Customers these days are expecting fast deliveries. To ensure a one-day delivery for their product, they are ready to pay additional fees. However, when it comes to global chains, it normally takes weeks or even months to ship goods from overseas owing to port congestion, raw materials shortages, transportation bottleneck and so on.
Longer lead times in the supply chain can cause a series of negative effects for both the customer and the seller. In fact, lead time is the single biggest factor influencing the performance of your inventory control processes and supply chain in general.
It is crucial to help organize the schedule and precise the delivery day or at least the time frame, so the company can organize the manufacturing, selling or delivery process.
Scheduled delivery date has to be met. Customer satisfaction depends on meeting the delivery date. Vendors need to meet the delivery date also, so the company will be satisfied with working with them.
In this post, we will discuss challenges with global supply chain management and how lead time can be improved through collaboration between different departments within an organization.
The basics of lead time
The time it takes between the start and finish of a manufacturing process for a product or goods is referred to as lead time. This comprises placing orders, procuring supplies, producing, and delivering the finished product.
Lead times might be especially lengthy if you are obtaining materials or items from afar. Many manufacturers, for example, get raw materials from other nations, and many buyers purchase finished goods from foreign countries.
Other factors, such as delays in order processing, inadequate capacity management by suppliers, delays at the receiving port, and so on, can also raise lead time needlessly.
Other factors may include decisions to prioritize your products or inadequate internal processes at the supplier's end. Delays at the freight forwarder, as well as the utilization of non-direct shipping routes, can all add to the delay time. These elements can have a considerable impact on your inventory control operations and, in general, your supply chain.
Challenges of global supply chain management - Lead times
Why Lead Times in the global supply chain matter
There are a few reasons why lead times are so important to supply chains. First and foremost, inventory is a major factor in the success or failure of most businesses. In order for companies to maintain an optimal level of stock, it's crucial that they have accurate information about demand - and lead time can play a significant role in that.
Secondly, long lead times can result in missed sales opportunities and lost customers. When potential buyers see that a product is out of stock or on back order, they will often go to competitor instead. This not only harms your bottom line but also damages your brand's reputation.
Lead time can also have an impact on customer satisfaction. When products are delivered late, customers may feel that they have been let down by the company. This can cause them to lose trust in the brand and lead to negative word-of-mouth marketing.
Following points reflect the importance of lead times:
Comparing lead times against the set standards could help a business identify inefficiencies if any.
Shortening lead times can help businesses boost productivity and restructure operations.
It also gives a company a competitive edge over rivals.
A quick turnaround helps to boost customer satisfaction.
A quick turnaround also saves financial costs in terms of the blockage of lesser working capital.
Lower shelf-life goods need lower lead time.
What is purchase lead time?
Purchase is the process of buying material or product from a vendor. It serves as a link between production and sales departments.
Purchase lead time can be very different from delivery lead times because it is dependent on the procurement process of the company.
It includes searching for potential suppliers, making quotations, negotiating terms and finalizing transactions with them to take possession of goods or services that are bought by a business organization during a certain period of time.
There are a number of ways that businesses can reduce their purchase lead times, but each company will have its own challenges and needs that need to be considered. In order to make an informed decision, it's important to understand the different aspects of purchase lead time.
Factors that impact purchase lead time
There are a number of factors that can impact purchase lead times, and each company will have its own unique challenges. However, some of the most common factors include:
The type of product or material being purchased
The number of suppliers being considered
The complexity of the procurement process
The distance between the supplier and the buyer
The availability of the product or material from the supplier.
Reducing purchase lead time
In order to make an informed decision, it's important to understand the different aspects of purchase lead time. There are a number of ways that businesses can reduce their purchase lead times.
Some of the most common ways to reduce purchase lead time include:
Reducing the number of suppliers being considered
Streamlining the procurement process
Negotiating better terms with suppliers
Buying in bulk to take advantage of discounts
Looking for supplier closer to the buyer
Considering alternative sources for the product or material being purchased.
We can consider lead time as a significant element to ensure customer satisfaction. Though purchase lead time is different from customer lead time, both are interlinked.
A buyer will be able to set the customer lead time accurately only if he is well aware of the purchase lead time. Any variation in the purchase lead time will affect the customer lead time directly. It can also cause customer dissatisfaction. The delay will also affect the supply chain.
Why is purchase lead time management important?
