8 strategies to reduce lead times in your supply chain

January 12, 2022

What do your suppliers' order processing, fulfilment, and production processes look like?

These are vital foundations of supply chain management. However, they can also have a knock-on effect on customer satisfaction metrics if the amount of time it takes products to get to you leads to bottlenecks in customer order fulfilment.

What are lead times?

Lead times are the amount of time it takes between you making an order with your suppliers and receiving it in your warehouse. For example, if you order a batch of stock on the first of the month and the finished products arrive on the sixth, you have a lead time of five days.

Accurately knowing your lead times - and using supplier management strategies to optimise them - will help you improve internal processes around things like forecasting and warehousing and minimise the impact of issues like late shipments.

What are the benefits of lead time reduction?

Long lead times aren't always a bad thing. For example, imagine ordering new products every year for seasonal periods like Christmas. In this case, longer lead times can be helpful. They may even be necessary, so your suppliers can order raw materials and plan production schedules and the manufacturing process to get products to you when you need them.

However, shorter lead times are almost always desirable outside of these periods. The benefits of lead time reduction include:

  • Better inventory management and the potential to move towards a "just-in-time" supply chain model
  • Improved cash flow as you can shorten the time between buying and selling product, meaning you're not carrying costs in inventory on hand
  • The ability to react to more recent sales data and produce purchase orders based on what's happening now
  • Minimising the impact of stockouts and being able to give customers an accurate picture of when products will be available again
  • Having consistent enough replenishment of product that you can reduce warehousing space and costs by holding a lower volume of safety stock

Do they sound like benefits you'd love to realise for your business? If so, here are eight strategies you can use to bring them to fruition.

How to reduce lead times in your supply chain

1. Consider nearshoring

Nearshoring is something you might have already considered when reviewing your supply chain resilience. For most businesses, nearshore suppliers are typically backup suppliers who can step in when those elsewhere are affected by natural disasters like weather events.

However, if it's financially viable, nearshoring could be a worthwhile option to consider full-time. For example, for UK businesses, suppliers in Eastern Europe will always be able to get products to you quicker than suppliers in South East Asia.

2. Avoid bulk orders where possible.

Many businesses go down the route of making bulk orders because it saves cash. However, you should look at your cost types as a whole rather than simply in "cost per unit" terms to better understand how you're impacting the bottom line.

For example, does bulk ordering lead to longer lead times and potential lost sales? Does it mean you spend more time processing incoming orders so have higher wage costs? Does needing to stock more inventory mean your warehousing costs are higher than they need to be?

Reorder little and often as much as you can. Not only does this reduce lead times, but it will give you a more consistent workflow too.

3. Create a lead time contract for your suppliers

Are your suppliers "on the hook" for the lead times they have promised they can deliver?

If not, they ought to be. After all, if an unreliable supplier leads to a longer wait time for your customers to buy things, who will bear the brunt of customer dissatisfaction?

Having lead time obligations baked into your contracts will mean your suppliers are more realistic about delivering and give you a process for addressing any shortcomings.

Look for your contracts to include:

  • Lead times for specific orders or types of stock - you might have different agreed lead times for various products and order sizes depending on your needs.
  • Penalties for delayed or late shipments
  • Advance notice periods for foreseen shortages of raw materials, discontinuation of products, or price changes

Look at your distribution network here, too. For example, do your distribution contracts hold your logistics partners to delivering products in a specific timeframe and protect you against goods damaged in transit?

4. Creative incentives for your suppliers

Say you agree to a lead time of a month with a supplier. A month works, but it'd be even better if you could receive the products in three weeks.

Consider creating incentives for suppliers who can do this while maintaining product quality and maintaining all other performance metrics, of course. A tiered bonus system or automatic supply contract extensions are great examples of potential incentives you could offer.

5. Use inventory management systems and automation.

Using inventory management systems and automation can do an enormous amount of the heavy lifting within your supply chain overall and be vital in helping you reduce lead times.

As well as removing human error from sales data and forecasting, an inventory management system can help you:

  • Automate orders
  • Track your lead times and measure supplier performance
  • Prompt you to undertake any internal processes like spot checks for quality assurance
  • Identify what is in delayed and lost orders and take fast remedial action
  • Easily share sales and demand forecasts with suppliers

6. Ensure supplier communications are amazing

Develop a "no surprises" culture between your business and your suppliers. The key to this is ensuring you have a robust communication strategy for dealing with your suppliers whenever necessary.

Generally, your supplier communication strategy can look however you want. Yet, it's vital to ensure you aren't exclusively speaking to suppliers when something goes wrong. Make them feel like a part of your business, treat them like a partner, and ensure they know they can communicate with you whenever there's an issue.

Put this in place, and when problems do rear their head, your suppliers will tell you about them quickly enough for you to take action and for business to continue as usual.

7. Remove consistently unreliable suppliers from your supply chain.

There's definite value in working with suppliers to help them optimise their processes. However, sometimes there comes the point when you have to say "enough is enough" and move on from a consistently unreliable supplier.

This is another area where having a robust lead time contract can pay dividends. If your suppliers aren't delivering what's written in black and white, you have more than enough grounds for cutting ties and taking your business elsewhere.

8. Use software to gain visibility of potential issues that will cause longer lead times

Disruptions to your supply chain that lead to longer lead times are going to happen. What matters is how you react to them. The best businesses will deal with such disruptions in a way that no one outside of the company ever notices or even knows there was a problem.

To this end, software can play a vital role in helping you manage this element of supply chain risk.

Explore how Serai can help you manage and reduce lead times while acting as an early warning system for potential disruptions

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