There is one thing that is inevitable – time. There is nothing that will stop time. For your business, time is absolutely necessary. After all, you will never have enough time for your business.
Sourcing Nova understands this, and we value your time. This is why we work hard to source your products from Chinese manufacturers and get them to you in a short a time as reasonably feasible.
In the manufacturing process, there are different types of time, and these next few blogs of ours will be discussing each of the different times you will encounter sourcing products from China.
The most important of these times is lead time. It is the focus of this blog.
What Is Lead Time?
Lead Time is the amount of time it takes from when you pay your deposit until the products are completed at the factory. It begins with the pro-forma invoice from the manufacturer receiving the initial deposit on the product order – normally 30 percent of the entire cost. Manufacturers will not begin production on your order until the deposit is received.
Lead Time is an important element in your business, and larger companies have departments dedicated to studying lead times. They compare lead time results against previous times and make determinations for pain points in the process.
There are serious advantages to reducing a lead time to the absolute minimum. Sourcing Nova will discuss these as you read through this blog.
Lead Time vs. Cycle Time
It is common to see these two confused. Lead Time is for the buyer. Cycle Time is for the manufacturer. Sourcing Nova has a blog for you on cycle time.
Making sense of Lead Time
There are some different factors that go into Lead Time that help you understand its importance. Your Lead Time is going to effect your bottom line. This is why you need to know everything you can about Lead Time, and it starts with an understanding of the different types.
Types of Lead Time
There are four different types of Lead Time you need to know.
- Customer – It begins with the pro-forma invoice from the manufacturer receiving the initial deposit on the product order.
- Material – The time it takes for a manufacturer to obtain raw materials for production.
- Factory/Production – The time it takes a manufacturer to make products if all raw materials are on hand.
- Cumulative – The entire time process from payment of the down payment to the completed products if raw material orders were necessary. Mathematically, it is Material Time + Production Time = Cumulative Time.
Components of Customer Lead Time
Customer Lead Time, the time you have to wait on products, can be further broken down into separate steps.
- Preprocessing – This is your planning time. It covers the time it takes for you to recognize a need for fresh inventory, either by request, software or FBA, to the time it takes to create your purchase order.
- Processing – This is the time it takes from the purchase order to the production process.
- Waiting – This is not what you may believe. It is the time between collecting raw materials to the manufacturing process.
- Storage – Any time that the products ordered sit at the manufacturer waiting on final payment.
- Inspection – This is commonly when your Pre-Shipment Inspection will take place. This is a service you have as part of the sourcing process from Sourcing Nova.
Lead Time and your inventory
There are two situations you never want to encounter as a business owner. The first is a stockout – when you run completely out of products without planning accordingly for redelivery. Stockouts result in lost time, employee down time and a serious blow into your profit margin. The second is excess inventory – when you have more product on hand than you can move successfully. You end up paying storage fees, taxes on the inventory and interruption in your overall business plan.
Special Lead Time considerations
Clearly both of these are serious issues. Sourcing Nova has some advice on how to keep either from happening later in the blog. However, there are some issues of Lead Time that are not necessarily in your control. These should be considered carefully as part of your overall inventory management system.
- Geography – China is a very large country. This needs to be taken into consideration when ordering as it may take time to get raw materials to the manufacturer.
- Nature – Certain products are dated with a shelf-life. These have necessary short Lead Times and are often very expensive to manufacture. (Note – Sourcing Nova does not advocate you ordering dated products or products with a shelf-life.)
- Quantity – Large orders from larger companies often take priority based on amounts. Conversely, if you are a small company with a small or first order, you may be given low priority.
- Delays – Delays because of weather, customs, raw materials and human error can be issues.
Examples of Lead Time
Each year there is a weekend festival in October in your hometown were you sell a large number of t-shirts each year. You have done the calculations based on previous years, taking as many considerations as you can into account. You know the event will attract approximately 15,000 people. Of that number, you can plan on selling about 250 t-shirts. Currently, it is almost September.
You have a small amount of inventory on hand and need extra to have in your e-store. You contact Sourcing Nova for an order of 2,000 t-shirts. You know that it will take approximately six weeks to get your t-shirts. This means you need to place your order within the next day or so to be sure you will have your t-shirts on hand in time for the weekend festival.
Factors you need to consider
You know that it will take approximately six weeks of your time. Since you have your designs and colors already done and with Sourcing Nova, you know this time to be about right. However, if you are thinking of making changes to your standard order, you are very pressed for time.
You can, if you have the capital on hand, to pay for expedited shipping and get your t-shirts in a quicker time. This will mean you will either take a cut into your profit margin or raise the cost of the t-shirt to cover the costs.
Additionally, if you are looking to make changes to your design or t-shirt color, there is a chance your order will be delayed unless the vendor has the design and color on hand.
Issues with long Lead Times
Staying on theme with the t-shirts, a long Lead Time is highly detrimental to the success of your business. Unless you have a full control, understanding and idea of your Lead Times, you are putting your business in serious jeopardy.
The main issue you will face is upset customers. The customer is the most important reason for your business, and if you fail them, you will fail at your business.
Other issues you can face include backups at the factory, raw material shortages, inventory turnover and strains within your business itself. Ultimately, it can lead to a complete business failure. This is why staying on top of your products and stock is vital.
What is the impact of Lead Time?
Reducing Lead Time means keeping inventory levels low and manageable as well as having plenty of cash on hand.
The ultimate meaning – A much happier customer. Customers are exactly what you are looking for, as this will lead to more business.
