As so many of us were made aware since the pandemic lead times were stretched to extreme levels for many products globally. While we’re coming off the extremes from the pandemic years, lead times are still longer, and in many cases more erratic than prior to the pandemic. But, why does having longer and more variability in lead times matter in your supply chain.
What is lead time?
First, let’s define lead time. Lead time in the supply chain is the total time from when a customer order, or purchase order, is placed and when the goods are received. There can be multiple lead times within a supply chain, typically between each node or process along the way from raw materials, processing, and finally getting the customer their shipment.
Why is lead time important?
Tracking and understanding lead time is very important for setting accurate delivery dates for customer orders, for setting inventory and safety stock levels across the supply chain for finished goods and Work in Progress (WIP) materials. Without having accurate lead times, companies will tend to want to hold onto more inventory to avoid stockouts, and with the current economic conditions that is more expensive and ties up valuable capital as well as warehouse space and labor. Additionally, longer lead times reduce a company’s agility, or resilience, to adapt to demand fluctuations, or other disruptions that may occur.
How can you better manage lead times?
There are many strategic initiatives that can be undertaken to reduce lead times, from contract negotiations, supplier rationalization, vendor managed inventory options, strategic network design and numerous others. In this article, we’ll focus on how you can operationally utilize estimated time of discharge (ETD) to improve lead times and enable better planning all along the supply chain.
A container’s ETD refers to the date and time when that specific container will be available for pickup at the port/terminal. The actual time of departure is difficult (or impossible) to know well ahead of time. Many ports do not make this information available to the shipping lines or the shippers. Without this information it’s hard to plan ahead for the inland transport leg and can lead to containers sitting at the port for a day or more while carriers try to allocate trucks, drivers, and schedule appointments for pickup.
To assist logistics service providers and shippers with planning the logistics downstream from the port, Descartes MacroPoint,a real-time transportation visibility platform (RTTVP), provides real-time location tracking and predictive estimated time of discharge (ETD) for shipments well before they reach the port of discharge. Utilizing ETD in Descartes MacroPoint can help decrease lead times and improve processes across the supply chain in several ways:
Improved Planning: ETD information allows supply chain managers to plan their operations more effectively. They can allocate resources, schedule labor, and coordinate transportation services earlier and more efficiently based on the expected time of discharge. This reduces the risk of delays caused by inadequate preparation.
Reduced Dwell Time and Demurrage: Dwell time at the port refers to the time a shipment spends waiting before being picked up. A certain amount of dwell time (or free days) is expected and allowed, but if you go past the allowed dwell time, then you will incur a daily penalty charge, called demurrage, for each day the container stays beyond the allowed free days, or dwell time. With accurate ETD predictions, companies can streamline their operations and minimize dwell time, plus avoid the risk of added charges. This reduction in wait time can significantly decrease overall lead times.
Optimized Inventory Management: Knowing when shipments will arrive enables companies to optimize their inventory levels. Safety stock can be reduced and companies can better synchronize inventory replenishment with anticipated demand. Leading to cost savings in inventory carrying costs.
Enhanced Customer Service: Providing customers with accurate delivery windows based on ETD predictions can improve customer satisfaction. It allows customers to plan for the receipt of goods more effectively, reducing disruptions caused by unexpected delays.
Proactive Issue Resolution: ETD predictions also help in identifying potential delays well in advance. If a shipment is likely to be delayed, supply chain managers can take proactive measures to address issues, such as rerouting shipments or transferring alternate stock, to minimize the impact on lead times.
Reduced Transportation Costs: ETD data can be used to optimize transportation routes and modes. By having a better understanding of when shipments will be ready for pickup, companies can potentially choose more cost-effective transportation options, further reducing lead times.
Data-Driven Decision Making: Descartes MacroPoint's ETD data can be integrated with other supply chain management systems, allowing for data-driven decision making across sales, warehousing, transportation, production, inventory planning, and more. Furthermore, with the historical data available in Descartes MacroPoint, companies can analyze the lead-times used for planning purposes and adjust to reflect what is actually occurring and potentially reducing inventory or switching to less expensive transport options. .
Compliance and Visibility: Some customers may have strict requirements and hefty penalties if you are out of compliance with delivery windows or not delivery the full amount of product ordered. ETD data can help ensure that companies meet these commitments, which leads to better relationships with customers and reduces the risk of chargebacks from your customers.
Overall Efficiency and Resiliency: By reducing lead times, companies can operate with greater agility and responsiveness, especially to demand fluctuations and potential supply chain disruptions. Combined with having contingency plans (alternate suppliers, carriers, flow-paths, etc.) you can improve overall supply chain efficiency and resilience, which is crucial in today's uncertain business environment.
It's important to note that while real-time visibility platforms and ETD predictions are powerful tools for lead time reduction, their effectiveness depends on the accuracy and reliability of the data provided by all of the various logistics partners that are involved using their own individual systems and processes. Descartes MacroPoint has the highest rates of compliance when it comes to tracking containers and shipments so you’re not left in the dark on your shipments. Descartes has also incorporated US Customs and Border Patrol data to enhance our tracking and predictive capabilities. No matter the solution you choose to enhance your visibility to reduce lead times, you should continually monitor and refine your supply chain strategies based on real-world results and changing market conditions to achieve sustained value from lead time reductions. If you’d like to learn more about Descartes’ solution you can speak with an expert today to learn more.
2023 Global Transportation Management Benchmark Report
Descartes conducts annual benchmark research among global transportation professionals. The 2023 study reveals that higher (fuel) costs and a shortage of drivers pose challenges, while investments in visibility present opportunities.