Cartoon

 

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.

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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.

 

Lead Time Danger Cartoon

 

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:

Lead times No. of items Average cover weeks
1 250 12
2 330 12
3 180 4
4 220 7
5 339 7
6 220 10
7 279 9
8 501 14
9 370 17
10 410 19
11 680 19
12+ 1280 20

Addressing the imbalance

In this specific example, there are two pain-points that could offer inventory reduction opportunities.

Firstly, it’s clear most of the products have lead times of over 12 weeks. But the stock cover looks imbalanced. So, products with lead times within the one-week timeframe still have an average of 12 weeks’ cover.

Further investigation would reveal what’s causing the imbalance and give you opportunities to address it. Let’s explore this further.

Pain point A:

“We’re holding far too much inventory on items with short lead times”

This problem takes a little more investigation.

Perhaps there is a strategic reason a company would be holding so much inventory. Maybe there’s a rebate opportunity based on order volume?

Perhaps there’s an existing service level agreement with a customer you have to meet?

If either’s the case, the following two options might be worth considering achieving an inventory reduction.

A) Review true customer consumption patterns and align with a fulfilment plan that better fits the true demand

B) Carry out a cost-benefit analysis to determine whether any supplier rebate is worth the additional inventory holding costs.
If there’s no strategic reason for the inventory levels, it might just be a consequence of poor ordering practices. Perhaps the review periods are too lengthy, or the master data is wrong?

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In those cases, you might consider:

  • Reviewing the buying process and seeing if more governance is wise
  • Improving collaboration between the supply chain and purchasing team
  • Reviewing the compatibility of item and supplier minimum order constraints
  • Reviewing the economic order quantities
  • Reviewing and updating incorrect master data
  • Improving the buying team’s knowledge and making sure they understand of the principles of inventory optimisation.

Pain point B:

“The majority of my items have extremely lengthy lead times”

Often, lead times are down to the supplier. But that doesn’t mean they’re totally out of your hands.

There’s always room for negotiation, and simply accepting the status quo could mean you’re missing opportunities to address the situation, just because you’ve not investigated properly.

Ask yourself, how can our suppliers reduce lead times?

Should you be paying full price for a contract with lengthy or unreliable lead times? And would a reduction in cost make the situation easier to stomach?

Can you and your suppliers work more strategically with the actions you take to address the problem?

Try thinking about some of these options:

  • Provide suppliers with purchase forecasts to enable better preparation on their end.
  • Request your supplier to “ring-fence” strategic inventory to mitigate shortages and lead times delays further up the chain.
  • Incentivising suppliers to prioritise your order. For example, providing incentives to your suppliers hit OTIF targets.

How can you mitigate the impact of lead time volatility going forward?

There are lots of ways to address lead time volatility. And you don’t have to over invest in your stock to do so.

Here are a few examples:

Lead Time Cartoon Clock

 

Optimise your forecasts

Gaining greater insights to predict demand more accurately can help you optimise inventory levels, and thus limit the chances of stockouts or overstocks.

Use alternative sourcing options

You can reduce or ease the effect of lead time volatility by using different suppliers. Could a local supplier cut the transit lead time? Simply finding a more reliable supplier might mean shorter lead times or just less volatility.

Collaborate with suppliers

Better communication can lead to greater transparency, which may mean less disruption. Just asking for regular updates on production schedules, shipping times and potential delays can help you anticipate lead time issues sooner.

Review your safety stock strategy

Your safety stock should protect your operation from delays or unexpected demand hikes. When was the last time you reviewed your safety stock strategy?
Perhaps you are holding more inventory than you need to. Or, worse still, you’re investing in the wrong products.

Improve communication and collaboration within your organisation:

Better internal communication is rarely a bad idea. It helps improve collaboration and relations between departments. You’ll find the more people and teams aware of inventory levels, demand forecasts, and any potential issues that may impact lead times, the easier the problem’s met head on.

Delivery lead time takeaways

To let lead times impact your supply chain unchecked is to admit defeat and ultimately pass the problem on to your customers.

You’ll test their loyalty, and it won’t be long before the problem comes back to you and feels far more severe than it was.

The advice in this article will take you some way to solving your delivery lead time problems. But supply chain improvements take time and continuous effort.

To properly mitigate the impact of lead time volatility going forward is to understand that supply chain disruption is not going to go away. It doesn’t matter whether it comes from a worldwide pandemic, or an isolated warehouse fire.

Thankfully this is why we developed Slim4.

To find out what Slim4 could do for you and your business book a free demo today. You’ll get expert supply chain insight, advice on using the platform, and a detailed look under the bonnet.

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Delivery lead time FAQs

What is delivery lead time?

Delivery lead time refers to the time it takes for a product to arrive at its end destination after an order has been placed. An example of delivery lead time could be the time it takes for your supplier to deliver an order to your main distribution centre.

How is delivery lead time calculated?

Delivery lead time is calculated by adding the transit time and the order processing time together. This interval includes the time to process the order, pick and pack the products and transport the goods.

Why is delivery lead time important for businesses?

Delivery lead times have a big impact on everything from your inventory levels to customer loyalty. Therefore, you must have a tight grip on delivery lead times for several reasons:

  • Maximise customer satisfaction
  • Maintain your competitive advantage
  • Ensure your operation runs at peak efficiency
  • Minimise the risk of excess stock or stock-outs

What factors can impact delivery lead time?

Several factors can impact the delivery lead time. For example, the mode of transport used, the distance between you and your supplier and even your supplier’s production schedule.

However, lead times can also be impacted by unexpected disruptions such as factory closures, strikes and political unrest.

How can supply chain software help you manage volatile delivery lead times?

We’ve developed our supply chain planning software over the last 30 years to help businesses manage volatile delivery lead times with confidence.

By providing planning teams with the visibility and control required to stay one step ahead of lead time changes, our customers can respond to supply chain disruptions before they hit the customer.