What is lead time? Definition and best practices

Lead time. Does this term mean anything to you? It's one of the most important e-commerce KPIs to master. Especially today: the commercial landscape is changing by the day, with players becoming faster, more responsive and more agile.

Lead time is the time elapsed between two key actions, such as customer purchase and delivery of goods. To maintain your place in the market, and in the hearts of your customers, mastering your lead time is essential. So, would you like to improve your sales strategy? Enhance your performance and logistics?

Follow our guide to discover, calculate and optimize your lead time.

What is Lead Time?

Lead time is a key concept in e-commerce logistics. We mainly talk about sales lead time. The definition is simple: it's the time spent between placing an order and delivery to the end customer. In other words, it corresponds to the actual time between the moment a web surfer clicks on "Buy" and the moment he gets the product in his hands.

In addition to sales lead time, there are other types of lead time, such as :

• Purchase lead time : this process takes into account the entire customer search, calculating the time elapsed between the search for a product and its final reception.
• Production lead time : this is the time spent between the start of product manufacturing and the moment when the product is ready for delivery .
• Procurement lead time : this refers to the time needed to procure goods for sale (choice of suppliers, negotiation, ordering, delivery of stock to the company, etc.) .

All these types of lead time are often associated with the notion of "cycle time". Cycle time is part of lead time: it corresponds to the time needed to complete a specific task, project or process, from start to finish.

In this article, we'll focus on sales lead time, which is the most closely followed in e-commerce... And the most important, to improve performance and stimulate growth.

How do you calculate lead time?

The formula for calculating sales lead time is :

Lead Time = Delivery date - Order date

The result is the number of days from receipt of the order to delivery to the customer. We recommend thatyoucalculate lead times for procurement, order processing and delivery for all products sold on your e-shop, based on order and delivery history .

Then move on to analysis. The shorter the lead time, the faster you can satisfy your customers. Today, speed of delivery is a major criterion when buying online. For 88% of French buyers, it's even as important as the product itself! (Source: Uber Direct and Ipsos study, 2023).

 

Finally, don't limit yourself to analyzing your lead time by product. Calculate and compare your different average lead times throughout the year, especially during key e-commerce periods. The results obtained in relation tosales seasonality will help you identify areas for improvement, to speed up your processes .

Why track and reduce lead time?

Your mission? Sell the right products, to the right people, and deliver them under the right conditions. In as little time as possible. Infact ,French consumers are prepared to wait an average of 5 days maximum to enjoy their purchases (source: SendCloud study, 2023).

By calculating and tracking lead time, you can :

• Improve customer satisfaction: it's the sinews of war. The faster a customer is delivered, the more likely they are to be satisfied. And the more likely you are to win their loyalty, making it easier for them to buy again! A short lead time is a guarantee of trust and reassurance.
• Strengthen your competitive edge: knowing your lead time means you can adapt your marketing strategy to promote the agility so dear to customers' hearts. For example, highlighting a maximum 3-day delivery time is a major advantage in setting yourself apart from competitors who deliver in 4 or 5 days. Eliminating intermediate steps that lengthen delivery times is the key to offering reasonable lead times that appeal to customers.
• Refine your demand forecast: the more you know about your demand, the more easily and accurately you can estimate it. Calculating lead time enables companies to draw up better logistical forecasts. This is a real asset for enjoying a more predictable cash flow, reducing your costs and improving your financial performance.

 

• Reduce your stock levels : a short lead time means you need to stock fewer products. Conversely, the longer the lead time, the greater the stock of stored products. Calculating and optimizing this KPI is therefore essential to improve your inventory management...And reduce your storage costs.
  
  

Factors influencing Lead Time

While reducing lead time is becoming a priority for many e-tailers, it's not a task that can be achieved by snapping a few fingers. Despite the good will of professionals, certain factors influence lead time. Knowing what they are means you can act more effectively when they arise, or anticipate them. These include

• Human error: miscommunication with a supplier, lack of training for an employee, forgetting a key piece of information... All these human errors are common. The solution is not to eliminate the human element from your sales cycle, and automate everything... But to support it as best you can, to limit errors.
• Geographical location: where is your company located? Where are your suppliers? Your warehouse? Your customers? By locating all these stakeholders, you can identify whether or not your supply and delivery chain is too complex. The further away these different locations are, the more your lead time will be impacted!
• Natural events: floods, earthquakes, storms, etc. are difficult to prevent and have a negative impact on lead time. To cope with them, we advise you to diversify your manufacturers, strengthen your inventory systems and anticipate potential action plans.
• Seasonality of sales : certain periods such as sales, vacations, Christmas or Valentine's Day can increase demand for products to be produced and delivered, and thus impact lead time. Anticipating which days are working days and public holidays also makes all the difference, so that customers can be satisfied.

You now know how and why to calculate your lead time. You also know the criteria that can increase or decrease your lead time. Now it's time for an action plan: here's how to optimize your lead time, and boost your company's performance.

How to optimize your lead time?

Here are 3 techniques to reduce your lead time, and thus contribute to the growth of your e-commerce business:

1. Use technology as an ally

As we said earlier, removing people from your processes is not the solution. On the contrary, combining people and technology is a winning strategy for improving your processes!

Specialized logistics software will help you to better manage unforeseen events, track inventory in real time and centralize all information concerning your supply chain. A demand forecasting tool is particularly useful, to anticipate variations in orders and adjust production accordingly .

You can also opt for a Warehouse Management System (WMS) to optimize logistics flows, manage inventory and monitor processes. Then, for transport management, a Transport Management System (TMS) helps optimize this part of the logistics chain, to improve transport conditions and reduce delivery times .

Whichever solution you choose, always opt for a centralized IT space, to avoid multiple spreadsheets and chains of e-mails sent to logisticians. This is what we offer our marketplace sellers , with Rakuten Fulfillment Network. It's a practical way to manage all your logistics in just a few clicks... while entrusting us with packaging, order dispatch and much more besides:

 

 

2. Maintaining good relations with suppliers

 

When we think of "lead time", we think first and foremost of delivery to consumers. But before that, don't forget that this indicator also takes into account other logistics components, such as production and the delivery of goods by suppliers. Without these stages in the sales cycle, there can be no final delivery, and no customer satisfaction and loyalty!

Since suppliers are an integral part of your overall lead time, take care of your relationships. Good communication and collaboration reduce the risk of inefficiencies. Trust, transparency and exchange also improve the transmission of information, flexibility and fluidity of operations .

3.Reduce contact points

Yes, the quality of the relationship with your service providers counts. Unlikethe quantity and multiplication of logistics service providers! To reduce your lead time, it's in your interest to reduce your points of contact. Rather than going through 5 different contacts, each responsible for a different link in the supply chain... Have you considered using a 4PL provider?

 

 

A 4PL (Fourth Party Logistics) providerisan intermediary in charge of a company's entire logistics. Its aim is to manage and optimize the entire supply chain. It acts as a single point of contact for all logistics issues, managing all links in the chain (carriers, warehouses, after-sales service, etc.) and all stages (storage, preparation, dispatch, customer returns).

Thisiswhat we offer with RakutenFulfillmentNetwork. Our turnkey solution, with no hidden costs, takes care of every stage of your e-logistics. Your customers are satisfied, your schedule is relieved. And you can (finally) concentrate on what you do best: selling.

With Rakuten Fulfillment Network, you benefit not only from improved lead time, but also from :

• 25% more time for your business
• 25% average savings on logistics costs
• 99.8% of orders placed before 2 p.m. are delivered within 24 hours, to ensure customer satisfaction

Ready to join the 12,000 professional sellers on our marketplace and offer your products to our 13 million regular buyers? To set up your own e-shop and place your trust in a reliable logistics partner, click here: