Reduce lead times through efficient supply

Lead times refer to the total length of time between the decision to purchase an item and its availability for dispatch from the supplier to its actual addition to stock. Lead times may vary from one day to one week to four months, depending on your business requirements and the terms of agreement between you and your supplier.

Business benefits

Customers are the main beneficiaries of efficient supply. Competition, financial awareness and increasing customer demand for immediate gratification are reducing lead times, and businesses are under constant pressure to meet those lead times. The advantages of efficient supply for your business are:

Customer loyalty
Increased orders
Increased profit margins
Good reputation
Less competition

Contract

You need to decide what lead times are suitable for your company in order to maintain your business and meet customer demands. This is crucial when it comes to negotiating a new contract with a supplier and choosing the most appropriate terms of sales and/or Incoterms (international code for delivery). Be firm and make sure that you get a commitment from the supplier to meet the agreed lead times. Some suppliers will hesitate before agreeing to tight lead times while others may make unrealistic promises in order to get your business. That is why it is essential to draw up a contract to protect the interests of both parties. Using Incoterms helps to formally delineate the responsibilities of each party for the delivery of the goods

A good contract will contain the following:

Agreed lead times for the delivery of specific orders
Supplier bearing the cost of late/delayed shipments
Supplier bearing the cost of goods damaged en route
Advance notice of product shortages
Advance notice of discontinued items
Advance notice of product upgrades
Advance notice of price changes

Forecasts

Businesses that require shorter lead times probably buy perishable goods with a short-shelf life, such as fresh fruit and vegetables; while businesses that deal in non-perishable goods can sometimes have the longer lead time of up to four months.

One way to reduce lead times is to provide your supplier with forecasts. This is a prediction of what orders you expect to receive. Suppliers will then be able to plan production lead times, as well as take into account the time needed for packing or preparation for dispatch of a specific order.

Supplier delivery

Supplier performance needs to be measured regularly in order to ensure that stipulated delivery times are being adhered to. There are several ways to monitor delivery times: