Manufacturing Lead Time: The Definitive FAQ Guide

Every importer would like to get short manufacturing lead time.

It allows you to introduce new products at the right time in the market, and be ahead of the competition.

In today’s guide, you will learn the fundamental aspects that can guarantee short manufacturing lead time when importing from China.

Keep reading if you want to learn more.

What is Manufacturing Lead Time?

It refers to the duration between the time placement of an order is initiated and completion of the shipment of the same to the customer.

In other words, manufacturing lead time is the time it takes from when the customer places an order and the time he receives it.

In foreign trade, it has become a fundamental aspect worth considering, especially from the supplier’s perspective.

Of course, manufacturing lead time often varies depending on a wide range of factors.

Lead time

Why is Lead Time important in International Shipping?

Ideally, manufacturing lead time is an integral element in international trade and shipping.

However, the impact of this element is only practical when it is reduced.

Here are some of the ways in which reduced manufacturing lead time is vital in this type of business;

1) Customer satisfaction-In an ideal world, any customer ordering a product would expect to have it as soon as possible.

And the customer will always appreciate obtaining the goods with the least effort possible.

Therefore, establishing workable lead time would play a great role in enhancing levels of customer satisfaction.

2) It prevents inconsistency in stock variance – A feasible lead time is essential is averting instances of holding inventory within the supply chain.

With proper structures and modalities of manufacturing lead time, there will be easy control of the stock variation hence since it prevents the issue from compounding.

3) Offers competitive advantage-It helps in giving the particular supplier a competitive edge in the business area of specialization.

In essence, it enables you to outpace your competitors since it allows you to outpace them with more efficient and faster output.

4) Increases business turnover – Manufacturing lead time is also vital when it comes to increasing cash flow since it results in enhanced order fulfillment.

5) Enhances efficiency – With proper lead time in place, it becomes easy to meet deadlines easily and consistently.

It is also fundamental when it comes to improving flexibility, particularly when there are rapid or unforeseen shifts in the market.

How do you Calculate Lead Time in Manufacturing?

When determining the right manufacturing lead time, it is often ideal to ensure figure out a list of all the products needed for the potential job.

So to calculate the precise manufacturing lead time, here are some of the vital steps you need to follow;

Process lead time

Step 1: Come up with a bill of materials (BOM) suitable for the end product and find out the quantity of units needed in each element in the BOM.

The list herein may refer to the equipment, materials, and assemblies required for production of the end product.

Step 2: Determine the duration between material order date an expected delivery date for every item in the BOM.

When calculating this duration, you need to consider the supplier’s raw material requisition, processing, and shipping.

Additionally, figure out the work schedule of your organization and for the vendor or sub-contractor too.

Step 3: Find the component in the BOM, which has the greatest lead time.

Ensure you review the lead times for every material in the list as a way of prioritizing one with the greatest lead time.

Step 4: Review the schedule of production to figure out the specific dates and times, which the product quantities shall be available.

You should then adapt the period yielded herein in your organization’s workweek.

This makes it easy to accommodate weekends and holidays in ensuring the production operations are seamless.

Step 5: Now, calculate the administrative lead time. It is primarily the time needed for processing all the necessary paperwork and also completing any requirements of materials purchase.

This involves determining the time required for choosing a supplier, purchase order preparations, purchase authorization, and transmitting the order to the supplier.

Step 6: Here, you’ll calculate the lead time for inter-operations. It is the time required for the task to move from one work center to another during the production process.

Determine and calculate and add all the individual aspects of inter-operations, including the queue time, preparation, post-operations, waiting, and shipping times.

Step 7: Now, you can calculate the overall lead time for the manufacturing process by adding all the different lead time aspects and finding the total.

You’ll then find the total manufacturing lead time of the particular product.

What is the Difference Between Manufacturing Lead Time and Delivery Time?

Manufacturing lead time primarily refers to the commencement time of physical production of the first sub-module, process it, and render it ready for delivery.

In other words, the overall time taken between starting and completing the production process of a particular product awaiting delivery.

On the other hand, delivery time refers to the duration between completed production process and the customer receiving the product.

In simpler words, the delivery time is the period taken during transportation of the commodity from the manufacturer to the customer.

