Waiting in line. Waiting for food to come out. Waiting on someone who is running late.
Similar to many things in life, most people don’t like to wait a long time to get their orders. That’s why ecommerce businesses strive to maintain short lead times throughout their processes, so customer orders are delivered as quickly as possible.
However, many businesses still struggle with managing long lead times (and not just during the last-mile phase, but even starting at the point of manufacturing), which can negatively impact the customer experience.
This article provides a closer look at common lead times in logistics, how to manage them, the root causes of long lead times, and how you can avoid them.
What is lead time?
A lead time refers to the amount of time it takes to complete a process, from beginning to end. In logistics, when you hear ‘lead times,’ it most often refers to:
- The amount of time it takes to get inventory to your warehouse, from the point of ordering it from a manufacturer to when it’s ready to be fulfilled in customer orders
- The amount of time it takes an order to be delivered, from the time a consumer purchases it online to when it arrives at its destination
Understanding and calculating lead times helps you understand how to avoid delays, though many businesses build in slight buffer times as they know things can go awry throughout the supply chain.
Lead time management basics: What are the types of lead times?
Lead times mean different things depending on where inventory and customer orders in the supply chain. Here is a breakdown of the different lead times that ecommerce business owners may keep track of to measure supply chain effectiveness.
Time to market
“Time to market” refers to the total time it takes for a product to be available in the market from the time of its conception.
Time to market is most often used for reviewing performance when developing or introducing new products.
“Product development” refers to the total time it takes for a business to develop a product.
It typically includes the entire process of designing, developing, and manufacturing the product before it’s available for purchase in the market.
Also known as “material lead time,” “material procurement” refers to the total time that passes for a business to procure the raw materials needed for production.
“Recruitment” refers to the total time that passes between a business requiring additional workforce and hiring new employees to fill those open positions.
Recruitment is important to understand when hiring warehouse and fulfillment staff, especially if you’re planning for the holiday peak season when there is additional seasonal demand.
Sales order processing
“Sales order processing” is the total time that passes between a customer placing an order to a business processing it and shipping it out.
Typically involving the administration and management aspects of the supply chain, “decision-making” refers to the time it takes for businesses to finalize supply chain decisions.
It’s important to give adequate time to certain business decisions, like sourcing vendors and partners, because the wrong decision could cost you in the long run.
“Project approval” refers to the total time it takes to get approval for a project from the time it’s requested.
The project approval lead time will also factor in the entire time taken to complete the project.
What are the 6 components of lead time?
There are six key components involved in calculating average lead times. Here is a high-level breakdown.
1. Pre-processing time
“Pre-processing time” or planning involves the time taken to receive the request and then create a purchase order accordingly.
3. Processing time
“Processing time” refers to the amount of time it takes for a business to procure or produce the order, often according to the request received previously.
4. Waiting time
“Waiting time” involves the time taken to procure all the raw materials and items necessary for the production process to begin.
5. Storage time
“Storage time” is the total time taken for items to remain in the warehouse until they’re ready to be shipped out or delivered.
6. Transportation time
“Transportation time” is the time it takes for the item to be transported to the end customer.
7. Inspection time
“Inspection time” involves the time taken to check the products for any issues or damages before they’re delivered to the customer.
Lead time vs. cycle time vs. takt time
Lead time, cycle time, and takt time are all important measures of productivity and performance throughout the supply chain.
Here is a breakdown of the different measurements in ecommerce:
- Lead time refers to the total time taken for a business to deliver an order after receiving it.
- Cycle time refers to the total time to finish producing one product.
- Takt time is the time between starting one process and the next.
These three metrics are interconnected: a short cycle time will result in a shorter takt time, which will also contribute to shorter lead times.
What is considered a long lead time?
This will vary greatly by the type of lead time in question. By definition, a long lead time is when a process takes a relatively long time to be completed, compared to a business’s average lead time(s) or industry benchmarks.
The actual time may vary depending on the business, industry, processes, and locations (point of origin and final destination).
What is considered a long lead time varies, so it’s wise to partner with a supply chain expert or take the time to fully understand the processes that take place throughout your operations, so you can identify long lead times.
Example of long DTC shipping lead times
When shipping within a big country like Australia, a long lead time for a ground shipment is over 1 week (including fulfillment and shipping transit times).
Note: An average lead time for a ground shipment from Sydney or Melbourne to Perth is 1 week, but if you’re shipping from Sydney to Melbourne, 1 week would be considered long since these cities are closer together and typically only take a couple days to be shipped and delivered.
