What is Lead Time In Logistics & How to Shorten It

May 31, 2024 | Blog, Pinnacle Services, Trucking Info

Lead time in logistics is the latency between the initiation and completion of a process. It is a crucial KPI for any business in the supply chain industry. 

Estimating and optimizing your lead times ensures timely operations and customer satisfaction despite unforeseen circumstances. 

With that in mind, let’s delve into more details.

What Is The Lead Time Definition?

Lead time in logistics is the amount of time it takes from when an order is placed to when the customer receives it. It includes the time needed for order processing, manufacturing/sourcing and shipping.

Lead times fluctuate. Even if you are dealing with the same suppliers and the same carriers, many things can deviate from schedule. 

Factors affecting lead times include raw material sourcing delays, stockouts, labor strikes, unexpected weather conditions, etc.

Calculating lead times protects your operational efficiencies. Reducing lead times can help you increase output and revenue.

Why Is Lead Time Important?

Lead time is vital for businesses to stay competitive and meet customer expectations.

Here are some reasons why:

Establish Delivery Plans

Estimating lead times allows you to set realistic delivery dates and ensure customers receive their orders on time.

Monitor Operations

Moreover, it helps pinpoint possible bottlenecks in your supply chain and implement necessary changes to maintain uninterrupted operations.

Shield Against Demand/Supply Fluctuations

Industry professionals state that thinking about lead time is as important as thinking about future demand!

Moreover, it is a vital metric to help you deal with supply disruptions or delays.

So for example, let’s say there’s an unexpected surge in demand. You have a shipment arriving in a month, but you are stocked out in just about 2 weeks. Your stock is on the way and there’s nothing you can do but wait it out.

By calculating sudden changes or drawbacks, you can continue offering uninterrupted services to your customers no matter what.

Lead Times: Some Things To Consider

As a supply chain beginner with little or no experience with lead times, you often rely on what your suppliers promise you. However, in reality, many different factors can affect procurement and delivery procedures.

Seasonal Patterns

Keep in mind that lead times have seasonal patterns. A good example of this is shipping delays around holiday seasons.

Unpredictable Events

Delays can take longer than you think. Your supplier may be facing serious disruptions in the delivery of raw materials. Or, there may be various customs control issues. 

This is why you must take a probabilistic approach to lead times.

What You Need To Do

To stay on the safe side, you must map out lead time patterns over time instead of assuming that an order will arrive by a certain date.

Predicting lead time is hugely challenging. But, once you assess its patterns based on data, you will be much better prepared against unanticipated events.

Lead Time Calculation

There are various ways to calculate lead time, depending on which processes you want to analyze.

Supply chain lead time typically includes the following components: pre-processing time, processing time and post-processing time.

Here is a general formula:

Lead Time = Pre-Processing Time + Processing Time + Post-Processing Time

However, calculating lead times varies across different niches.

Let’s look at some examples:

Lead time for a manufacturing company:

Lead time in production = Procurement time for raw materials + Manufacturing time + Shipping time

Retail company lead time calculation:

Customer lead time = Ordering time + Sourcing time for products + Shipping time

Inventory management lead time: 

Lead time = Ordering time + Supply time 

How To Shorten Lead Time

There are several things you can do to reduce lead time in your supply chain. Here are some things to consider:

Lead Time Contracts

Such contracts outline delivery timeframes. In production, for example, suppliers agree on a fair lead time to have raw materials delivered to your factory, establishing more efficient procurement processes with fewer delays and drawbacks.

Inventory Management Technology

Warehouses and distribution centers rely on inventory management technology to optimize order processing time and avoid inaccuracies. 

Local Suppliers

Sourcing overseas requires more time for delivery, adds logistical complexity and increases lead time unpredictability. Cooperating with local suppliers can help you shorten procurement lead times.

Truncate Processes

Monitor and evaluate all processes. Then, you can eliminate those that are not essential and optimize wherever possible. For example, automated order entry and processing can speed up delivery times.

Offer Incentives

Offering incentives to those involved in your supply chain, from your employees to your suppliers, can urge everyone to do their best. Incentives may come at a cost, but at the same time, they typically end in more sales.

Increased Order Frequency

Ordering large bulks is usually cheaper, but it often takes longer to arrive and creates extra work for your inventory management team. On many occasions, smaller and more frequent orders work out better.

Consistent Suppliers

You can shorten your lead time by nurturing relationships with the same suppliers or partners. 

Ultimately, you will save time on ordering and handling procedures. Of course, you’d need to have a couple of backups, but most of the time, your chosen suppliers will not fail you.

Continuous Monitoring And Learning

Even if you have more or less accurate calculations of your lead times, you still need to monitor processes and reevaluate quite often. Plus, staying up to date with industry news and novelties while training your staff is an excellent way to enhance all processes.

Optimized Shipping

Partnering with expert carriers that specialize in your niche can help you develop optimized shipping solutions that reduce the overall lead time. 

For example, cross-docking is a logistical approach where goods are immediately transferred from inbound to outbound transportation. It eliminates the need for storage and speeds up order processing.

How We Can Help

At Pinnacle Freight Systems Inc., we help businesses optimize warehousing and shipping operations. This means better customer service and shorter lead times.
We offer end-to-end supply chain solutions tailored to your specific needs. Experience the Pinnacle advantage. Contact us today!

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