Product Lead Time: What Is It & How Can You Improve It?
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Product Lead Time: What Is It & How Can You Improve It?

Since the concept of time-to-market was introduced in 1995, shrinking time-to-market has been a driving force in new product development.

Companies use multiple methods to take time out of every step from start to finish of the product development process. Many management consultancies and a mountain of textbooks have sprung up to cover this topic. The significant progress made in this area has changed the expectations in the boardroom and with consumers. And yet, one schedule-related part of the product development process is still a thorn in the side of companies bringing products to market:

Lead time.

Anyone who has previously brought a product to market has been in a scheduling meeting and asked, “It will take how long?” when a supplier shares their lead time estimate. And, like many things in the world of consumer products, the pandemic and subsequent supply chain upheaval have produced long lead times.

This article focuses on helping to make this thorn—lead times—less prickly in your side.

The first step is understanding lead time and how it impacts product development, marketing, and sales. Next, we will cover how to know your lead times accurately and shrink them. Then, the importance of planning, having inventory throughout your supply chain, and where logistics pulls it all together.

What Is Product Lead Time?

Product lead time is the total time it takes for a product to go from the initial idea to reaching the customer. Understanding product lead time helps you plan better, manage resources efficiently, and meet customer expectations. It’s a crucial part of the product development process, impacting how quickly you can respond to market demands and stay competitive.

Whether you’re developing software or manufacturing goods, knowing your product lead time is key to success.

Lead time: linear chart made from clay

Why You Need to Accurately Calculate Your Lead Time

The concept of lead time is essential in product development.

The time things take drives cost, not just money spent on people, infrastructure, and materials. Longer lead times can also drive up opportunity costs. Understanding how long things take and how much everything costs can only be minimized if you know what you are working with.

Lead times also play an important role after you start selling because longer lead times impact your bottom line. And when processing time, shipping time, or any part of the production process changes (like during a global pandemic), that costs you money and maybe even customers.

Also, because there is a cost associated with longer lead times and savings when you reduce cycle time, accurate product pricing requires accurate lead time forecasting.

Experts in project management obsess about lead time to avoid problems caused by delays. They also work to minimize lead times to deliver a significant competitive advantage. Shorter lead times allow you to get more done with the same resources. For example, if your lead time for product research is usually six months and you make improvements to get the time down to three months, you can now research two products with the same resources.

Knowing your lead time also avoids wait time.

You don’t want any of your total lead time to include waiting for one or more supplies to show up. If you know how long it takes for your vendor to fulfill your order, you can plan ahead and order everything at the right time, so there is no waiting around.

The Different Types of Lead Time

Understanding the various types of lead time helps you manage each stage of product development more effectively. Each type of lead time plays a unique role in ensuring your product reaches the market on schedule.

  • Material Lead Time: Time from placing a purchase order to receiving materials.
  • Development Lead Time: Time required to develop usable software or components for your product.
  • Production Lead Time: Time from starting production to having the product ready for shipping.
  • Procurement Lead Time: Time from issuing a purchase order to having the product ready for sale.
  • Customer Lead Time: Time taken to fulfill and deliver customer orders.
  • Order Lead Time: Time for receiving an ordered item or for a customer to receive their order.
  • Design Lead Time: Time needed to complete all product development steps up to the handoff for manufacturing.
  • Phase or Task Lead Time: Time required for completing a specific phase or task in the project plan.
  • Regulatory Lead Time: Time necessary to complete regulatory and compliance-related tasks.
  • Shipping Lead Time: Time taken to transport an item from one location to another.
  • Cumulative Lead Time: Total time when all individual lead times are added together.

There are many more, too. If a task takes longer than a few minutes, it has a lead time.

Impact of Lead Time on Key Aspects Of Product Development & Promotion

Lead time significantly affects several crucial areas of your business. Managing it effectively can improve operational efficiency and customer satisfaction.

Cash Flow Management

Lead time directly influences your cash flow.

Longer lead times mean more money tied up in inventory, waiting for materials, and production processes. This delay can impact your ability to invest in other business areas. Reducing lead time frees up cash, improves liquidity, and allows for better financial planning and investment opportunities.

Inventory Levels and Costs

Effective lead time management helps maintain optimal inventory levels.

Excessive lead times can lead to overstocking, increasing storage costs, and the risk of dead stock. Conversely, shorter lead times enable just-in-time inventory management, reducing storage costs and minimizing the risk of excess inventory. This balance is crucial for efficient supply chain operations and cost management.

Customer Satisfaction and Demand Forecasting

Lead time plays a vital role in meeting customer expectations and managing demand. Shorter lead times enhance your ability to respond quickly to customer orders, improving satisfaction and loyalty.

Accurate lead time forecasting helps predict demand more effectively, ensuring you can meet market needs without overproducing or underproducing. This responsiveness is key to staying competitive and maintaining a strong customer base.

How to Predict and Track Lead Time Better

More often than not, you miss something, you get a workflow wrong, or your raw materials become hard to find. Shortages and labor issues can also toss a wrench right in the middle of what you thought was a perfect lead time calculation.

In fact, lead time calculating is a science in and of itself.

Here are some suggestions to help you and your team consistently develop accurate lead time forecasts:

1. Implement Top-Down and Bottom-Up Estimation and Resolve Any Differences

Have a knowledgeable person estimate the lead time by looking at the big picture. Then, have someone else assign time to each step in the process and add that time up.

Both top-down and bottom-up methods should be close. If they produce two very different time estimates, something is missing, and you need to find the mistake and try again.

