Lead Time

Different Types of Lead Time

It is primarily used in the manufacturing process, defined throughout the entire production process, from initial request to final delivery.

However, it can mean different things to different people. For customers, this could mean placing an order and waiting until they receive the product.

Primarily, it is of three different types:

• Manufacturing lead time: This is the duration taken to manufacture a product or service. Certain factors affect manufacturing lead time, such as running out of stock, increased testing duration, shipping delays, improper communication in logistics, and spike/stunted market demand.

• Supplier: Refers to the duration between a supplier's receipt of a purchase order or inquiry and delivery of the goods or services. It sums up the time to process orders, manufacture products, and transport them to the customer's location. 

• Shipping: Shipping lead time refers to the duration it takes to transport goods from the manufacturer or supplier to the end customer. 

Understanding the Prediction of Lead Time

Forecasting predicts how long it will take to receive/build a product from a vendor after placing an order.

Predicting it can be done in two ways:

• Average Lead Time: The average span taken by a certain number of deliveries in the past. For instance, the duration for past 4 shipping was - 5 days, 6 days, 5 days, and 3 days. In this scenario, the average would be - 5+6+5+4, i.e., 20/4=5 days. Thus, the average lead time would be 5 days.

• Standard Deviation: When dealing with multiple variables, the best approach is to determine standard deviation to address the deviation between supply and demand. Standard deviation represents the amount of variability it takes to deliver a product or service from the supplier to the customer. A higher standard deviation indicates more variability and uncertainty in the delivery process, which can steer stockouts, overstocking, and reduced customer satisfaction. 

Impacts of Shortening Lead Time

Longer lead times forge bottlenecks and disrupt workflows, while shorter ones improve customer satisfaction and boost profits. Lead times don’t lengthen overnight; however, they happen gradually. There is a certain fallthrough, and delays keep piling up, driving longer delivery durations. 

Here are some benefits to shortening it:

• Cost-saving Impacts: Shorter lead time lowers labor costs as inventory duration reduces and transit span lessens. It implies quicker liquidation of goods and products.

• Creating Efficient Workflows: Creating an optimized work process results in accurate solutions or products with greater quality and efficiency. A shorter lead time allows for faster turnaround, enabling teams to respond quickly to changing market conditions and customer demands.

• Reduction in Inventory Levels: Shortening means quicker time for the product to reach its destination, which means less inventory duration. Lower inventory levels make the business more agile, adapt to cutting-edge technology, and stay abreast of market demands.

• Improved Relationship with Customers: Since short lead time implies that the products are quicker to reach the customers, there is a better rapport with them, lowering the turnaround for customer demands or concerns.

Strategies to Reduce Lead Time

There are specific methods to reduce it:

• Streamline Supply Chain Processes: The quickest way to streamline the supply chain process is by hiring domestic suppliers, increasing order frequency, implying quicker orders than bulk ones, cutting down on unreliable suppliers, and automating the process rather than relying on manual interventions.

• Investment in Technology for Accurate Forecasting: Adapting state-of-the-art facilities can do more than just wonders. As mentioned above, automating the process saves tonnes of indulgence in inaccurate data, thereby saving duration.

• Optimal Supplier Management: A reliable supplier is crucial to reducing costs while managing inventory. By tracking suppliers and knowing their challenges, firms can stay informed of any future failures.  

Consequences of Failing to Manage Lead Time

Failure to meet stipulated lead time can have fatal consequences. They can drive:

• Missed Delivery Deadlines: Failing to do so can result in many setbacks, like missing delivery deadlines, which are impacted by the production process and ultimately lead to losing the customer’s trust. 

• Increased Expenses: This leads to losing customer trust and increases the cost of catering to the workforce, software/hardware, menial asset costs, and, in the worst case, the bulk of penalties.

• Operational Inefficiencies occur when businesses have to use more resources than required to meet a business goal—time, labor, or material goods. This can lead to overproduction or underproduction, inadequate planning, and poor inventory management.

FAQs

What do you mean by lead time?

It is the time between ordering or planning a product or service and its actual delivery or availability. It includes the time it takes to manufacture and deliver a product and delays in receiving it.

What does delivery lead time mean?

DLT is the span a customer takes to order a product to the moment they receive it.

What is the lead time in ITIL?

It is the span taken to complete a request from submission to resolution. It is a KPI that measures the performance of the IT service desk.

What is cycle time vs lead time?

Cycle time is the time a team takes to develop a product, whereas the latter is the duration a customer takes to place an order and receive the product.