Supply Chain Lead Time: what is it and how to track it

Lead time in the supply chain is a crucial topic in supply chain and logistics. It's a pervasive concept, but measuring and optimizing lead time can be challenging.

Why is it important about this topic?

Global logistics issues, such as fluctuating container prices, shortages, pandemics, and a lack of truck drivers, have made managing lead times even more challenging. The repercussions are numerous: increased team stress, customer shortages, overstocking, and, most importantly, substantial additional costs. This article will outline methods to measure, stabilize, and reduce lead times.

Lead time in the supply chain represents the duration between a customer order and its fulfillment, between businesses (B2B) or from a company to an end consumer (B2C). This timeframe encompasses every stage of the supply chain, from procuring raw materials by suppliers to the final delivery to the end customer.

Let's break down the terminology associated with:

1. Upstream lead times: These encompass the durations needed for all activities related to the production and delivery of raw materials, components, and finished goods to the manufacturing facility or warehouse.

2. Downstream lead times: These pertain to the durations required for all activities involved in transporting the finished products from the manufacturing facility or warehouse to the end customer.

3. Total lead time: This is simply the cumulative duration of all upstream and downstream lead times combined.

Measuring lead time is crucial for various reasons.

Firstly, it contributes to establishing a profitable supply chain by enhancing service quality, lowering costs, and minimizing inventory. Inadequate lead times can result in poor visibility, excessive stock levels, stock shortages, and the need for costly express deliveries to address issues.

Secondly, measuring lead times is essential for gaining comprehensive visibility into your logistics operations, particularly during periods of global crises, pandemics, or escalations in container prices and transportation costs. This enables more effective management of transport lead times and ensures high standards of customer service.

Lead Time: Action Plan

Here are several key points to consider for effectively measuring and enhancing your lead times:

1. Measure intermediate lead times.

2. Update lead times regularly in ERP systems.

3. Conduct manual checks to verify computer-generated data.

4. Identify and eliminate outliers or extreme values.

5. Prioritize stabilizing lead times before initiating reduction efforts.

6. Engage suppliers in collaborative efforts to optimize lead times.

Effectively managing lead times is essential for ensuring the smooth operation of supply chain processes. By accurately measuring and continuously improving lead times, businesses can enhance customer satisfaction, reduce costs, and maintain competitive advantage. Through a proactive approach that involves regular monitoring, collaboration with suppliers, and strategic adjustments, organizations can navigate challenges such as global crises and market fluctuations with greater resilience and efficiency.