The Cost of Lead Time

"It seems like customers expect products delivered quicker than ever."


It is first worth finding out why customers are expecting faster delivery.  Is your competitor offering better lead times?  Are they increasing their price to accommodate, or have they improved their supply chain or efficiency?  Maybe your sales team is influencing expectations.  This can be fine, but not if the salesperson 'makes the sale' (commission) but costs you stress and reduces the company profit margin (not uncommon).

Unless your competitors have one-upped you and you don’t yet know it, most people understand faster costs more.  Perhaps you can offer two prices, one for standard delivery and a higher price for expedited delivery.  Or, flip it and tell them the fast, higher price is your standard delivery, but you can offer a discount if they accept later delivery.  (Same outcome, but brains and perception are funny things). 

Everything has a cost, especially time.  Sometimes those costs are hidden or manifest in unusual places.  So make sure your systems (quoting, commission, planning, timing, etc.) factor in as much as practical.

"Is there something that you do to avoid having to expedite or do you just assume you will be in a rush and build that into the quotes?"

Speed kills (profit margin), if not planned for

Call your suppliers (they might be internal) before promising a delivery date to see if they are open or backed-up.  Hopefully you have a relationship and can tell them the reason you need to know is so you can accurately determine a delivery date.  Or, approach it this way – “I will need to place an order for this part in 1 week, will you be able to turn around my order two weeks? If not, please let me know so I can find an alternate source.”  And this is why you should always have an alternate source.  

Note 1:  Some suppliers hear this all the time, and are conditioned to just say yes, because a lot of those orders don’t show up anyway, and absolutely won’t show up if they say no.  Make sure they mean it.  And make sure you mean it. 

Note 2:  This is also why I like to outsource as much as possible – working within companies that “do it all under one roof” rarely see each other as customers (as they truly are) and therefore often have horrible delivery times and relationships to other departments.  Just see what happens if you offer to go “outside” if they can’t meet your reasonable request!

Parallel path and planning

There are some projects where expediting is simply not possible; a long-lead time for an actuator, or a huge injection-molding tool.  There are techniques for these two examples I will cover another time, but basically know it before you start and shift decisions so ultra long-lead items (this is a relative term) can be selected (or designed) early on so they can be ordered ASAP.

Also, look for opportunities to do as much as possible in parallel instead of series.  There is more potential for this than you may think.  If A and B are involved to deliver C, the default may be A finishes their work, and then hands it off to B.  Well, if B can get started when A is 30% done, do it!  Too many people don’t want to start anything “until I have all the answers, or inputs.”  That kind of linear thinking is dangerous to business and profit.

Need help estimating a product?  Let us know!