Purchase lead time is an important aspect in managing all other corporate processes. If we can efficiently calculate buy order lead time, we will be able to plan the manufacturing of any product utilizing the acquired material or the selling of the purchased product.
With the assistance of an example, this operation may be illustrated here. Assume we made an order on February 10th. The lead time is 15 days in this case. The product will thereafter be available in our inventory on February 15.
Once we have calculated this lead time, we will be able to more effectively plan our manufacturing efficiency and control the product delivery date to our clients.
Assume that on April 1, a furniture manufacturing unit placed an order for wooden panels to be used to make shelves. He is given a 10-day lead time. Then he may compute the total number of days necessary for product delivery based on the product manufacturing schedule and the location of his customer. This would undoubtedly help us to assure client satisfaction because the goods will be delivered on time.
CommerceCore lead time management - Schedule dates to control your business
Having a proper schedule is an important part of business. You need to carefully plan every move to provide the best possible service to your customers.
CommerceCore™ helps you plan and coordinate various processes within your business. You can schedule dates to control your process: from supplies orders to manufacturing and delivery.
Lead times are a security measure to ensure you don't miss a deadline. You define a number of days that you think are enough to finish a process. Each process can have a different number of lead days.
Luckily you don’t even have to be an expert on how to calculate manufacturing lead time or other lead times.
CommerceCore™ calculates the lead times in each process (manufacturing, purchase or shipping) and gives you a date. That date is called a Commitment Date - this is the day you can say to your customers they'll get their products.
With CommerceCore™ you can schedule with accuracy automatically. You can give your customers an accurate estimation of when they’ll receive their products with the help of lead times. The dates take into account lead times from your suppliers, manufacturing, and delivery.
This process is not time-consuming, because you only have to set up lead times once to properly plan deliveries.
How to set purchase lead time in CommerceCore™
To make use of this feature go to CommerceCore™ Purchase module. As lead time is calculated based on the purchase order, we first have to create a request for quotation.
Use the Create Option in the RFQ.(Request for quotations).
For this example we have selected Azure Interior as the vendor and Customizable Desk (Aluminium, Black) as the product.
We can see options like Order Deadline and Receipt Date in the screenshot above. The Receipt date in this context refers to the day on which the buyer is anticipated to receive the product. It is now time to look at the Product Tab.
We've already chosen Customizable Desk (Aluminium, Black) as the product. However, we can't see a delivery date choice there. We have to enable the Delivery date option to get this date under the product tab. To do so, click on the three vertically aligned dots on the right-hand side.
The delivery date is generated automatically and the receipt date gets auto-added as a delivery date.
We have also set the unit of measure and unit price.
Here the Order deadline and receipt date are the same. When we consider the above-mentioned case we cannot find any lead time. To get lead time we have to make the necessary changes.
As we may be familiar with the vendor and the delivery time required we can do this by clicking on the external link given next to the product name.
There are many tabs in the Product window and what we have to choose is the Purchase Tab. When we choose the vendor the delivery lead time given here is 1. We can edit this option and add 10 as the delivery lead time.
Now we have to save the changes and return to the request for quotation.
Here we can click on the Receipt date directly and change the receipt date using the drop-down menu. Since the Order deadline is December 07, we can choose the receipt date to December 22 here. In the next line, we can see an option Ask Confirmation. This enables us to send a confirmation letter to the vendor within a few days.
After all these steps we can save the changes and Confirm the order. Once the order is confirmed the RFQ will be changed to Purchase order.
As you can see, the length of your lead time has a profound effect on every aspect of the supply chain and customer experience. The good news is that by keeping your lead times short and under control, you will have a significant competitive advantage over other companies in the market who are using outdated practices or ignoring this key metric altogether.
We have created a YouTube video playlist explaining functional aspects of the CommerceCore MOPS platform in video format which will explain to you the various aspects of the operation of the platform.
It’s never been more important to take an inventory snapshot so be sure to schedule a demo with us today.
Merchant Operating System (MOPS) refers to a type of software used by Shopify merchants to handle day-to-day online-business operations including warehouse management, multichannel product management, invoicing, payment tracking, order processing, and much more.
The Merchant Operating System also includes corporate performance management software to help with planning, budgeting, forecasting, and reporting.
The MOPS is built on the widely popular open-source ERP Odoo Enterprise Framework. 26000 apps/plugins/modules/extensions are available from an Integrated App Store. We help our customers carefully pick and integrate apps based on their needs through our Professional Services.