In a world of supply chain disruptions, raw materials shortages and labor issues, getting your products to your warehouses, and then to your customers, can take a long time.

Add in inefficiencies in your own operations, and you could be looking at weeks or even months to get your products from the office whiteboard to your customer’s front porch.

Which SKUs do you order? In what quantities? And when?

To guarantee sales several months out, you need confident answers to each of these questions. 

While you may not be able to control which products will go viral or when the next natural disaster will strike, there are ways to manage long lead times and optimize your inventory ROI, without stocking out or overstocking.

Mastering lead times in inventory

• What is lead time in inventory?
• Examples of lead times in inventory management
• How to optimize your lead times for greater ROI

What is lead time in inventory?

There are many different types of lead times that can affect modern retailers. For DTC and e-commerce, lead time usually refers to one or more of the the following definitions:

Manufacturing lead time or production lead time. This is the time it takes for manufacturers and suppliers to source and produce your SKUs. This varies by SKU, and there may be different manufacturing lead times for the same supplier.

Transportation lead time, also known as shipment lead time, transit lead time, or transfer lead time, is the total time it takes for a finished product to travel between nodes in a supply chain, usually from the factory to a storage/fulfillment facility, or between storage/fulfillment facilities. It includes the time spent in supply chain touchpoints between the origin and the destination, such as customs clearance and quality inspections

Total lead time, also known as cumulative lead time, is the added lead time of all the processes that stand between raw materials procurement and delivery at a storage/fulfillment location.

A simple formula for calculating your lead time

The simplest way to calculate transportation lead time is to subtract the date an order was placed from the date it was received at the warehouse or fulfillment center. 

Here’s a straightforward lead time formula to get you started:

Date of Arrival at Facility – Date of Order = Lead Time

If you make an order on October 1 and the product arrives on October 31, you would calculate the lead time as:

31 – 1 = 30 days lead time

In a perfect world, your door-to-door transportation lead time would always be less than 40 days for ocean freight (eg: between China and the US), and less than 14 days for land transfers, including receiving time. But the real world is far from perfect.

If you’re out of stock, you might have to account for additional lead times, such as your manufacturing lead time, which could add an extra 30-90 days depending on the product.

Lead time calculations become even more complex as you start adding in other types of lead times, such as customs inspections and order pre-processing time.

How does lead time impact your replenishment process?

When a supplier has long lead times, or their lead times suddenly increase, this impacts the rate at which you’re able to replenish your inventory.

You may also have to adjust your operations to account for differences in shipping methods, storage and transportation timelines. These adjustments can have an important ripple effect throughout your inventory management operations.

For example, if a supplier’s lead times are prone to delays, you may need to adjust your reorder points to place your purchase orders (POs) earlier to avoid stockouts. However, this could result in additional warehousing costs if your orders are on time. On the other hand, if you go low in stock or out of stock, customer satisfaction may drop due to long waits and delayed delivery times.

Examples of long lead times in inventory management

Long lead times don’t have a single root cause. Unforeseen forecasting issues, supply chain disruptions, and human error in your day-to-day operational processes can all impact your lead times.

Let’s take a closer look at some common examples of long lead times in a multichannel retail environment.

1. Aligning inventory with seasonal buyer behavior

Let’s say it’s mid-August and you want to launch a new line of supplements for the new year. 

First, you need to determine which products will sell next year through market research like customer reviews and focus groups. Then you need to analyze your past sales data to forecast customer demand across relevant SKUs and product variations.

Next, you might speak to the manufacturer to adjust your order volumes to fit your minimum order quantities (MOQs). You then get an estimate per unit cost and timeline for how long it will take to produce. If the manufacturer tells you 90 days, you also need to factor in a 2-4 week buffer to allow for any delays.

If everything runs smoothly, you’ll have the products you need ready to ship to your storage locations by mid-December. While this scenario may sound ideal, the reality is it can be very difficult to achieve. 

Even if your manufacturing lead times go according to schedule, human errors in your demand forecasting could result in not enough inventory for the new year sales rush, or excess inventory at the start of the year.

The future inventory consumption should be tracked based on each channel's forecast

2. Navigating procurement issues and raw materials shortages

Let’s say your products have an electronic component that requires copper to function, like a panel on an exercise bike that calculates miles traveled and calories burned. Due to civil unrest in Peru, copper mine operations are suddenly suspended.

To combat the long material lead time you can:

• Wait to see when restrictions lift and the mines reopen
• Look for backup copper sources like Chilean suppliers
• Redesign your products to work with a more readily available material, like aluminum

No matter which path you take, you’ll still be looking at significantly longer lead times. 

For instance, maybe you choose to find and vet a cost-effective copper source in Chile. Even if you’re able to find a reliable supplier quickly, other brands are competing for the same copper. You'll likely have to wait longer for your PO to be fulfilled.

If you choose to redesign your products to work with aluminum instead of copper, it can take time to prepare the new design schematics. Now your lead time is impacted by your increased cycle time for running tests and making necessary changes to the finished product.

3. Managing planned supply chain disruptions

If you’re among the millions of retailers working with Chinese suppliers, you may be regularly shifting your reorder process to cover your demand for longer than usual ahead of the Lunar New Year.

With suppliers and factories closing for at least 2-4 weeks, you need to make sure you’re not stocked-out after operations resume. In this case, you’ll need to break from your usual Min/Max inventory of 60-90 days and customize your orders according to the specific period you need covered.

In this case you may need to adjust your orders to account for:

• Origin and destination of the order
• Period to be covered (from date, to date, and number of buffer days)
• Number of days to be covered
• Estimated time of arrival (ETA) delivery date

With a clear plan for managing planned increases in lead time, you can preserve your margins and stay in stock, even when suppliers are offline.

4. Managing unplanned supply chain disruptions

If you’ve been in retail for any amount of time, you’ve experienced this one before. A natural disaster hits, a canal is blocked, a global pandemic shuts down operations, or a major shipping carrier goes on strike.

In this scenario, some or all of your SKUs will be sitting in a warehouse, shipping container, or other facility for who knows how long. Products can’t get from the supplier to your warehouse, from your warehouse to the customer, or both.

To make matters worse, your top product is a special edition line of Hannukah Harry toys and it’s already late October. If you don’t sell in the next couple of weeks, you’re in trouble: your product won’t be relevant to customers again for another year.

Your options are:

• Wait it out. Maybe the disruption will end by mid-November and you can make up the lost sales through increased marketing
• Find an alternate form of transportation to get your toys to customers on time, which could be costly and potentially just as slow
• Ramp up marketing on whatever products you can get to customers on time and adjust for the sunk costs of the products that won’t make it for peak season

In a global supply chain crisis, predicted lead times go out the window. In extreme cases, they may even remain indefinite. You need a plan to view your inventory status in real time and adjust where necessary.

5. Offsetting disorganized or inefficient processes

Sometimes long lead times are simply a byproduct of inefficient operations. Many brands start out selling comfortably on one channel and aren’t prepared for the complexities of managing multichannel inventory.

Here are some signs it may be time to get your house in order:

• Suppliers and warehouses are poorly-located relative to where you sell, leading to regular shipping delays and returns issues
• Your 3PL can’t keep up with your order volume and getting products picked and packed adds days to your delivery lead times
• There is no visibility into current inventory levels across storage locations
• Team members are using a variety of manual processes and aren’t aligned around a single source of truth forecast

Spreadsheet-based methods may not be able to keep up with sudden changes in demand or unforeseen disruptions in the supply chain. These seemingly small inefficiencies can add up to much longer lead times that will ultimately impact your margins.

How to optimize your lead times for greater ROI

Sometimes long lead times are unavoidable, but that doesn’t mean there’s nothing you can do to improve them.

Here are some ways to optimize your lead times and prevent delays before they happen.

1. Understand your current lead times and how they impact sales

You can’t manage what you don't measure. To start optimizing your lead times, first you need to know how much time it takes to complete each step, over time. What happened in the past with your lead times? And what’s the impact on sales? 

Review your sales and inventory data with the following questions in mind:

• How did your past orders perform? 
• Have suppliers always respected your deadlines? 
• Were there any delays in shipment?
• At what points were you over- or under-stocked?

Better operations always start with better visibility. So, be sure to take a close look at both your lead time and its impact on sales.

If possible, centralize your PO tracking in one location where you can clearly see your estimated and actual dates for each milestone, as well as the seasonal sales patterns that can help you improve your forecast accuracy.

POs/TOs tracking page in Flieber: milestones dates can be easily tracked

2. Optimize your forecasts to improve order precision

Instead of relying on set 30-day reorder reminders, over-simplified formulas, or over-complicated spreadsheets, AI-powered demand planning can help you make better decisions about when, what, and how much to order. 

With better forecasts you can:

• Set accurate reorder points for seasonal and cyclical items
• Customize your coverage periods and reordering thresholds
• Manage seasonal, trend-led, and foundational products separately
• Get data-driven recommendations on when to replenish

With a clearer view of your inventory consumption over time, versus your replenishment thresholds, you’ll be better able to avoid stockouts and achieve shorter lead times.

3. Shorten and streamline your manufacturing process

To speed up long lead times on the manufacturing side, start by running a detailed audit of each stage of the production process.

Separate your manufacturing process into the following stages:

• Sourcing raw materials
• Manufacturing
• Packaging
• Shipping

Then break down each stage into individual tasks. For example:

Packaging: 

• Choosing appropriate packaging materials
• Estimating sizing
• Packaging products

Create time estimates for each step of each stage. Then look for opportunities to reduce lead times using automation, alternative suppliers, materials, and more.

4. Optimize your supply chain operations

As with your manufacturing process, a detailed audit of your supply chain can help you pinpoint inefficiencies.

Look for any gaps, gray areas, or bottlenecks and make sure you have the following supply chain elements in place:

• Reliable manufacturers and suppliers at the local and international level
• Standard operating procedures (SOPs) for key order processing, replenishment, and project management tasks
• Clear data, metrics, and key performance indicators (KPIs) to align your team members and supply chain partners
• Strong communication and relationships with manufacturers and suppliers

Once you have the fundamentals in place, you can seek out ways to optimize your supply chain even further by:

• Incentivizing suppliers to deliver earlier through financial bonuses or other perks
• Diversifying manufacturers and suppliers to include local partners
• Upgrading your inventory management system for end-to-end supply chain visibility

5. Partner with local suppliers

You may be able to cut costs by choosing affordable overseas suppliers, but the more distance you put between you and your products, the longer your lead times.

Sourcing locally, or at least closer to home, is a simple way to shorten your lead times.

Working with local suppliers also brings the following benefits: 

• Makes your business more sustainable and attractive to modern consumers
• Supports your local economy
• Removes communication barriers
• Increases visibility into your supply chain
• Makes you faster and more agile when launching new products

If sourcing locally isn’t an option, a more diverse supplier portfolio could still help improve your overall lead times or provide extra insurance against supply chain disruptions.

6. Improve your internal operations

When long lead times are coming from inside the house, it’s time to find and correct your internal bottlenecks.

Here are some tips to help align your team around faster, more efficient lead times:

• Improve internal communications via effective SOPs and integrated systems
• Set up real-time notifications for changes in lead times
• Outsource tasks like customer service to trusted providers

Wherever possible, look for inventory planning solutions that automate and simplify your workflows for better inventory control across the entire team.

Tighten up your lead times with Flieber

Managing long lead times is hard, but it doesn’t have to feel impossible.

Flieber is the smart inventory planning platform that automatically compares your inventory consumption over time against your replenishment thresholds, to tell you when and how much inventory to order.

You get automatic alerts when your delivery date falls below your minimum days of stock, or when a stockout is unavoidable, so you can adjust your sales pace and protect your ROI. 

Want to purchase with a defined cadence? Use Flieber’s Plan New Purchase flow to set your custom Coverage Period, for example from Jan 1 to Feb 29, 2024. Flieber will calculate how much inventory to purchase based on your current and future inventory availability, including future sales.

Ready to take control of your lead times? Reach out today for a personalized demo and find out how easy it can be.