While everyone is so focused on solving the current supply chain challenges, one of the main questions is: How do we shorten the lead times?
Customers don’t like waiting. Whether that customer is a consumer and wants the product they ordered now, a retailer that needs the product to arrive in stock, or a manufacturer holding up production because raw materials have not arrived yet, waiting creates frustration and waste of most precious time.
For retailers and manufacturers, the consequences of extended lead times can go far beyond a mere annoyance; it can cost the organization customer retention and loss of sales velocity. There’s the risk of running out of inventory or having to carry more to compensate for unreliable suppliers.
Speed to market is threatened as competitors might introduce new products quicker and grab more market share. Responding to market changes becomes increasingly complex, and if the items they waited on for so long show up with quality control issues, there’s less time to react. In conclusion, time is valuable, and waiting is a waste.
Nine ways to reduce supply chain lead times below are critical to reduce and accurately forecast lead times to eliminate waste successfully.
1. Use a Domestic Supplier
Using a supplier or a vendor domestically can automatically reduce lead time by three weeks or more — that’s about how long it takes for raw materials or products to ship from many foreign countries, especially when shipping delays and shortages of goods are at the pick.
2. Increase Order Frequency
Consider ordering smaller quantities more frequently to help reduce lead times and carrying costs. One might argue that placing one large bulk order will save money. If it means longer lead times, the cost saved on shipment of one large order most likely be less than the sum of potential lost sales or extra cost of increased labor for inventory management. Do a comprehensive cost analysis to compare the cost-saving with both scenarios and see what works for your business.
3. Provide Sales Forecasts and Determine Timelines Needed to Hold or Release Stock.
Letting your supplier or a vendor know when to expect reorders based on actual sales data helps them anticipate your business needs and speed up the fulfillment process. They can set your usual order aside and have it ready to ship when you say “go.”
For inline stock products only, you may negotiate the terms of hold and release stock assuring consistent inventory flow while minimizing the risk of buying too much upfront. It can be on a bi-weekly, monthly, or quarterly basis. For example, a vendor produces items in bulk to your quarterly sales forecast and holds stock to ship every month. If sales fall below the forecast, you may decide that you do not need the inventory for the next month. In this case, you let the vendor know ahead of time to release the held stock for that month back to open stock to sell to others.
However, essential to know when the cut-off date is to take in or release stock in time for the vendor to sell off that month’s inventory safely and not get stuck with the merchandise. You must have complete transparency, do a quarterly re-forecast, and always think ahead.
4. Convert to Inline vs. Custom Components or Finished Products.
For custom products, make sure you rely on a supplier specializing in your industry and don’t have to spend time learning on the go. However, it is possible to convert to a standard inline component vs. using a custom build. Not only will it save time in engineering and production, but it will also likely reduce product costs. Suppliers and Designers need to collaborate to determine if any tweaks can be made to the design to accommodate a standard component without compromising the performance or quality of the finished product.
5. Consolidate Suppliers
Managing lead times requires more than just managing suppliers. There is a significant amount of time going into coordinating multiple vendors. If trying to keep them all straight and handling multiple purchase orders and relationships means a higher risk that the team won’t get your orders placed promptly, lead times will suffer. While it’s common practice to have at least one backup supplier, so you aren’t entirely dependent on one source, it’s unlikely you’d need more than two backup suppliers.
When possible, consider condensing your supply chain to reduce the time spent handling multiple accounts and implement vendor management software that can help streamline your processes and create efficiencies. You’ll likely find that consolidating or changing suppliers can add value in many ways.
6. Consider Kitting Services
Another internal process that can improve lead times is reducing the time spent gathering products or components in your inventory. Consider various grouping components that are frequently used together or share the same fabrication into batches so your workers can stay more organized and easily pick what they need from inventory for projects. This process is called “kitting” and increases efficiencies because workers don’t have to spend time counting individual parts.
7. Buy Greige Goods in Bulk and Finish as Needed
It is not a secret that each process of product manufacturing takes time. To find where to save time, we often need to get creative. One of the ways to do so is to understand the complete process of how your product or the raw material is made and how long each step takes. Then take a position in bulk on the greige goods or base for the material or component and then finish it as needed. This way, you may shave off at least a few weeks in the replenishment and minimize the cost associated with deep inventory risk. For example, let’s look at the cotton tee shirt production.
If we know that greige goods of cotton jersey take one week to get the yarn then two weeks to spin and prepare greige goods, then it takes two weeks to dye it and one week to ship before it gets cut and sewn. We can easily save three weeks and minimize production delays by placing a bulk order for greige goods, which cost a fraction of the finished fabric.
Then we can dye and finish on a more frequent basis and adjust the quantity per color to match our actual sales, and you would minimize the risk of getting stuck with one color vs. another. Essential to understanding the minimum dye lot needed to dye to a particular color to help you better prepare and forecast.
8. Create an Incentive
Has the supplier given you a typical lead time of 90 weeks, but do you want it in 60 to stay ahead of the competition or coordinate your production schedule with other projects in the works? You may want to consider offering your supply chain vendor a tiered bonus if they complete your order on time or ahead of schedule.
Staying in touch with your supplier throughout the production process helps ensure that expectations are being met and that any issues along the way can be addressed promptly. Providing key performance indicators and ranking a vendor based on vendor scorecards will also help motivate your supplier to achieve the levels of service you expect.
Some manufacturers accept long or delayed lead times as a regular part of doing business and believe there isn’t much they can do about it. Not so. Using these tips can help reduce the risk of production schedule interruptions and the resulting lost revenue.
However, building a solid partnership with reputable suppliers that are as committed to your success as their own may be the most significant factor in reducing lead times.