Let’s walk through this in more detail:
- If an order is placed by noon local time (of the fulfillment center fulfilling the order) on a business day, it should be picked, packed, and shipped out the same day.
- One in the carrier’s hands, if the package is shipping from one side of the country to the other, it can take up to 7 business days via ground transport. If it’s a local delivery (e.g., fulfilled and delivered to within the same metro area), it can be delivered easily in 1-2 days.
- If you’re not distributing inventory across multiple fulfillment centers (e.g., with a 3PL), then you should expect longer lead times. If you cover your bases and store inventory in different regions where your customers reside, shorter transit times on average can be achieved by always shipping from the fulfillment center closes to the end customer.
Similarly, a long lead time for a ground shipment in the continental US to be delivered is also over 1 week, however American consumers are more accustomed to 2-day shipping because of Amazon Prime, so keeping lead times down in the US is especially important.
Example of long manufacturing to receiving lead times
A long lead time for ordering inventory from your manufacturer, let’s say from China, to be received and stowed away in your warehouse in Australia is over 60 days (including manufacturing the product, transporting it via ocean freight and then via truck from the port, and having completed the receiving and putaway process in a warehouse).
This may seem like a really long time to wait, but the average lead time to submit a purchase order (PO) from your manufacturer in China to when it’s stowed in your warehouse in Australia this scenario is 30-55 days.
Let’s walk through this in more detail:
- A PO manufacturer run can take 1-4 weeks (it can take more if you need to see a sample product, for example).
- Ocean freight can take another 22-26 days (sometimes faster, but sometimes slower).
- Port to dock takes another 2-3 days.
- Receiving can take 1-3 business days.
That said, it’s critical to set up reorder point notifications that take this entire lead time into effect, so you begin the replenishment process early enough to avoid stockouts.
To put it in much simpler terms, let’s say you wait too long to shop for groceries. If you were supposed to buy butter over the weekend but forgot, and now you need to make cookies for a bake sale, what do you do? You may even start the recipe and realize you don’t have enough butter. In this situation, you may be able to run to the store to get more, otherwise you may be out of luck for bringing something that’s freshly baked.
Unfortunately, it’s much more complicated when it comes to raw materials, global logistics, transit that involves several parties and modes of transportation, and customer with high standards.
Why is it important to avoid long lead times?
Longer lead times can result in higher costs and lower profits. When your business takes a long time to complete different processes, it means you’ll be paying your workers more while producing less. Cutting production lead times is crucial if you want to cut costs.
Shorter lead times will ensure that you’re putting all your resources and capital to good use and that your cash isn’t tied up in unused raw materials.
Additionally, longer lead times might mean that your customers will have to wait longer to receive their orders. Shorter lead times can help you prevent customer turnover and encourage more repeat orders.
What causes longer lead times?
There are a number of factors that can result in longer lead times, some of which are within your control. Here are the common causes of longer lead times.
Raw material and skilled labor shortages
Businesses can experience long lead times when they run out of stock for supplies or raw materials. This can be particularly problematic when there’s a shortage throughout the supply chain, and they’re unable to replenish their stock on time.
Moreover, ecommerce businesses require skilled labor at every stage of the supply chain, from manufacturing to warehousing, to fulfillment. When they don’t have enough of the right people to do their work efficiently, it usually takes longer to complete even the simplest of tasks.
Businesses can help mitigate these risks by carefully planning their material and labor requirements. Timely reordering (among all manufacturers and products) is also crucial.
Supplier and shipping disruptions
Unexpected disruptions from the supplier’s end can also cause delays that result in longer lead times.
This may be due to inefficiencies in the supplier’s processes or cash flow issues that prevent them from delivering supplies. If this is a recurring issue, it’s a good idea to partner with more reliable suppliers or find backups.
Businesses may also face shipping disruptions due to weather-related challenges and other unforeseen circumstances (e.g., COVID outbreaks and factory closures).
While some situations are unavoidable, you can avoid some shipping disruptions by ensuring that you have all the necessary documents in place and choose the speediest shipping option.
This is the least avoidable of all the factors that result in longer lead times.
Natural disasters such as floods, landslides, hurricanes, and other weather-related challenges can cause shipping and manufacturing delays that affect your lead times. That’s where backup plans and diversification of manufacturers, carriers, and fulfillment center regions come into play.
For example, if you store inventory in multiple locations, you could have an order shipped from a different location to its destination to avoid bad weather conditions in certain regions that lead to carriers not being able to pick up orders from warehouses.
It might take longer or cost a little more (due to a longer route), but it’s a safe alternative to getting your shipments delivered safely.
