Supplier Lead Time
Supplier lead time is the time it takes for a product to travel from the supplier/factory to the warehouse.
What is Supplier Lead Time?
Supplier lead time refers to the duration it takes for a supplier to deliver goods or services after receiving an order. Efficiently managing supplier lead time is crucial for inventory planning, production scheduling, and meeting customer demand, as it impacts supply chain efficiency and customer satisfaction.
Supplier Lead Time Formula:
Here’s how to calculate the lead time simply with this formula:
Supplier Lead Time = (Time of product receipt - Time of product order) / Total number of orders
What is the business impact of Supplier Lead Time?
Shorter supplier lead times reduce stockouts, improve inventory turnover, increase overall warehouse efficiency, and improves customer satisfaction.
Industry benchmark for Supplier Lead Time
The industry benchmark for supplier lead times varies depending on the industry, product type, and supplier location. In general, lead times can range from a few days to several months.
- Automotive industry - 4-6 weeks
- Consumer electronics - 4-8 weeks
- Fashion industry - 4-6 weeks
- Pharmaceuticals - 6-12 months
How to improve Supplier Lead Time?
- Streamline communication with suppliers.
- Optimize transportation routes for inbound shipments.
- Build an optimal supply chain network with accessible suppliers.
- Improve supply chain risk planning. For example, reduce dependency on one supplier, one country, or one trade route to minimize risk.
- Improve demand planning and inventory forecasting to avoid risking stockouts and backorders.
Factors Influencing Supplier Lead Time
1. Supplier Capabilities
The capabilities and capacity of the supplier play a significant role in determining lead times. Established suppliers with efficient processes may offer shorter lead times.
2. Geographic Location
The distance between the supplier and the buyer can impact lead times. International suppliers often have longer lead times due to shipping and customs processes.
3. Order Complexity
The complexity of the order, such as customization or special requirements, can extend lead times.
4. Communication
Effective communication with suppliers regarding demand forecasts, order changes, and expectations is essential for lead time management.
Strategies for Managing Supplier Lead Time:
1. Forecasting
Use accurate demand forecasting methods to provide suppliers with reliable information about your future requirements.
2. Safety Stock
Maintain a safety stock of critical items to mitigate the impact of unexpected delays.
3. Supplier Relationship Management
Build strong relationships with suppliers to encourage collaboration and responsiveness.
4. Continuous Improvement
Continuously monitor and assess supplier lead times and work with suppliers to reduce them over time.
5. Technology
Utilize supply chain management software and tools to track lead times, manage orders, and improve communication with suppliers.