Other impacts that make a huge difference include:
- Logistical goals – There is little more satisfying as a business owner than the three rights – Right product, right place and right time.
- Accurate planning – When you have your plans in place for your product design, receipt of the pro-forma invoice and deposit on hand, you can make adjustments to your orders as needed.
- Lower stock – Backstock is the bane of a business. Backstock means taking up precious space, and a higher lead time will ultimately mean in the necessity of a larger on hand stock.
Lead Time calculation
Lead Time is not difficult to calculate and only requires basic math skills. Once you know your steps, the rest is a very simple formula. There are likely some places online where you can find calculators or perhaps one you can put into a spreadsheet.
Lead Time formula
The formula is very simple.
Procurement Time + Production Time = Total Lead Time
Here is an example based on our t-shirts from earlier.
Sourcing Nova’s manufacturer found for you can do 5,000 shirts in a week. You only need 2,000 shirts, so the manufacturing time will be two days.
Remember – procurement is the time it takes the manufacturer to get raw materials. For this example, we are going to assume they needed fresh raw materials. We will assume three days for that. You know shipping will take about two weeks as well.
We put the numbers into the formula:
Production time of two days + Procurement time of three days = Five days
This means your Total Lead Time will be five days, approximately one week. If you order your t-shirts now, you will have them in time for the October festival.
Why this formula is so helpful
You have kept meticulous records about your customers and their buying habits. You have a pretty solid idea of when they will buy. Here are a few other things you can learn with the formula:
- Catch errors – When you know approximate times, you can better find and catch errors in the process.
- Relationships – Your customers who can learn when to expect products on hand will appreciate you taking the time to care about them.
- Remain competitive – If you are in a competitive market, you can use the formula and adjust your needs.
- Better profits – Knowing your customers and ordering desires mean you can attract more customers with your reliability.
On hand stock
You should have some stock on hand at all times in the case a customer will want more product than they normally would or in the case of an order delay. It is another formula you can use to calculate this number, and it will take the unpredictable elements into consideration as well.
The formula is a bit more than the previous.
(Maximum daily sales x Maximum Lead Time) – (Average daily sales x Average Lead Time) = Level
When is it time to restock?
You restock when your inventory drops to a level that your recognize as time to reorder.
This is yet another simple formula.
(Lead time x Average daily sales) + Safety stock = Restock point
It is only when you reach this restock point that you should reorder. Your data needs to drive all of your business decisions. It is the most accurate way to keep your business in the black and profitable. There is a reason large corporations have departments dedicated to collecting, disaggregating and compiling data – to know when it is time to order.
As soon as your on hand stock reaches the reorder point – contact Sourcing Nova for a fresh order.
These three formulas will help you for the next thing you will need to learn. Speeding up the process for your business and your customers.
How to reduce your Lead Time effectively
Lead time does not need to be overly difficult. There are plenty of things you can do to reduce your Lead Time on your t-shirt delivery.
Reduce unnecessary elements
Look over your current inventory. What is something about your t-shirt that is not 100 percent necessary and could be removed to streamline the process? Find those, and have them removed without sacrificing the most important thing – quality.
This is not as easy as it seems. You may or may not find a decent manufacturer of t-shirts that will meet your exact needs and standards. If you do, the cost may be greater than what it is using Sourcing Nova and Chinese manufacturers.
Vertical integration means combining processes down into a single manufacturer. For something like a t-shirt, this is very simple to do as most manufacturers will sew the shirts as well as print.
Human error is always a factor and can cause issues with everything from Lead Time to raw materials. It is a wise decision to use software to help you with your inventory. If you sell with Amazon, Amazon FBA automates the process for you.
Order more often
Most first time buyers from China will place a bulk order thinking this will save them money. It can. It can also cost you money in leftover inventory, lost sales and inventory management. Ordering smaller quantities with a bit more regularity will often help you resolve this.
Map your sales
You know about the upcoming festival and approximately how many shirts you will sell. This is ideal for your inventory. The earlier you recognize a need for products, the better you will be with your Lead Time.
Sourcing Nova can help you find any product manufacturer in China, including one for a prototype that you have built and designed. If you need a highly specialized part that requires specific manufacturing, plan accordingly. If you can get by without and use a standard component, doing so will certainly help your Lead Time. Many manufacturers can help you with standard components as well, offering suggestions to streamline processes or raise your profit margin without sacrifice.
If you need more than one manufacturer, Sourcing Nova can help you. We will find you the best manufacturer for your products, along with some backups just in case. We will consolidate your manufacturer down to as few parts of the manufacturing chain as feasible. This will cut your Lead Time.
There is a famous saying in China, “Time spent sharpening the knife does not delay cutting the wood.” In other words, when you assemble what you need together – components or consolidating – you will cut Lead Time.
Everyone loves an opportunity for a bonus for good work. If your t-shirts 12 weeks out and you would like them in 10, contact Sourcing Nova. We can possibly negotiate a faster Lead Time in exchange for a differently structured payment plan.
This is one area you will never have an issue. Sourcing Nova assigns a dedicated employee to you and your product order. They are your contact for the manufacturer in China and will handle 100 percent of the communication.
Labor and operations
Chances are you business will not have a need for lots of employees at the start, but as you grow, there is a possibility. You need to find, and retain, quality employees.
Lead Time is a very important factor, and Sourcing Nova will work hard to find the best manufacturers and will include Lead Time in our search.
What products are you getting ready to carry? The buying season is fast approaching for the upcoming holidays. It is an excellent time to contact us to start the sourcing process. How can we help you?