Be sure to understand (and plan accordingly) for any planned dates when your manufacturer is closed. Chinese New Year shutdowns are the most common and disruptive if you manufacture in certain parts of Asia, as many factories will be closed for at least two weeks at a time from the end of January to mid-February (the dates change slightly each year).
It’s also worth knowing when 3PLs and carriers are closed in each country to observe federal holidays.
Demand spikes (not enough supply)
Businesses may also experience longer lead times when they get a sudden spike in demand and not have enough inventory on hand (supply) to meet it.
It’s crucial to have a reliable demand forecasting tool or model that will help you anticipate demand spikes and plan accordingly. Many real-time inventory management systems and fulfillment platforms provide historical order data, so you have insights into SKU performance.
Having safety stock available is a good idea (especially as we’ve seen the effects of empty shelves and lockdowns from events such as a pandemic that force shoppers online).
Lead time management: Strategies to combat and prevent long lead times
While not all lead times are within your control, there are ways to better manage lead times throughout your supply chain. Here are some tips to manage your lead times more effectively.
Plan for material and labor needs early
Consider the typical procurement and supplier lead times, and plan for your material and labor needs early on (and factor in seasonality that’s specific to your company).
Use an inventory management tool that will automatically notify you when stock dips below a certain level (taking your entire lead time into effect). This way, you can plan for inventory replenishment accordingly to meet future demand.
Consider air freight instead of ocean freight
While air freight is extremely expensive (especially compared to ocean freight), you always have this option if you’re in a bind (e.g., leading up to Black Friday/Cyber Monday sales).
This will only make sense if the potential profits justify the higher freight shipment cost, but air freight is incredibly fast compared to ocean freight and can definitely speed up lead times.
Switch suppliers and distributors
If you’re constantly experiencing longer times due to inconsistencies and delays on the supplier’s end, it’s high time you look for alternatives.
Take the time to source for reliable suppliers and distributors who can meet your needs on time.
Have backup suppliers
Even if your suppliers are consistent and reliable, there’s still a risk of experiencing emergencies that affect your lead time.
Make sure you have backup suppliers on the books in case of emergency stockouts and other supplier-related disruptions.
Adopt an inventory management and order fulfillment platform
A significant portion of your lead time is affected by how you manage inventory and fulfill orders. It’s important to ensure that these processes are carried out as effectively and accurately as possible.
Though it’s possible to manage operations in-house, sometimes it’s best to leave it to the experts. A third-party fulfillment provider like ShipBob can help you manage your your inventory, fulfillment, and shipping needs for you.
Take the stress out of inventory management and order fulfillment with ShipBob
Reducing lead times involves a lot of moving parts, which makes it challenging to manage and identify long lead times throughout the supply chain.
To help you focus on customer satisfaction, product development, and overall business growth, ShipBob partners with you to provide access to a global omnichannel fulfillment network, including fast shipping.
When you partner with ShipBob, you can easily reduce lead times by allowing the experts to take care of the inventory management, fulfillment, and shipping process for you.
ShipBob’s fulfillment platform offers real-time inventory tracking, so you know exactly how much inventory you have at all times and where your inventory is. You can also set reorder point notifications, which means you’ll always replenish your inventory on time and prevent stockouts.
From inventory distribution to warehouse receiving, to shipping and fulfillment, ShipBob takes care of it all, so you can focus on growing your business.
For us, changing from a 3 week lead time to 3 days through ShipBob is what drove our sales. Even now, one of the primary reviews we get on Etsy is, ‘My order arrived really quickly!’
Having the stock locally in the US means that lead times and shipping times are minimal, and that you’ll get higher conversion rates because you’re offering better lead times.John Greenhalgh, Co-Founder of A Year of Dates
To learn more about ShipBob’s fulfillment capabilities, click the button below to receive more information.
Lead time FAQs
Below are answers to the most common questions about lead times.
What is a long lead time in the supply chain?
Why are shorter lead times better?
Shorter lead times help you cut down labor costs, improve customer satisfaction, and optimize inventory levels. It’s ultimately about speed to delivery so people don’t have to wait as long.
What is the maximum lead time?
The maximum lead time varies depending on the business, industry, locations involved, and action being completed. It would be ideal to look at lead times across the industry and business to assess the maximum lead time.
What simple options do I have to reduce lead time?
Planning your inventory and labor needs ahead of time and working with reliable suppliers are some key steps to reduce lead time. Partnering with a third-party logistics provider like ShipBob can also help you reduce lead times by handing off operations to the experts.