Why lead time reduction is an important goal for importers
Lead time, the time between the order, shipment, and arrival of goods from your supplier, is a crucial component of your supply chain and overall business success. The shorter the time, the better.
Benefits of shorter lead times
Shorter lead times provide your business with these benefits:
- It will be easier to forecast ahead in terms of sales
- You can introduce new products more quickly
- You’ll have increased agility to respond to your market changing and win market share
- You can reduce the inventory you need to hold in stock
- There is a greater opportunity to respond to quality issues, as they can be found more quickly if the order is ready sooner
- It’s unlikely you’ll disappoint your customers with long periods where items are ‘out of stock’
What causes lead times to increase?
Anyone dealing with Chinese (or other Asian) suppliers will probably be used to hearing the dreaded words: “Unfortunately, your order is delayed.”
Hopefully, this isn’t the case, but what actually causes such a lead time delay?
- Language barrier and communication difficulties with the supplier
- Inefficient processes at your supplier’s factory (such as process control, logistics delays, lack of capacity, etc)
- Reactive suppliers who wait for you to give them the go-ahead before taking action (this could be as much your fault if you don’t work with them to produce according to a sales forecast)
- Ordering very large bulk orders in one go, placing a greater burden on the manufacturer in a short time
- Customs and shipping delays
6 ways to reduce lead times
If any of the above benefits are attractive to you, then the subsequent question to answer is how to reduce lead times in order to get them.
1. Arrange ‘the stick and the carrot’ – compensation and incentives
On the other hand, you may also choose to contractually incentivise your supplier to keep lead times as short as possible within pre-agreed timeframes and pay some form of bonus based on results.
2. Improve your supplier’s internal processes
I wrote about improvements that can be made to your Chinese supplier in order to improve lead times and improved quality in this post before.
Consider encouraging your supplier to implement these changes if you’re able (undertaking a supplier improvement audit is a good starting point for suppliers you already have a relationship with):
- A strong planning system that only releases what is needed onto the shop floor
- Purchasers who consider the fully loaded cost of what they buy, and who never try to buy more ‘just to make a good deal’
- Try and keep inventory low, especially work-in-process inventory
- Make materials ‘flow’ as much as possible throughout the processes
- Reduce changeover time by applying the SMED principles
- Do the process engineering needed to enable the downstream processes (usually assembly, testing, and packing) to switch effortlessly from 1 type of product to the next. In some cases, it requires operators to move from one line/cell to another. But remember, less inventory will mean much more space for transformation activities!
At Sofeast we swear by creating a process flow chart when we start making changes to a factory’s processes.
It’s more detailed than a value stream map, easy to understand, and can be filled out by an engineer while they are familiarising themselves with the processes.
3. Build a good relationship
Communicate and cultivate a direct relationship with your suppliers.
They’re less likely to give your order a ‘low priority’ when they’re busy, for example, if they know you.
4. Understand and own your supply chain
One more thing that our clients sometimes struggle with is having a deep awareness of their own supply chains.
You should know who your supplier is ordering components from and, in case there is a delay with some component, you can proactively and swiftly move the production to another component supplier.
It’s possible that your manufacturer might wait and not notify you about this issue much later on.
5. Reduce order sizes and increase regularity
Large orders can slow down your supplier. Even if they push you to place bulk orders (short-termist thinking drives this) you should look at the bigger picture and analyse whether a large order truly serves you well.
You may have some kind of price reduction for buying a larger quantity, but does that offset the costs incurred by longer waiting times to take delivery and start selling? How about the cost of lost sales too, if your manufacturer has capacity issues at their end and can’t deliver your order when it was promised?
5. Work to shared sales forecasts
They should be able to be at the point that they can immediately start production upon receiving your order, rather than needing to mobilize different parts of the wider supply chain.
6. Use ERP inventory management software
Related to sales forecasting, ERP software could help streamline your operations and reduce lead times coming from your supplier, as it will, amongst other things, automatically reorder products when inventory levels fall to a certain point.
This removes the human element from your ordering process, which will minimize the time it takes for your supplier to get a new order meaning that they can take action and start production as soon as possible.
Do you have any comments, experiences, or questions about lowering lead times from your suppliers in China or elsewhere? Let us know by leaving a comment below.
Can Sofeast help with lowering lead times?
Yes, we can.
If you come to us asking how to reduce lead times from a supplier in China or Asia, here’s what we’d advise:
- Firstly, undertake an initial factory evaluation audit.
Our auditor goes into your supplier’s factory and, based on your project requirements which we will discuss with you and fully understand, evaluates their capabilities before you place any orders.
Subsequently, this assures that they can handle it within the timeframe you require.
- Secondly, use ongoing supplier management to assure project success.
A good, English-speaking, project manager is helpful in managing lead times and avoiding any possible delays. Your dedicated supply chain project manager provides robust planning, steers your supplier in the right direction on the ground in China or Asia, follows up on your requests, and provides you with regular feedback. They work for you to assure that your production happens as quickly, smoothly, and cost-effectively as possible.