Today, the phrase “time is money” has come true in an unthinkable way: Customers value speed of delivery as much as the price of the goods, one of the effects of the e-commerce boom. Thus, for a logistics distribution company, time optimization is essential, and this is where lead time comes into play.
What is lead time?
This is the time elapsed from the start of a process to its completion, or from the placement of an order to the delivery of the product. It is also known as response time or cycle time.
This concept is key in the supply chain because it is used to plan and control logistics operations efficiently: Meeting delivery deadlines, managing inventories and, above all, meeting customer expectations.
Lead time classification according to process or stage
Logically, each process or stage of the supply chain will have its own lead time, since we cannot apply a single criterion to measure the time of all parts of the supply chain. What are the most common examples of lead time?
- Supply lead time: The time required to acquire the materials or components necessary for production. It includes the issuance of the purchase order, processing time, manufacturing and transportation to the facility.
- Production lead time: The time required to manufacture a product from inception to completion. It includes the stages of production, assembly and testing.
- Delivery lead time: The time required to deliver a product to the customer from the time the order is placed. It includes order processing, product preparation, packaging, transportation and final delivery. It is the most critical point for the end customer, since products already manufactured are usually sold, so the two previous lead times are not perceived by the end customer of an e-commerce company, although they are usually perceived by a B2B customer for whom the product is manufactured on demand.
- Replenishment lead time: This refers to the time required to replenish depleted inventory levels. It includes detection of the need for replenishment, order processing, product preparation and delivery time.
Why is lead time important in logistics?
As we have indicated, measuring lead time in logistics is essential for efficient supply chain management, as it provides us with valuable information for planning, meeting deadlines, inventory management and continuous improvement. To measure lead time efficiently and accurately, we need to have a WMS or warehouse management system, because given the large volumes of orders that are managed today, it is not possible to do the calculations manually. How does lead time measurement help us?
- We can meet delivery deadlines more efficiently, as it allows us to accurately estimate how long it will take to complete a process or deliver a product. For example, it helps us identify delays and bottlenecks in the supply chain, enabling us to take corrective action to avoid delays and ensure on-time delivery.
- We improve capacity and resource planning to meet demand, such as scheduling production operations, adjusting inventory levels, allocating personnel and coordinating shipments efficiently.
- We optimize inventory management: For example, if lead time is long, a larger inventory will be required to maintain desired service levels; if lead time is short, inventory levels can be reduced. This will help minimize warehousing costs and avoid product shortages.
- It provides a basis for continuous improvement. By monitoring and comparing lead times at different stages and processes, areas of inefficiency and opportunities for optimization can be identified. Reducing lead time over time allows you to achieve greater efficiency, reduce costs, increase customer satisfaction and gain competitive advantage.
How can we reduce lead time and improve our logistics efficiency?
For lead time to be useful to us, we not only have to measure it, but also try to reduce it as much as possible, obviously without losing quality at any point in the supply chain, but optimizing the areas where we detect inefficiencies. How can we do it?
1. Process analysis and optimization
The first thing to do is to thoroughly analyze each step of our processes to identify potential bottlenecks, delays and inefficiencies. Once we have identified the problem areas, we will implement the appropriate improvements, such as automating tasks, simplifying workflows or eliminating unnecessary steps.
2. Improving communication and collaboration
Smooth communication and effective collaboration are crucial to reduce lead time. To do this, we need to have an WMS that enables real-time, error-free information exchange between all parties involved. This will enable better coordination, faster decision making and agile problem solving.
3. Efficient stock management
A well-managed inventory is essential to reduce lead time. We must analyze our demand and consumption patterns to determine optimal inventory levels, and implement techniques such as just-in-time. By maintaining adequate inventories and avoiding excesses or shortages, we can speed up processes and reduce lead time.
4. Relying on reliable suppliers
Collaboration with suppliers can be key to reducing lead time. We can explore options such as faster delivery agreements, consignment supply programs or integrating suppliers into our supply chain.
Technology, the great ally
Nowadays, it is practically impossible to reduce lead time without technology, as we have already mentioned. By implementing advanced warehouse management systems (WMS), enterprise resource planning (ERP) software and tracking and tracing solutions, we can have greater visibility into operations, optimize transportation routes, automate tasks and make decisions based on accurate, real-time data.
In summary, reducing lead time in logistics is essential to improve the efficiency of the supply chain, a task that today can be extremely complex if we do not have the right technology, due to the high volumes of orders that are handled and the large number of factors that influence the supply chain itself.
Lead time vs cycle time
Lead time and cycle time are two key concepts in logistics management, although they are often confused. It is important to understand the differences between them and how they are related in order to optimise processes and improve efficiency in the supply chain.
Differences between lead time and cycle time
El lead time se refiere al tiempo total que transcurre desde que se solicita un pedido hasta que este llega al cliente. Incluye todas las etapas de la cadena de suministro, como la gestión comercial, las compras, la producción y la logística. En cambio, el cycle time se enfoca en el tiempo que toma completar una tarea o proceso específico dentro de la cadena de suministro.
Lead time is a broader indicator and covers all waiting and processing times from order to delivery, while cycle time is more specific and focuses on the time of production or completion of a particular activity.
How they relate and their impact on logistics management
Lead time and cycle time are interrelated, as cycle time contributes to the total lead time. Reducing cycle time can lead to a significant reduction in lead time, resulting in faster and more efficient delivery of products to the customer.
