What eCommerce Businesses Need to Know about Lead Time

Lead time. Two words that might have distinct meanings for different people. Suppose you manage an eCommerce business and want to keep your customers, suppliers, partners, and employees satisfied. In that case, it's critical that you understand what lead time is and how it might affect your business. Continue reading to learn everything you need to know about lead time.


What Is Lead Time?


Lead time is the amount of time that passes between the initiation of a customer order and the delivery of that order. In other words, it's the amount of time it takes you to get your product from your supplier to your customer.


Varied sectors of your organisation will most likely have different lead times. For example, you might split manufacturing and processing lead times to see how long it takes to perform activities in each section separately. This allows for a more detailed study of your company.


There are a few different types of lead time that are important to consider when running an eCommerce business:


  • Supplier Lead Time: This is the amount of time it takes for your supplier to ship your product from their warehouse to yours.

  • Production Lead Time: This is the amount of time it takes for you to manufacture your product (if you're selling a physical product, that is).

  • Transportation Lead Time: This is the amount of time it takes for your product to travel from your warehouse to your customer's doorstep.

  • Order Processing Lead Time: This is the amount of time it takes for you to process a customer's order and get it ready for shipping. This includes activities like picking, packing and labelling.


How to Calculate Lead Time for eCommerce stores


Now that you know the different types of lead time, you need to know how to calculate it. To do this, you'll need to track data for a set period (we recommend at least 3 months) and then use that data to calculate the average lead time for each type.


Here's a step-by-step guide:


1. Start by tracking all customer orders from the moment they're placed until they're delivered. For each order, make a note of the date it was placed, the date it was shipped, and the date it was delivered.

2. Next, calculate the number of days between when an order was placed and when it was shipped. This is your supplier lead time. Do this for every order and then calculate the average supplier lead time by adding up all the individual lead times and dividing by the number of orders.

3. Now do the same for production lead time, transportation lead time and order processing lead time.

4. Once you have the average lead time for each type, you can start to work on reducing it. But why is it important to have a shorter lead time?


Why Shorter Lead Times Are Important for eCommerce Stores


Shorter lead times are important for eCommerce stores because they can have a big impact on customer satisfaction. If you have a long lead time, there's a chance your customers will go to a competitor who can get the product to them faster. In today's fast-paced world, consumers expect to receive their orders quickly, and if you can't meet their expectations, they'll take their business elsewhere.


In addition to customer satisfaction, shorter lead times can also improve cash flow. This is because you can ship products as soon as they're manufactured rather than having to wait for the entire production process to be completed before shipping. This means you can get paid sooner and have cash available to reinvest in your business.


Conclusion


Lead time is an important metric for all eCommerce businesses. It's a good indicator of how efficient your business is and can have a big impact on customer satisfaction. Make sure you understand the different types of lead time and know how to calculate it so you can start working on reducing it.


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