Retail companies like Amazon have helped create a culture where customers desire next-day delivery and near instant gratification. And that is spilling into other industries as well. As a manufacturer, you can differentiate yourself from your competition and attract additional business and orders by offering shorter lead times and 100% on-time delivery.
To reduce lead times, you first need to understand some of the factors that can impact them:
Many suppliers batch orders, meaning they wait until they have orders from multiple customers, to reduce setup costs
Short-term or seasonal capacity issues at the supplier (not having the resources to run more orders)
Consolidation of goods (having one order wait to meet additional orders) to save on shipping costs
Order placement delays on your end (ordering only on certain days of the week or at certain times of day)
Order bundling (releasing orders only at certain intervals)
Outdated contracts and documentation
Transportation delays due to weather, rail, road, or port issues
Supplier not ordering raw materials until they have orders
To make an impact on your lead times, there are a few things you should look to do. First, understand your product and all its components from the main part to the smallest nut or O-ring. Have a bill of material (BOM) for your products, making sure all components have unique part numbers. If the same component is used in multiple products, make sure the same part number is used. This will show you the true demand for these parts and help you plan your inventory and order levels.
Next, understand the complexity of your supply chain. Start by looking at your BOM. You will quickly see that your parts don’t come from just one or two suppliers. Find out where your parts originate and how your suppliers get them. You might notice that your local supplier orders some components from overseas.
Perform a value stream mapping (VSM)—a tool out of the lean toolbox—of your internal and external ordering process. A VSM will give you an understanding of how you currently manage the process. Take all the non-value-added steps out of your process. This will speed up material replenishment for you and allow you to improve your lead times. Be proactive and perform a VSM at least annually. Supply chains are complicated and change frequently and you may not get notifications.
Now look at your inventory. If you know some of your components have delivery routes that are long or can easily be impacted by weather, you might want to increase on-hand stock or set up higher safety stock levels. In addition, make sure your inventory is accurate. To improve inventory accuracy and compliance, you may want to use some of the following:
Kanban, a lean tool
Material resource planning software (MRP)
Enterprise resource planning software (ERP)
Vendor managed inventory (VMI)
Have customer supply you with components
A quality MRP software will allow you to enter your part configurations and BOMs, simplifying the ordering and stocking processes by tying POs and inventory together. Materials are automatically ordered as you release your production orders, eliminating human error and reducing delays. Many ERP systems have a built-in MRP system, allowing a single system to manage your materials as well as your other business functions. Many large suppliers are able to tie into your MRP/ERP system to manage your inventory on their own, saving you time and money.
As with any software, some caution should be exercised. These systems are only as accurate as the data that is entered and maintained. If you remove inventory and don’t tell the system, you will be stocked out at some point. In addition, ERP and MRP systems can sometimes be hacked or provide an access point for hackers to your network. Make sure you have sound cyber security practices in place.
Additional options to help manage lead times include:
Let suppliers know ahead of time when large orders are coming
Communicate regularly with your suppliers
Make your suppliers part of your relationship with your customers
Simplify your BOM by replacing similar components with a single part (e.g., you might use a ¼-20 X 1.5” bolt instead of also stocking a 1” bolt)
Set up multiple suppliers for the same part
If you start focusing on your supply chain with the goal of getting better quality components and delivery times, you will soon see your lead times and deliveries to your customers improve as well.
One more thing—today’s tight product cost is not the only driver for improvement. Delivery, quality of products, and components are just as important. A key to this is treat your suppliers as business partners and try not to squeeze them on cost. They will pass cost savings on to you if you work with them on improving the overall flow of components and inventory.