2. Get Competitive Estimates

Obtaining estimates from multiple sources achieves the same thing as comparing bottom-up and top-down lead time estimates. If they disagree, understand why and eliminate flawed assumptions or mistakes.

3. Make Vendor Estimates Contractually Binding

People tend to be more accurate when money is on the line. Penalties for late delivery or bonuses for meeting or beating estimates can make vendors guess less and spend time on accuracy.

4. Gather and Use Data

Use data from a given product’s production or from a similar product to make more accurate estimates. Focus on items that affect lead time. Big data and AI are also finding their way into lead time estimation.

5. Understand the Lead Time of Inputs

Almost every step in product development involves some input — information, data, raw materials, supplies, training, etc. Get lead times for each input and include that in your estimate.

6. Monitor, Check, and Check Again

Lead times are not static. They start as an estimate and then deviate from what you expected. By the time you know the actual lead time, it is too late. Keep checking and refining your lead time forecasts.

What Are the Best Ways to Reduce Lead Time?

Reducing lead time is essential for improving efficiency and meeting customer expectations. Here are some effective strategies for achieving shorter lead times.

1. Spend More

If you want to reduce lead time, look at ways you can invest money upfront to get things done faster. In its most basic form, this entails paying vendors an expedite fee. But it could also be paying more for faster shipping, keeping a bigger inventory, or investing in improving a process.

2. Go Parallel

You do not have to complete tasks one after another. In project management, you spend a lot of time understanding and documenting dependencies. You can do both simultaneously if one step is not dependent on the other.

3. Build a Buffer With Inventory

Business people bought into the myth that you didn’t have to hold much inventory and pushed their supply chain management teams to run the edge.

This myth was busted by the pandemic.

It showed how many people overdid just-in-time supply chain management. Have some buffer in your system so you are not stuck when an unexpected shortage happens.

The pandemic-induced supply chain breakdown showed us that the five weeks could be 50. If you had that inventory, you could deliver while your competitors waited for their new inputs to arrive.

4. Design Shorter Lead Time Into Your Product

Design for manufacturing also means design for lead time. Get manufacturing and supply chain involved early on in your product development process. A good product design team knows the importance of lead time and will make that part of the design requirements.

5. Keep Your Suppliers Informed

Work with your suppliers to ensure they know your forecasts for future needs. Remember, suppliers are dealing with the same lead time issues.

6. Improve Processes

Every process that determines the lead time of a task or a project can be improved. Use lean methods and continuous improvement to assess and improve your processes across the product development journey.

7. Use Automation

One growing method of process improvement is automation. Robotics and industry 4.0 technologies can deliver significant reductions in lead time.

8. Implement Digitization

Use software to manage and automate the steps needed to bring your product to market. Look at a full ERP system, point solutions like inventory management, vendor management tools, or even a modern and efficient accounting system.

9. Move Your Supply Chain Closer

Distance costs time and introduces failure points. Moving your supply chain closer by near-shoring to Mexico is a way to take shipping lead time out of your total lead time.

Advanced Techniques for Lead Time Reduction

Adopting advanced techniques can significantly reduce lead times, enhancing your efficiency and competitiveness. Here are several methods to consider for optimizing your processes.

  • Lean Manufacturing: This approach focuses on minimizing waste and improving processes. You can significantly shorten lead times by streamlining production and eliminating non-value-added activities.
  • Just-in-Time (JIT): JIT aims to align production schedules closely with demand. This reduces inventory levels and ensures materials and products are available exactly when needed, cutting down on waiting times.
  • Agile Methodologies: Using agile methodologies, especially in software development, allows for faster iterations and quicker change responses. This flexibility can reduce lead times by enabling rapid adjustments and continuous improvements.
  • Scrum Methodologies: Scrum, a subset of agile, involves breaking down projects into small, manageable sprint tasks. This method promotes frequent reassessment and adaptation, helping to minimize lead time by addressing issues quickly.

Managing Lead Time in Supply Chain Disruptions

Supply chain disruptions can significantly impact lead times, but proactive management strategies can mitigate these effects. Sometimes, the disruptions are completely out of your control as well, such as natural disasters, global pandemics, or boats getting stuck in the Suez Canal.

Here are key steps to manage lead time during disruptions:

  1. Develop a Risk Management Plan: Include alternative suppliers and backup plans for critical materials to ensure options when primary supply chains face issues.
  2. Maintain Higher Levels of Safety Stock: Increase inventory levels to provide a buffer against unexpected delays, keeping production moving despite disruptions.
  3. Invest in Technology: Use real-time tracking and predictive analytics to improve visibility and responsiveness within your supply chain.
  4. Establish Strong Communication Channels: Regularly communicate with your suppliers about potential issues.
  5. Consult Experienced Experts: Instead of going at it alone, work with experts who’ve navigated plenty of disruptions in the past. Through the Gembah network, you can access hundreds of professionals to help manage and mitigate supply chain challenges.

By being prepared and agile, you can minimize the impact of disruptions on your lead times and maintain smoother operations.

Reduce Lead Time and Get Products to Market Faster

Instead of playing the minimizing game, work with smart partners like Gembah to design a product that is less lead-time-dependent.

Build relationships with partners that result in accurate lead-time estimates. Last, invest in inventory to not just weather shipping problems and the like but also provide shorter lead times to your customers.

With time, patience, planning, and the right partners, you can shorten your lead time, increase customer satisfaction, and create a competitive advantage.Gembah’s marketplace and team are ready to help you find the right people to control your lead time. Let us know what you are trying to accomplish, and we will guide you through the process of finding the right resources and processes.