How does Lead Time affect Cost?

Lead time vs cost

Ideally, lead time tends to have a substantive effect on the inventory size of any particular supplier.

Poor management of lead time often leads to stock-outs, which is critical since it reduces fulfillment of customers’ orders as well as product assembly.

In general, underestimating the amount of stock required often tends to be costly to the company in cash flow, turnover, and reputation.

Therefore, appropriate lead time leads to receipt of all the necessary components arriving together.

It thus helps in reducing costs related to shipping and receiving.

Furthermore, improper lead time management can also result in excess inventory, which often tends to put a strain on the company’s budget.

In a nutshell, lead time has a general impact on the company’s income generation and cash flow.

If it is poorly managed, it affects the supplier’s modus operandi, turnover, and reputation among the customers as well.

What is a Lead Time in Procurement?

It refers to the interval between the initiation of procurement action and receipt into the supply module of the production model purchased due to such actions.

In other words, lead time in procurement is simply the period between the first effort initiating products or services until the time of arrival.

Production lead time factors in establishing the need, determining the product and sourcing vendors, negotiation time, ordering and paying.

Additionally, procurement lead time also incorporates the purchasing and its lead time.

In most cases, the purchasing lead time is often measured in months.

But in some instances, it can as well be measured in weeks.

This depends on the scope, size, and quantity of the product being procured.

What is the difference between Manufacturing Lead Time and Shipping Lead Time?

Manufacturing lead time refers to the duration between the start of processing an order and the time the production process is over.

It is basically the time taken between processing the raw materials and finished product.

In some instances, it is always referred to as production lead time.

On the other hand, shipping lead time refers to the duration between dispatch and receiving of a particular shipment.

In some cases, shipping lead time is also known as handling lead time.

Why is it Important to Reduce Manufacturing Lead Time?

Lead time reduction is beneficial to any type of business setting.

It is imperative to ensure you formulate various interventions of reducing lead time for the success of your business.

Some of the benefits for reducing manufacturing lead time include the following;

It helps in process improvement-Reducing lead time helps to automate several elements in order processing.

It eliminates unnecessary tasks, waiting time, and waste in different processes.

It thus helps in focusing on improvement actions.

It increases output and revenue – Generally, the more you sell, the more money you make.

Reducing manufacturing lead time, of course, leads to higher output, which in the long run, translates to increased turnover.

And this is essential for business sustainability and revenue generation.

It enhances customer satisfaction – Ideally, all customers’ expectation upon placing an order is to receive the consignment within the soonest time possible.

Therefore, the shorter the lead time, the higher the customer gratification.

And the essence of this is it builds the reputation of the business and generating more income as well.

It reduces dead stock-When a product takes more time than anticipated to arrive in the warehouse for whatever reason, customers often tend to look for alternatives.

The more it takes to arrive, the more options the clients seek.

And so by the time the goods finally get to your warehouse, they end up as dead stock.

This can be costly since it affects the balance sheet, budget plans, and cash flow of the company.

It enhances flexibility – Reduced lead time enables the company to understand the variations in stock.

In a significant way, it enables you to understand the dynamics of the market and also process the products based on the demand and fluctuations of the market.

How can you Reduce Lead Time?

Generally, lead time is a partial function of your order management system.

The manner you communicate supply of your orders with the vendors and time it takes for fulfillment of the same is also a determinant factor of lead time.

So to reduce the lead time, there is the essence of working from both ends and get buy-in from vendors.

Here are some tips of ways of reducing lead time;

Order in small bits but frequently – Generally, larger orders often take time to be fulfilled and shipped.

The trick is always to produce stock on a more regular and rolling basis.

This helps to attain agility when it comes to meeting market demands.

Additionally, it also makes it easy for the manufacturer to produce and ship the product relatively quickly.

Go for automated inventory management – The likelihood of making a human error when juggling multiple suppliers’ lead time by using basic computer applications is extremely high.

To eliminate the inevitable administrative errors and risks, it would be imperative to automate your inventory management system.

Such a system makes it easy for you to create an order when the stock gets to the reorder point.

Vertical integration – If your company has enough capacity in terms of machinery, space, capital, and human resources, this would be the best idea.

