Imagine you’re trying to decide between two pairs of new shoes: one pair will be delivered in two days, the other will arrive in a week. Style-wise, you like the shoes that will arrive in a week better, but you really want to be able to wear new shoes to dinner this weekend. You decide to opt for the shoes that will arrive sooner.
Despite offering a superior product, the second shop just lost a sale due to its long purchase order lead time—the time between order and delivery. Here’s how to shorten your order lead time to compete with other ecommerce sites and avoid lost sales.
What is purchase order lead time?
Purchase order lead time (POLT) is the interval between when a company places an order and when the supplier delivers that order. For example, if you place an order with a supplier on the first of the month and it arrives on the 14th of the month, your order lead time is 13 days.
Order lead times can vary greatly due to unpredictable factors like raw materials shortages and supply chain disruptions. With a little preparation, these contingencies can be mitigated. Knowing the basics of lead time is essential for meeting customer demand by hitting that promised delivery date in a timely manner.
Types of order lead times
There are several types of order lead times.
- Actual lead time: Actual lead time is the number of days between when the order is placed and when it’s fulfilled.
- Requested order lead time: Requested order lead is the time period between a customer’s order placement and the expected delivery date.
- Confirmed order lead time: Confirmed order lead time is the number of days between the purchase order and the confirmed date of delivery.
- Customer lead time: Customer lead time is the number of days between when a shopper places an order and when they receive that order—ideally by the delivery date promised.
- Material lead time: Material lead time is the interval between placing an order for supplies and having them ready for production.
- Production lead time: Production lead time is the total time for a product to be produced.
Factors that impact purchase order lead time
From click to doorstep, several factors impact order lead time:
Raw material availability
Getting caught short on supplies can hold up your product’s material lead time—the time between when a manufacturer orders raw materials and when they arrive ready for the production process. To avoid burning daylight on production processes, keep an open line of communication with your manufacturers, and ask them to alert you if their inventory levels of raw materials run low.
Use inventory management software to maintain up-to-date records, enhancing your company’s ability to keep the production lead time—and the entire lead time—on schedule. Always maintain a safety stock inventory (extra inventory on hand) in case of emergencies.
Shipping times
Ordering supplies from a foreign company often can help you save on labor costs, but the increased complexity of shipping also can increase lead times. Domestic suppliers are one solution.
Another option is automating distribution and warehouse management so that processes like packing and handling run smoothly, reducing the time and errors associated with manual handling and processing.
Supply chain management
The goal of supply chain management is to seamlessly coordinate your ecommerce logistics and manage the flow of goods from raw material procurement to product delivery. Strategies under this umbrella include procurement, inventory management, order fulfillment, warehousing, and logistics. Optimizing all these operations can increase profit and keep your lead times competitive.
Consider seasonality as well. Ask yourself if this is the best time to launch a new line of clothing, or is every t-shirt manufacturer ordering cotton this month for their fall looks? Making demands on suppliers during peak seasons when they are already slammed with orders can cause a production logjam. Instead, use demand forecasting to plan ahead and order enough inventory in advance.
External factors
Let’s face it, these are turbulent times for shipping. Supply chain disruptions add to the never-ending list of external factors affecting how quickly a product reaches its final destination. Natural disasters like fires and floods, labor unrest, labor shortages, and human error are just a few obstacles to meeting customer demand. Mitigate the effects of external supply chain issues by holding more safety stock inventory (if possible) and diversifying your suppliers.
How to improve purchase order lead time
- Shop local suppliers
- Prioritize customer service from suppliers
- Understand supply chain logistics infrastructure
- Learn demand forecasting
Here are some tips for improving your order lead time and, consequently, customer satisfaction:
Shop local suppliers
Wherever possible, seek out local suppliers or manufacturers, to avoid delivery delays and shorten your lead time. Waiting on deliveries from overseas drives up costs and adds to idle worker time.
Prioritize customer service from suppliers
When adding a new supplier, a major deciding factor should be how easy they are to reach. In other words, know who you’re working with, says Vicky Pasche, co-creator of the body-inclusive fashion label Dapper Boi. “Connect with folks. Who’s in your industry that you can talk to?” Vicky says on the Shopify Masters podcast.
In her case, it took six months of cold calling before she found the right manufacturer. “It was a ton of research, and this manufacturer was so helpful in showing us different brands and the kinds of fabrics we’d want to use. It was a very immersed learning experience,” Vicky says.
It’s worth the effort: A good relationship with a supplier can mitigate unpredictable slowdowns.
Understand supply chain logistics infrastructure
Understanding supply chain management best practices can help you make the supply chain work for you. Each shipping method—USPS, freight, ocean, or air transportation—has a time and place. Investigate available distribution networks to find the shortest path to your customers.
Learn demand forecasting
Demand forecasting is the weatherman of supply chains, a predictive practice of understanding customer demand. Use past sales to create a database of information to share with your suppliers and your warehouse team. With this information, you can implement automation software, for example, or automatic ordering to avoid delays of raw materials.
Order lead time FAQ
What is a purchase order lead time?
Purchase order lead time (POLT) is the amount of time between when a manufacturer or maker places an order out to suppliers and when that order arrives for assembly.
How do you calculate order lead time?
To calculate the actual order lead time, subtract your delivery date from the purchase order date. The answer is usually measured in days.
How do you reduce order lead time?
In many ways, reducing lead time and shoring up customer lead time will get the profitable results you desire. To reduce order lead time, build good working relationships with reliable suppliers, study supply chain management best practices, prioritize supply chain efficiency by ordering from local businesses, and, to the extent that you can, automate manual processes.
