Introduction
O lead timeor fulfillment time, is an essential metric in supply chain management. It represents the interval between placing an order and the actual delivery of the product to the customer (investopedia.com). In this article, we explore how lead time - including its variability - impacts the level of service and customer satisfaction, as well as presenting strategies for optimizing this indicator.
What is Lead Time and how important is it?
Lead time encompasses three main phases: pre-processing, processing and post-processing - for example, procurement, manufacturing and shipping in business models (investopedia.com). It has a major influence on operational efficiency, customer satisfaction and the company's financial results, as shorter lead times generally boost productivity and revenue, while long lead times can jeopardize sales and cause frustration (kpidepot.com).
What it is Service Level (Service Level)?
Service level refers to a company's ability to meet demand without running out of products. For example, a service level of 95% means meeting 95 out of every 100 demands without a shortage occurring (slimstock.com). When a high level of service is sought, it is necessary to invest in safety stock, which increases costs (slimstock.com).
How Lead Time Affects Service Level and Customer Service
1. Lead time variability
Variability in lead time - when deadlines are unpredictable - can result in higher inventory costs, product shortages and delivery delays (researchgate.net, patrickrigoni.ch). Companies that operate just-in-time (JIT) systems are especially vulnerable.
2. Cost and Stock Security
To maintain a high level of service in environments with uncertain lead times, companies need to keep higher stocks as a buffer, which increases working capital and the risk of obsolescence (slimstock.com, patrickrigoni.ch).
3. Impact on Customer Service
Long or variable lead times result in delivery delays, which directly impact customer satisfaction and loyalty. Dissatisfied customers can migrate to competitors (kpidepot.com).
4. Distribution network design
Lead times influence strategic decisions about the design of the chain - such as the number and location of distribution centers. The more precise and efficient the lead time, the more optimized the network can be (linkedin.com).
Indicator: Order Fulfillment Lead Time
O Order Fulfillment Lead Time is the time between receipt of an order and its shipment. It is a critical KPI for measuring operational efficiency, customer satisfaction and financial health (kpidepot.com). Benchmarks indicate that:
- Less than 5 days: excellent
- 6-10 days: good
- More than 10 days: requires improvement
Actions to minimize the effects of lead time on operations
1. More accurate demand forecasting
Advanced demand forecasting and analysis tools reduce unpredictability and help to plan inventories more accurately (researchgate.net).
2. Diversification and Supplier Relations
Having multiple suppliers and good relationships allows you to reduce delays and improve lead time reliability (researchgate.net, patrickrigoni.ch).
3. Implement DDMRP (Demand-Driven MRP)
DDMRP reduces lead time variability by separating plans into shorter, more predictable horizons, and uses dynamic buffers aligned with actual demand (patrickrigoni.ch).
4. Automation and Real-Time Visibility
Systems that offer real visibility into stock, logistics and lead times enable faster and more accurate decisions (patrickrigoni.ch, kpidepot.com).
5. Distribution Network Redesign
Responding to lead time variability by adjusting the location of inventories and distribution centers can reduce the total time to the customer and improve the level of service (linkedin.com).
Conclusion
- A short and predictable lead time is essential for achieving a high level of service and efficient customer care.
- Lead time variability requires larger inventories, increasing costs and the risk of failures.
- Tools such as advanced forecasting, DDMRP, automation and effective logistics design are key to mitigating adverse effects.
- Investing in precision and operational flexibility translates directly into better customer satisfaction and financial performance.
Optimize your lead time and raise your service level.
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