Every good entrepreneur has a revenue focus, but revenue drives are not all tied to sales, marketing, and product. Your production lead times can also be a major driver of revenue growth…or lack thereof.
Patience Is a Virtue
No one likes to wait. Whether it’s waiting to receive your food at a restaurant, waiting in a security line at the airport, or waiting to receive an online order, we can all agree that the shorter the wait, the better. Naturally, longer waits are often associated with products or services that are more complex in nature and involve significant behind-the-scenes work. For instance, when it comes to complicated hardware-based products that involve components from multiple suppliers, it can be tough to meet the demanding expectations and quick-turn deadlines of your customers. How are you supposed to compete in a world that craves instant gratification?
You may not be able to give your customers what they want immediately, but you can actively work to reduce how long they have to wait. In this post, we’ll introduce you to the concept of lead time management and outline strategies that you can employ to address unnecessarily long wait times. This could be the very thing that helps you attract and retain your customers, because although patience is a virtue, let’s face it – it’s not a virtue that very many people have.
Learning the Lead Time Basics
The dreaded waiting period, or the latency between the initiation and execution of a process, is known as lead time. Reducing lead time through lead time management can help your business in a number of different ways. You can increase productivity and employee effectiveness, or boost profit margins by lowering cost of production and inventory expenses. Additionally, you can better meet dynamic customer needs. If you’re faster on the draw to fulfill orders for your customers, then as their needs evolve over time, they are more likely to trust your business with their next purchase. In summary: with lead time management, your business will be more profitable and your customers will be more satisfied with their experience. Sounds like a win-win, right?
Although lead time management seems like a no-brainer on paper, in real life it can be much trickier to implement. Not only does it require dedicated time and resources, but there are many different kinds of lead times to consider in an end-to-end supply chain. Such lead time examples could include: manufacturing lead time, order preparation lead time, set-up lead time, inspection lead time, release of order lead time, and receipt of goods lead time, to name a few. Nonetheless, there are two lead times that are common to all companies. The first is purchase lead time, or the total time from placing an order with a supplier until the ordered goods are received internally. The second is payment lead time, or the total time from when the order is received internally until payment is received from the customer. Chances are, your company probably deals with these two lead times, so they offer a good place to start when it comes to thinking about lead time management tactics.
Lead Times for Business Processes
To successfully reduce lead times for your business, engaging in formal lead time management activities is critical. As mentioned, doing so has the ability to greatly improve customer satisfaction metrics for your business. This is because value for money (VFM) to customers is inversely proportional to lead time. Thus, customer satisfaction is the result of increased VFM and reduced lead time. In other words, the shorter lead times that you have, the happier customers are because they feel like they’re getting the best bang for their buck. Higher customer satisfaction means more new customers, more retained customers, more orders…and more profit.
In an ideal world, you would have zero lead time. This means that your product would be available to your customers right now, right off the shelf. Although this may seem somewhat theoretical, customers have good reasons to expect just as much. When considering lead time management for the first time, it can help to think about it from a business process perspective. Lead times exist in different forms based on different business processes. For instance, there is time-to-market (from conceptualization to customer delivery). There is product development lead time, material procurement lead time, recruitment lead time, sales order processing lead time, decision-making lead time, and project approval lead time. Although there are many different business processes with their own lead times, the common goal is to reduce all of the lead times through effective lead time management.
Lead Time Management Considerations
As discussed, lead time management is a process that involves taking actions to deliberately achieve lead time reduction. When executed holistically, lead time management involves multiple actions – like decreasing key activity times throughout the company’s value chain. It also typically involves data analysis and optimization techniques to minimize waiting time, eliminate activities that do not add value, increase parallel processes, and speed up organizational decision-making. Finally, it involves decreasing processes’ running times across the board.
In practice, there is no unified standard technique for lead-time reduction. That being said, if your company’s focus is on reducing lead times to clients in order to maintain high service levels and customer satisfaction, you need to consider two important aspects. The first is the selection of your shipping method, also known as your third party logistics (3PL) provider. Take the necessary time to properly research your 3PL before making any decisions. There are numerous elements to consider based on your business model, as illustrated in the selection criteria graphic below. The second aspect to consider is whether or not your company takes a make-to-order or a make-to-stock production approach. Simply stated, should you only produce when you receive an order, or should you anticipate demand and produce in advance? The answer to this question depends on your overarching business strategy and will greatly impact your lead time management efforts. Check out this post for more information on production strategies and what they mean for your business.
Life Is Too Short to Wait
With supply chain masters like Amazon dominating today’s marketplace, you can’t afford to keep customers waiting around for your products. Make a concerted effort to analyze, track, and improve your company’s lead times through lead time management. Your customers will be happier and your margins will be higher. What’s not to love?
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