Lead Time is the amount of time, defined by the supplier, that elapses from the time a customer expresses a desire until that desire is satisfied. Its elements include; order receipt, order fill (by whatever means), and shipment. The supplier always defines the Lead Time, because the supplier determines how to fill an order.
Lead Time is used to:
- Create action messages in advance of a need in the planning system.
- Define the completion date of an action
Ways of reducing lead time:
1. Increasing order frequency
Ordering more frequently in small quantities can help reduce your lead time and carrying costs. This is particularly true if you‘re ordering from domestic suppliers that come with the assurance of shorter and more predictable lead times. While ordering more frequently in smaller quantities could be more expensive as you won‘t enjoy the perks of bulk shipping, you should be able to reduce your carrying costs. So it‘s up to you to decide which option is best for your business. With new shipments constantly coming in,
you‘ll be able to cut down the amount of inventory in your facility, freeing up space for other products.
2. Automating the transmission of information
A purchase order may need to go through a few different stages of approval before it‘s sent off to your supplier. It‘s also likely that your suppliers have structured their businesses in similar ways with multiple stages in the supply chain. As a result, you‘re suffering longer lead times. A great way to start on automating processes would be to use inventory management software. The inventory management software can generate purchase orders once inventory levels hit the reorder point.
3. Provide forecasts to your supplier
When dealing with hundreds of SKUs, it can be difficult to keep a close monitor on every one of them. You can share sales data with your suppliers, allowing them to anticipate an incoming order by referring to past sales data. If they‘re expecting a new order, they can speed up the fulfillment process by setting aside your usual order, ready to be packed and shipped upon receiving the purchase order.