Due to the growth of e-commerce and online purchasing, consumers are now expecting faster, more secure delivery and the processing of orders. This has become an issue for businesses that sell online because delays in processing orders could result in losses in sales. Therefore, it is essential to implement effective stock management and the right metrics to speed up order processing. One such metric that is useful is the lead time.
What is Lead time?
Time is when an eCommerce seller ensures the completion of an order from the moment a buyer places an order through the site or application of the seller to the moment the buyer receives the product.
What are the different kinds of lead times?
While the examples above can give you an idea of how long the lead times are, this may help many eCommerce businesses to separate their lead times into distinct segments. For example, this helps them distinguish between the lead times of partners, suppliers, and customers.
Below are a few examples of different lead times eCommerce businesses employ.
Material lead time
Material lead time is a term used to describe product manufacturing processes. It’s the time required for the raw material order to be shipped to the manufacturing facility or place of manufacture.
Naturally, if you don’t produce your products, the time to produce them is less of a problem; however, it’s worth considering when you think about your inventory.
Production lead time
It is a kind of lead time that must be at the forefront of your mind for all eCommerce companies. Lead time for production refers to the time that it takes for the factory that receives an order to create products and for the products to arrive in your warehouse.
As supply chains worldwide are at a high risk of being strained because of the Covid-19 pandemic, production time is a factor affecting eCommerce companies worldwide.
Customer lead time
This is when a user makes an order through your site and then receives it. This is when you (arguably) are in the best control. While the other lead times discussed above depend on third-party suppliers, the lead customer times depend on your logistics, inventory control, and shipping performance.
Cumulative lead time
Three different lead times add up to the total (or all-inclusive) lead time required for manufacturing and delivering goods. The total lead time could be quite significant, starting from a timber yard in Malaysia where the wood is harvested, and then the lumber is delivered to a toy manufacturing facility in China, and then the finished toys are delivered to an warehouse located in Birmingham, UK.
How do you calculate Lead Time?
Lead times are estimated or calculated by analyzing two major factors: the delay in reordering and your supply delay.
Reordering delay is the time required for the supplier or manufacturer to complete an order for purchase.
Supply delay refers to the time it takes the company to make and ship the product to its warehouse.
The easiest method to calculate the lead time for an eCommerce purchase is like this:
Lead Time = Delivery Date of Product – Date of Order
6 strategies to cut down the time to lead for faster delivery
Lead time is comprised of two elements: how you handle your orders, how you communicate with suppliers, and the length of time it takes for orders to arrive. To decrease lead times, you must pay attention to both. Establishing solid relationships with your suppliers is of particular importance. Let’s look at some tips to reduce lead time:
1. Smaller, more frequent orders
The more you order, the longer it takes to finish and sends. However, if you request smaller, more regular orders, the supplier will begin to get into a routine and continuously produce products. This allows your online store to respond rapidly to market trends while making it easier for the retailer to monitor the shipping process.
2. Make sure you have clear agreements with your suppliers.
Do not let things go unresolved with verbal agreements. You should have written agreements with your suppliers that account for lead times and specify penalties for late delivery or defective goods. In addition, contracts should call to be notified before any changes to the product lines in terms of price, specification, or availability.
3. Use an automated inventory management solution
Manual inventory management is a recipe for disaster, especially when you have multiple products. A spreadsheet can be prone to errors and important data missing, and customers are receiving inaccurate information regarding the availability of goods. This is detrimental to both image and sales.
The best solution is to implement an inventory control system that tracks inventory and automatically creates orders when the levels are at a certain threshold. Veeqo is one of these systems, which allows you to enter the duration of your lead in the program and issue suppliers purchase orders in one click. In addition, the software automates the process, incorporating the lead time into forecasting.
4. Share sales data with your suppliers
If you work in partnership with your vendor and develop an effective communication system, it becomes much easier to share data on sales. If you can let your suppliers discern from the data what is the most popular and sought-after, they will be on the same page and ready to respond before you receive your orders. This will greatly reduce the amount of time needed to produce as it can be tuned to the needs of the moment.
5. Use domestic suppliers whenever possible.
It’s not always feasible to source your goods from a local supplier, but when it is, you can; it reduces lead times by a few weeks, which is the time needed to deliver. Additionally, you don’t need to worry about communication issues due to differences in language.
6. Keep in touch with your suppliers
We’ve discussed building positive relations with suppliers, including staying in contact with them frequently. Instead of placing an order and sitting in silence, staying in touch directly with suppliers during the manufacturing process is important.
This way, when issues arise, you’ll be able to tackle them promptly. It is also helpful to give suppliers KPIs (Key Performance Indicators), which can prompt them to deliver the required amount of service.
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