Who doesn’t love a seller or a business who can deliver products in the shortest amount of time possible?
Short lead times equals better customer satisfaction and customer experience. Businesses know this, but sometimes, no matter what you do, lead time management can still be a struggle.
So we put together this article to break down what lead times are, what are the factors affecting lead time, and what are some strategies you can implement to minimise delays that will negatively affect the end customers’ experience.
What is Lead Time?
Lead time is the amount of time it takes to complete a process from beginning to end.
When you hear ‘lead times’ being spoken about in the context of order fulfilment, it usually refers to the amount of time it takes to get inventory to the warehouse (from the point of ordering from the manufacturer up to when it gets delivered to the customers’ doorsteps) or the amount of time it takes for an order to delivered (from the time a customer buys a product online up to when it arrives at its final destination).
Why Does Lead Time Matter in Fulfilment Centres?
It’s a critical metric in fulfilment centres for several reasons.
- Customer Satisfaction: E-commerce customers expect quick delivery. And because customers’ expectations are tied to satisfaction and their experience, reducing lead times can lead to increased sales and customer loyalty.
- Inventory Management: By understanding lead times, your business can do effective inventory planning. By accurately forecasting when products will be needed, businesses can optimise stock levels to reduce the risks of overstocking or stockout.
- Cost Efficiency: Long lead times lead to higher operational costs because of prolonged storage and handling. Minimising lead times in fulfilment centres reduces costs and in the long run, it leads to better profitability.
- Supply Chain Optimisation: Keeping a close eye on lead times across the supply chain helps identify bottlenecks and inefficiencies. Addressing these issues early can help make operations smoother, improve workflow, and enhance overall supply chain performance.
If lead time management is done incorrectly and once lead time begins to spin out of control, your future lead times will get worse as the supply chain freezes up. More units will be required in less time and the business’ inability to supply will lead to the failure of regular lead times and unhappy customers. And as stocks in the warehouse continue to run dry, order fulfilment will fail.
It wouldn’t take long for a situation like this to escalate. In the end, customers will move to competitor sites for their purchases. The only way to stop this from happening is to control lead times efficiently and do lead time forecasting accordingly.
How to Calculate Lead Time in Fulfilment Centres
A short lead time equates to customer satisfaction, an ability to meet customer expectations, and ultimately maintain a competitive edge in the e-commerce market. Before we get to the formula on how to calculate lead time, let us identify some components involved in calculating the average lead time.
- Pre-processing time is also known as planning time. It’s the time taken to receive the request and subsequently create a purchase order.
- Processing time is the amount of time it takes for a business to produce the order.
- Waiting time refers to the time taken to acquire all the items and raw materials needed for the production process to start.
- Storage time is the total time it takes for items to be stored in the warehouse until they’re ready to be delivered or shipped out.
- Transportation time refers to the time it takes for the item to be transported to the end customer.
- Inspection time refers to the time taken to check the products for damages or issues before it gets delivered to the customer.
The basic formula to calculate lead time is:
Lead Time (LT) = Order Delivery Date – Order Request Date
For instance, if an order is placed on March 15, 2025, and delivered on March 31, 2025, the lead time would be:
LT = March 31, 2025 – March 15, 2025 = 16 days
Accurately calculating order lead time lets fulfilment centres optimise inventory levels. It can also help improve customer satisfaction and enhance overall operational efficiency.
What are the Factors that Affect Lead Time?
To consistently improve processes, it’s important to understand the factors that affect lead time. Some of them are within your control, and some aren’t.
1. Stockouts
Stockouts spell disaster for manufacturers and e-commerce sellers alike, because it’s impossible to produce goods you don’t have the parts for and it’s impossible to ship out products that you don’t have in your warehouse.
Not only does this lead to longer lead times and unhappy customers, but it causes bottlenecks and lost time. At worst, it leads to loss of sales and customers if they choose to purchase products from another seller.
2. Issues in the supply chain
Suppliers can run into difficulties, and it leads to failed delivery promises. The more complex a supply chain is, the greater the chance of delays. Businesses must choose reliable suppliers and build strong relationships with them to minimise disruptions and long lead times.
3. Delays in shipping
The most unpredictable and difficult issue to control is shipping. Shipping delays can happen for many reasons. Sometimes it’s because of a shortage of raw materials, sometimes it’s because of human error, disruptions throughout the shipping process itself, or natural disasters.