It merely entails sourcing, producing, and assembling internally.

It is easy to integrate suppliers vertically.

In this instance, you’ll be able to meet the demands of retailers within the shortest time possible since all aspects are within the control of your company.

Formulate a clear lead time contract – One of the stipulations of your lead time contract to suppliers should be clear repercussions for any late shipments of your order.

The repercussion could as well stretch to late warnings affecting stock availability, damaged products, price change, and discontinuation, among others.

This will enable you to avert incurring expenses arising from the inconveniences of the supplier.

Share your sales information with your supplier – Ideally, this is more or less of incorporating the supplier as your partner.

The more you share your sales data with the supplier in advance enables them to determine what’s popular.

It also allows the manufacturer to anticipate your needs and get ahead of an order before it is created.

What is EOQ Model in Manufacturing?

It is an abbreviation for Economic Oder Quantity model, which merely refers to the ideal order of quantity a particular company should procure to reduce inventory-related costs.

For instance, EOQ helps in minimizing costs such as order costs, holding costs, and shortage costs, among others.

The essence of EOQ model is to ensure the right quantity of inventory is ordered according to the batch.

This is helpful because it bars a company from frequently ordering from the supplier.

It also helps to ensure there is no excess inventory sitting on the hand.

EOQ

How does EOQ Model Work inLead Time?

Before calculating the EOQ in lead time, it is necessary to determine the setup cost, holding cost, and demand rate.

You also need to consider the reordering timing, order placing cost, storing costs.

In essence, of the company makes orders in smaller quantities but frequently as a way of upholding a specific inventory level, the costs become higher.

What is Lead Time in Logistics?

It refers to the duration from the time a purchase order is created for the supplier until the moment the commodities are delivered to the customer.

Logistics lead time often takes a holistic dimension, given you have to know the other elements of supply times.

For instance, you have to know the production lead time, delivery lead time, and shipping lead time, among other dimensions.

What is the difference between EOQ and POQ Models?

Primarily, EOQ model is the order quantity, which minimizes the total handling and ordering costs.

EOQ tends to take into account inventory holding costs, including shortage, ordering, and storing costs.

POQ model, on the other hand, tends to provide solutions on how-to on the ideal quantity to produce in a particular situation as well as the right time to order specific quantity.

The major difference between these elements revolves around the variance.

EOQ model variance is independent, whereas the variance in POQ model is dependent.

Additionally, the demand rate for EOQ hardly changes, thus making it somewhat predictable.

On the other hand, the demand rate for POQ model is dependent on the production level of the chain.

The other difference here is that naturally, EOQ model’s assumption is the company will produce its quantity at any specific time.

Contrary, the assumption of POQ model is the company will produce every unit only when the company has placed the order to the suppliers.

What is Inventory Management,and why is it Important in your Business?

It refers to the control of inventory and stock items.

It essentially involves supervision of goods flow from manufacturers to the warehouses and point of sale stores through the suppliers and distributors, respectively.

In simpler words, it is the process of ordering, storing, and using the company’s inventory.

It is quite critical in the overall manufacturing lead time. Some of the ways this element is important in your business include the following;

Accurate order fulfillment – It helps in ensuring the stock is always up to date. The essence of this is to help to prevent overstocking and stock out.

Additionally, it helps to develop a relatively robust plan hence enhancing high return volumes and preventing loss of customer base.

Enhances inventory and planning – Inventory management helps to gauge necessary products, which are in good condition, and arrived-as-described.

It is integral in mitigating stock variance issues and also helps in creating space and cost-effectiveness.

Increases efficiency and productivity – This process helps to eliminate manual input of the stock items hence allowing employees to focus on other fundamental areas of the business.

Enhances customer management and satisfaction – A well-organized inventory management will help to supervise your customers and meet their demands accordingly.

The net effect of this is increased sales turnover and gratification of the customers.

Saves money and time – Keeping track of inventory enables you to save a considerable amount of money and ample time.

This is by determining possible dead stock and finding ways of eliminating the same and also preventing ordering more.

What is Reorder Point?

It refers to the specific level of inventory, which prompts action to stock up the particular inventory.

In simple words, it refers to the threshold a stock should never go below.

It is the least amount possible of a certain commodity, which a company holds in stock, and it’s triggered to re-order should stock fall to the amount.

The essence of the reorder point is to enhance efficiency and convenience by ensuring stock is replaced as soon as it runs out.

This is vital since it helps to avert incidences of stock-outs hence helping in seamless business continuity.

Reorder point is also vital in preventing unnecessary inventory holding costs, which may arise due to placing orders a bit early.

Reorder point

How do you Calculate your Reorder Point?

When calculating the reorder point, it is necessary to use the formula after factoring in all the essential components.

One of these elements is determining the safety stock levels.

Also, in this case, you need to determine the average daily sales and lead time in days.

Once you are preparations are clear, you can use easily calculate the actual reorder point using the following formula;

Reorder Point = (Average Lead time by Average Daily Usage) + Safety stock

Alternatively, you can use a relatively shorter formula to calculate your reorder point.

But this formula does not necessarily factor in the safety stock.

This formula merely requires you to give an estimate of the maximum quantity of materials or products you might require per day.

You’ll then multiply the figure you arrive at by maximum lead time for manufacturing or procuring activities.

In this case, the figure you arrive at will be more or less conservative since you are using estimated maximum usage.

Reorder Point = Maximum Lead Time by Maximum Daily usage

What is Safety Stock, and Why is it Needed?

It refers to the level where surplus stock is often maintained as a way of mitigating risks associated with stock-outs often triggered by uncertainties in demand and supply.

Carrying out safety stock is vital in many ways including the following;

• Protects against unpredicted discrepancy in supply
• Prevents stock-outs hence keeping customer service and general satisfaction levels relatively high
• Averts disruptions revolving around the manufacturing and delivery of goods
• It helps to compensate for calculation inaccuracies

In a nutshell, it makes it easy for business operations to stay afloat.

Moreover, it also makes it easy to manage and control inventory, thus enhancing efficiency and cost-saving.

How is the Safety Stock Set?

When calculating safety stock, you merely need to have all the necessary information surrounding your purchase and sales order history at hand.

After that, you only need to apply this formula, also referred to as inventory equation to determine the safety stock;

Safety stock = (maximum lead times in days x Maximum daily usage) – (Average daily usage x Average lead time in days)

Using this stock holding formula makes it easy for your business to navigate safety through any possible fluctuations in demand as well as lead time.

Is Safety Stock same to Minimum Stock?

Not necessarily!

Safety stock is basically the inventory, which a company holds in excess of its requirements to cover for the risks associated with lead time.

Ordinarily, there are unforeseen uncertainties, which might arise due to unavoidable or deliberate cases.

In such instances, the safety stock keeps the company going, especially when it comes to continuous supply and delivery to the customers.

Minimum stock level, on the other hand, refers to the level, which indicates the need for reordering based on the strategy and movement of the company.

Ideally, an item in stock should never be allowed to fall below the minimum stock level.

Safety stock

What is the Optimal Safety Stock Level?

There is no definite optimal safety stock level.

Generally, it depends on the service level, and this involves balancing the inventory costs and the stock-out cost.

And this gives you a vital variable for determining the appropriate amount of safety stock.

In other words, the higher the service level, the more the safety stock you need to hold.

What is the Difference Between Cycle Stock and safety stock?

Cycle stock refers to the inventory anticipated to be sold depending on the demand prediction.

In some cases, it is referred to as working stock.

This explains why it is described as a portion of inventory available to meet the specific demand within a particular period.

It is the cycle stock that the customer’s order will be fulfilled from in the inventory.

Safety stock, on the other hand, refers to the stock utilized whenever the actual demand supersedes the sales forecast.

It also comes in handy when perhaps the production output happens to be less than planned.

Ideally, safety stock is merely designed as a cushion for the inventory in case of any unforeseen occurrence in meeting the demand and supply.

What are some of the Best Practices that you can Advise for Inventory Management?

In the supply chain business, inventory management is an integral element in enhancing efficiency and success of the trade.

It determines whether or not the business will be sustainable.

However, you need to ensure you apply best practices to maintain and enhance quality inventory management.

Some of the ideal practices you might consider include the following;

• Utilize a cloud-based inventory management system
• Classify the inventory using systemized analysis
• Identify your inventory KPI’s
• Utilize accurate reorder point formula
• Streamline your stock take policies and procedures
• Use batch tracking
• Maintain minimal stock levels
• Never ignore the inventory errors irrespective of how small they seem to be

What is Inventory Carrying Cost?

It refers to the sum of all the expenses, which are related to storing non-moving or slow-moving goods.

The total, in most instances, usually incorporatesintangibles such as warehousing costs, depreciation, and lost opportunity cost, among others.

In most instances, the inventory carrying cost often totals to about 20-30% of its total inventory costs.

What are the Important Components of Carrying Cost?

There are several important components of carrying cost, but the common ones include the following;

Capital cost – It refers to the cost in which a business expands on carrying inventory.

It is arguably the largest component of the total cost of carrying inventory.

Storage space cost-It refers to the cost combination of several factors surrounding storage and safety of the materials.

Such factors include handling, warehouse rent, air conditioning, lighting, and heating of the material, among others.

Administrative cost – It is the cost related to manpower and the system necessary to manage an inventory effectively.

Administrative costs, in most instances, range from 3-6% of the total carrying cost.

Inventory service cost-It refers to the charges related to service fees such as insurance, local government taxes, and other levies.

Inventory risk cost-It is the charges paid for cushioning the inventory from a wide range of risks it could be exposed to.

Some of these risks include damage, fire outbreak, expiry, and incorrect storage, among others.

How do you Lower your Carrying Costs?

One of the best strategies in business is reducing your holding costs.

You can use several approaches to attain this, and some of these ways include the following;

Your stock should be based on the demands of the customer rather than expectations.

This approach is feasible since it enables you to invest only in inventory you’re sure will retailers and shoppers will purchase.

Enhance the arrangement of your warehouse and storeroom.

It is necessary to ensure your warehouse and storeroom are arranged in relevant categories and groupings depending on various aspects.

In essence, this helps you to easily establish items, which need replenishing. Additionally, it helps to search for an item on the shelves effortlessly.

Automate your inventory management.

For efficiency in all aspects of managing your software, you need to invest in software.

Essentially, this helps you to establish a desirable reorder point and also saving cost and time as well.

Automation is also essential in tracking the inventory hence enabling you to know the status of your stock at any moment.

Go for long-term contracts with your suppliers.

This approach is also helpful in reducing your carrying cost.

Suppliers will always be certain of working with you on a long term basis hence finding ways of reducing the cost of production.

How does Manufacturing Lead Time Affect your Carrying Cost?

Ideally, there is a direct correlation between work in progress inventory and the overall duration it takes to respond.

Therefore, an increased number of products in work in progress translates to more time for moving the products.

And this will impact the market share since the company will certainly lag behind the competition as far as responsiveness is concerned.

What is the Average Manufacturing Lead Time when Importing from China?

There is no standard manufacturing lead time when importing from China.

It is typically based on the specific industry, products as well as volume of order.

Nonetheless, manufacturing lead time is when importing from China is usually set somewhere between 30 to 60 days.

How do you Manage Delivery Delays from Chinese Manufacturers?

Delays of goods from the manufacturer can cause significant inconveniences, particularly to the distributor or wholesaler.

It is, therefore, necessary to ensure you put up the vital preventive measures to ensure you mitigate risks of shipment delays.

Some of the ideal interventions you can look into include the following;

Monitor production to enhance lead times – You need to inspect the production during the process and before the shipping of the consignment.

It helps in guaranteeing quality since the inspector will monitor goods during production in real-time.

Be certain of quality before voluminous production – Ideally, it is always vital to work with reliable and reputable suppliers from the start.

It is thus necessary to look into all the factors when picking an ideal supplier.

It will go a long way to avert delay incidences, especially where mass production is a concern.

Verify your order throughout – This approach is also essential in managing delays when importing from Chinese manufacturers.

It possible, hire a third party to help you in inspecting the order from production to shipping.

The quality control checks are suitable in ensuring you obtain the ideal products and averting inconveniences.

How do Chinese Manufacturers Guarantee Fast Lead Time?

Most of the Chi