What is Lead Time?
Lead time in shipping refers to the time it takes for goods or products to move from order placement, to arrival at the final destination. It is an important concept in supply chain management and logistics, as it helps businesses plan and manage their inventory, production, and delivery schedules more effectively.
Lead time can vary depending on several factors, including the type of cargo being shipped, the distance the goods need to travel, port congestion, customs clearance processes, and other logistical considerations.
Why Accurate Shipping Lead Time is Important
Knowing the correct lead time in shipping is essential for supply chain logistics. Not only does it streamline the operation, but it can also reduce costs, avoid penalties, and improve customer relations. It helps with:
- Inventory management: knowing the accurate lead time is crucial for managing inventory levels. It allows companies to stock the right amount of inventory to meet customer demand, without overstocking, or running out of stock
- Operational efficiency: accurate lead times enable businesses to plan and execute their operations more efficiently. This includes scheduling production, arranging transportation, and allocating resources effectively
- Cost control: shorter lead times can help reduce costs associated with warehousing, storage, and carrying inventory. Businesses can optimize their supply chain and reduce unnecessary expenses by having a more exact understanding of when products will arrive
- Compliance and contracts: many companies have service level agreements (SLAs) and contractual obligations related to lead times. Failing to meet these commitments can result in penalties, or legal consequences
- Customer satisfaction: meeting or exceeding the promised delivery time frame is a key driver of customer satisfaction. When customers receive their orders on time, they are more likely to have a positive experience and continue doing business with the company
Lead Time’s Impact on Freight Costs
Organizations that are able to prepare in advance and possess lead time flexibility are in a stronger position to negotiate and can use shipping options that deliver their goods on time, at a lower cost. They are also able to secure carriers with service levels that meet their needs, find ways to optimize shipping, and schedule ideal delivery times.
Those with less flexibility typically have fewer options. They may be forced to use more expensive shippers and possess limited leverage in negotiating prices.
The Different Types of Lead Time in Shipping
Lead time can be categorized into three primary types, each of which must be considered together to establish comprehensive expectations for a manufacturing process.
- Customer lead time is the time it takes from when the customer places an order to when they receive it
- Material lead time is used by companies and their suppliers. It refers to the amount of time it takes to receive supplies that are ordered
- Production lead time is the amount of time it takes to produce a product or service once all of the materials have been received
When goods are manufactured, customer lead time includes material lead time, production lead time, and shipping time. When customers have ordered goods that are already manufactured, customer lead time includes processing and shipping the container.
The Benefits of Using AI to Calculate Lead Time
Manually calculating the lead time can be time-consuming and increase the odds of making mistakes, especially when a logistics manager oversees hundreds of shipments or cargo coming from multiple locations. Mistakes can cause unwanted charges, detention and demurrage fees, and leave customers dissatisfied.
Using a Maritime AI™ platform allows customers to see where their shipments are at any given time, identify any potential delays, and provide accurate real-time ETAs. This information can be used to adjust plans and schedules accordingly, which can help to reduce lead times.
Another benefit of advanced AI tools is predictive analytics that can help customers to anticipate potential delays and to take steps to mitigate them. For example, Windward can help customers identify potential weather disruptions, port congestion, and other factors that could impact their shipments.
Lastly, the data helps organizations optimize their shipping operations. For example, helping customers choose the best shipping routes, negotiating better rates with carriers, and clearing customs more efficiently, with improved overall efficiency.