It is possible to reduce the risk of shipping delays by working with suppliers who are located close to your business or by coordinating with suppliers who keep inventory stock on hand. The fewer incoming shipments you have, the lesser the risk of order fulfilment delays.
Lead Time Management Strategies to Prevent Long Lead Times
You can’t control every factor that affects lead times, but there are better ways to manage it throughout the supply chain. Lead time is all about how you manage your orders and talk to your suppliers and how long it takes for orders to arrive at customers’ doorsteps.
To effectively reduce lead time, you need to attend to both. Here are some tips for effective lead time planning, analysis, and management.
1. Order less frequently or in smaller batches
The larger your orders are, the longer they will take to complete and ship. By choosing smaller and more frequent orders, your supplier can slide into an easy rhythm of producing goods on a regular, predictable basis. This way, your e-commerce business can stay agile in spite of unpredictable market demand.
2. Utilise advanced technology for inventory management
Managing inventory manually in this day and age is a bad idea, especially if you have multiple product lines. Manual inventory management leads to a higher risk of human error and incorrect sharing of information.
Use an inventory management software that keeps track of stock and creates orders automatically when a certain level is reached. Advanced technology helps speed up the process and factors in lead time into your demand forecasting.
3. Set up clear contracts with your suppliers
Do not rely on verbal contracts. Always have written contracts with suppliers. This contract must take account of lead times, and must detail penalties for damaged goods and late shipments.
4. Switch suppliers and distributors or have backup suppliers
If you are frequently experiencing longer lead times because of constant inconsistencies and delays on the supplier’s end, it’s a sign to look for a new and more reliable supplier or distributor.
And even if your suppliers are consistent, there is still the risk of emergencies and how it will affect your lead time. Have backup suppliers in case of emergency stockouts and other supplier-related disruptions.
5. Go for domestic suppliers if it’s practical
Working with domestic suppliers isn’t always possible, but if you manage to work with one, it’s great for reducing lead time by several weeks. Chances for miscommunication because of language differences are also low when you’re working with domestic suppliers.
6. Communicate with your suppliers regularly
We’ve mentioned building good relationships with suppliers, and this means staying in touch with them regularly. Instead of just placing an order and waiting silently, communicate with your suppliers throughout the order fulfilment process.
This way, if problems occur, you’re more than ready to deal with them proactively.
The Future of Lead Times in Fulfilment Centres
Emerging technologies and shifting consumer expectations have reshaped how businesses approach order fulfillment and deal with lead times. It’s all in the name of enhancing the customer experience.
Companies that are focused on sustainable practices, like Green Fulfilment, are at the forefront of these changes, offering solutions that balance speed with environmental responsibility.
Same-day Deliveries and Drone Technology
One of the most exciting trends is the growing demand for same-day deliveries. As consumers expect faster service, fulfilment centres have adopted new strategies. These include local distribution hubs and sophisticated inventory management systems, to enable faster order processing and shipping. It also leads to shorter delivery lead time.
In the near future, we may see the rise of drone deliveries. Picture small, unmanned aircraft transport packages dropping off packages directly at customers’ doorsteps. This could significantly cut down on transportation time and improve delivery speed, and it may even help businesses meet customer expectations for quick delivery.
Sustainable Practices and Their Impact on Lead Times
Sustainability has become a key consideration in plenty of fulfilment centres as businesses strive to reduce their carbon footprint.
While some sustainable practices, like using eco-friendly packaging or relying on carbon-neutral shipping methods, may initially require additional time for sourcing materials or coordinating with specific carriers, they ultimately lead to more efficient operations.
Sustainability efforts, such as partnering with green logistics providers and optimising routes for energy efficiency, can actually help reduce lead times in the long run by improving the overall flow of operations.
And as a B-Corp certified fulfilment centre, Green Fulfilment meets the highest standards of social and environmental performance, transparency, and accountability. We ensure that sustainability doesn’t come at the cost of service quality.
Final Thoughts
Managing lead times effectively is important for businesses who want to stay competitive in today’s fast-paced e-commerce environment. Understanding the benefits of reducing lead time and the factors that influence it can improve operational efficiency, reduce costs, and most importantly, enhance customer satisfaction.
If you’re looking for a reliable and efficient partner to help streamline your fulfilment process and reduce lead times, Green Fulfilment is here to assist. Get in touch today to learn how we can help improve your order fulfilment strategy and keep your business ahead of the curve.