Reducing lead times results in more than just faster order fulfillment. It also creates efficient operations, reduces carrier costs, and adds value to customers.
While it can be challenging to streamline all the moving parts in a supply chain, lead time is one of the biggest growth opportunities
In supply chain management, lead time refers to the amount of time from when a customer places a product order to the time they receive the delivery. For example, this can include a product moving from manufacturer to distributor, or from a wholesaler to retailer.
This article will cover the importance of delivering finished products faster and explore proven lead time reduction strategies.
Why is reducing lead times important?
Reducing lead times forces a business to focus on specific areas of improvement, such as operational bottlenecks or frequent delays, and find actionable solutions.
By finding opportunities to speed up fulfillment, manufacturers and distributors can decrease wasted time and resources to create a more streamlined process. The benefits of lead time reduction include:
- Greater flexibility in the fulfillment process
- Faster inventory management cycles
- Better supplier terms
- Increased cash flow
- Improved bottom line
Furthermore, reduced lead times deliver a better customer experience, effectively increasing a company’s competitiveness in the market. According to recent research by McKinsey, over 90% of US customers have come to expect free two- to three-day shipping times as supply chains continue outpacing each other in speed to delivery.
8 Effective ways to reduce lead times
Most manufacturing and production companies place reduced lead times as a top priority. From sourcing raw materials to consolidating order management, here are eight effective ways to reduce lead times for your company.
Revisit your supply chain management strategy
The first step in reducing lead times is to outline your current supply chain strategy and how each component or product flows through the manufacturing process. Lead times are directly affected by the overall supply chain, and optimizing even a single step can help reduce the time between purchase orders and fulfillment. For example, a company can batch process similar activities, consolidate multiple steps, or test out alternative last mile carrier options.
Identify bottlenecks and inefficiencies
An easy way to spot lead time opportunities is to identify inefficiencies within your business, whether it’s an internal system or a third-party service in your supply chain. Incremental improvements to existing processes can go a long way in speeding up fulfillment.
Some areas frequently slow down production, including equipment breakdowns, employee turnover, unnecessary paperwork, defective components, or other bottlenecks.
Review supplier orders and terms
Transportation is typically what contributes the most to lead times. Check whether increasing or decreasing your minimum order quantities can help expedite shipments. While large bulk orders can save money and guarantee a safety stock, smaller quantities can often be prepared and delivered faster. Reducing the amount of on-hand inventory can also boost your inventory turnover cycle and company cash flow.
Alongside order quantities, revisit all third-party lead vendor contracts and inquire about more favorable terms. In cases of unreliable shipments or poor product quality, supplier relationships should be reviewed as a safeguard against supply chain delays and potential damage to the company’s brand.
Source locally
Switching to local suppliers can be one of the best ways to reduce your lead time. While new suppliers require more time upfront to vet and test the products, having their production process close to your own facility brings long-term benefits. Sourcing locally can also save the effort and time spent on facilitating international tariff fees or customs paperwork.
Naturally, even domestic suppliers will have their fair share of late shipments and stockouts or shortages. But the proximity enables them to communicate in sync with your team and send supplies faster as soon as they’re in stock. Offering incentives and bonuses for on-time deliveries is also a practice recommended to strengthen supplier relationships.
Improve internal communication
An efficient supply chain requires close coordination among several teams, from purchasing and billing to warehouse management. Failing to communicate internally can cause longer lead times.
For example, sending real-time notifications when customer orders are shipped and received can keep everyone in the loop regarding where a product is along the supply chain. Automations like this connect all relevant data points and keeps everyone up-to-date through a single dashboard.
Automate routine processes
Updating routine internal processes from manual to automated can result in much shorter lead times. Tools such as notification tracking, barcode inventory systems, and RFID systems are all used by modern supply chains to keep production schedules running smoothly.
Start by examining areas that could be improved, such as order processing times or inventory replenishment. Automating parts of these integral processes is an effective way to streamline routine tasks across teams, maintain a consolidated record of all supply chain operations, and build reports for clear supply chain visibility.
Provide sales forecasting
Keeping all relevant teams and third-party suppliers aware of the expected sales helps set expectations and prepare everyone for the coming cycles. This is especially useful for peak seasons, when a significant increase in sales orders and even additional staffing are required to meet customer demand.
Optimize warehouse operations
While some delivery delays are unavoidable, organizations can still achieve shorter lead times by optimizing their warehouse management operations and workflow.
For example, warehouse layouts should place frequently used equipment in areas that are easy to access, maintain clear pathways in high-traffic locations, and group frequently purchased inventory together to reduce repeat trips (a process referred to as kitting).
How QuickBooks Enterprise can help you reduce lead times
QuickBooks Enterprise helps facilitate lead time reduction with functionality manufacturers and wholesalers can use to gain visibility on every aspect of their operations.
Via a central dashboard, teams have clear visibility into the entire supply chain workflow, from order placement to final delivery. The platform automatically generates customizable reports with supply delivery dates, order fulfillment schedules, and other key sales data.
By isolating specific metrics, it’s easier to identify areas that take the most time. Any inefficiencies or human errors that occur during production schedules can be quickly addressed using supply chain solutions that will help reduce lead times.
Final thoughts
Reducing lead times is a primary focus of most manufacturing and wholesale companies, as it directly affects customer satisfaction and sales.
Setting aside time to analyze your current operations with QuickBooks Enterprise can reveal other areas of opportunity. By shortening the time between orders and deliveries, reduced lead times can maximize resources, streamline operations, and offer greater control over supply chain operations.
