Reducing Lead Time in Logistics – Why It Is Important?06/07/2022
Teleportation, one of the favourite subjects of science fiction is still a hypothesis. Until it becomes a reality and logisticians are rendered useless, it takes time and planning to move materials from one location to another.
Normally, goods are moved between a raw materials storage to the manufacturer’s processing facility, from the manufacturer’s warehouse to a customer, or from the customer back to the supplier, known as reverse logistics.
The time taken for goods or services to move from their origin to a destination is called lead time. Logistics lead times are critical to any business activity – be it the delivery of goods or services. It is one of the most important factors of inventory control.
Typically, in goods warehousing and logistics, it is the elapsed time between the placement of a purchase order by a customer and receipt of goods according to the purchase order, at the customer’s warehouse or the preferred location. It may also be viewed as the total time taken for the customer’s order to be fulfilled by the supplier.
It is not just the movement of materials that are affected by lead times. Intangible services have lead times too. It could be from the date of agreement to deliver a service to a customer, to when it is finally delivered to the customer for his use – ready for implementation at his preferred location.
The time or gap between the two, which is the service lead time, is the time taken to process and deliver the services according to what is agreed between the customer and the supplier.
In short, lead time is the fulfilment time. Here let us take a look at lead times related to goods or materials.
Lead time is critical to all businesses for planning their activities and for ensuring customer satisfaction. Most companies aim to achieve shorter lead times to streamline their operations.
In the event of an out-of-stock situation, this can be helpful as goods are received within a short period and an extended stock-out is avoided.
Shorter lead times mean that a large stock holding can be avoided by the business as stocks meant for processing or resale are received within a short period. Lesser volumes of stocks held mean less capital tied up. This ‘extra cash’ that becomes available to the organization can be used for other purposes within the business.
Lesser stocks mean fewer space requirements as well as labour, that would otherwise be required to handle larger quantities of stocks.
Generally, organizations that measure lead time break it down into the following components:
Purchase order processing time
This is the time it takes for the customer to generate a purchase order and dispatch it to the supplier, either electronically or by mail.
Goods processing time
Time taken by the supplier to process the customer’s purchase order and keep the goods ready for pickup and dispatch by a freight forwarder or by the supplier’s logistics section is called the goods processing time.
Transit time – including the period of pre-transit storage, inspection, etc.
It is the time taken for the cargo to move from point A to point B. It could be the supplier warehouse to the customer’s premises. It includes time on pre-transit storage, any inspections carried out by the relevant authorities, and the sailing time by a freight carrier.
Some organizations take only the sailing time as the transit time.
This is the time taken by the appointed clearing agent to get the cargo cleared by the customs at the destination port, after inspection and payment of all customs duties, taxes, and surcharges.
Transportation & Delivery
Following payment of all dues and customs clearance, the goods are moved from the port premises to the customer’s warehouse or the preferred location.