Lead time is a powerful basis for determining the success of a project. Ask a procurement manager and you’ll see that the key thing that drives any purchasing decision always comes down to either: lowering their costs or reducing lead time.
Which makes lead time one of the most essential KPIs in procurement. Lead time is a measure of how quickly a product or service can be delivered. And having an accurate lead time lets purchasers to better plan and strategize their flow for maximum efficiency, cost savings, and better cash flow management.
Now, the length of this time can drastically change from several days to months, depending on both controllable and uncontrollable factors.
And in procurement, it’s always best to focus on what you can control.
In this blog post, we'll explore some tried-and-tested strategies that can reduce lead time. There are several key levers we can take advantage of (1) technology, (2) order strategy, and (3) strategic vendor distribution
The start of 2020 saw a rise in saas in all industries including procurement, and it’s surprising to see that companies now are still manually procuring (Spreadsheets *cough*). According to research by SpendHQ, 74% of respondents said that they do not yet have procurement software and are still relying on spreadsheets and email.
This can pose a lot of disadvantages. A spreadsheet-dominated process makes procuring (1) easily decentralized, highly prone to costly human error, and more challenging to navigate for large companies.. and the list goes on.
The amount of time consumed with just creating POs and forwarding them through email while tracking them from spreadsheets is an overwhelming amount of steps and produces an unnecessary amount of paperwork. Oftentimes, procurement managers find themselves second-guessing their decisions because of being too busy trying to mitigate errors, + a lack of visibility.
This is where using the right procurement technology comes into play. To cite a Mckinsey article by Boulaye, Riedstra, and Spiller:
“Big data and advanced analytics will have profound implications: in raising data-driven decision-making to a new level, helping companies to generate new insights, and enabling them to collaborate at scale. Imagine a procurement team so deeply connected to every tier of its supply base that it has access to all relevant data on cost structures, supply availability, lead times, financial and operational risks, and service and quality metrics. This procurement team would be well-positioned to negotiate the “right” prices, instantaneously adapt its own planning, or switch to alternative suppliers in the event of supply shortages. It could even proactively help suppliers improve deteriorating quality levels by spotting problems earlier and identifying their root causes more accurately”
Procurement systems allow their users to actively identify bottlenecks and can help users continually refine and adjust their strategy as they move along the supply chain. And they can do this largely with the help of analytics and trackers.
By having visible purchasing data, procurement specialists can more confidently navigate through each phase of procurement and make data-driven decisions. This is a longer-term solution that can ultimately make their flow more efficient and their execution quicker.
The fastest way to run purchases over time is to order them one by one. And going overtime with purchase requisition also means running overtime on installation. That’s not exactly the domino effect you’d want to happen. Especially during projects that are tight on time. Ordering items in small increments is okay (if you really can’t avoid it) but in most cases runs the risk of lost savings opportunities and can extend your timeline and add to overhead costs.
This is why consolidating your purchases is a great technique used by a lot of large companies. (Made even more possible and easier by procurement software *wink wink*).
And it’s not that complicated. The basic premise is: If you’re ordering several items from your vendors, try to do it in one go. By doing bulk purchases, you gain these advantages
With bulk purchasing, you hit two birds with one stone: lower costs and a shorter timeline.
Most procurement teams need to uphold a certain level of standard set by the design/specification team when purchasing items- and that usually leads to having to use the same vendors from a farther distance. When this happens, you open yourself to some risks:
The solution? Localize your vendors. This is best applied to procurement companies that vet hundreds of vendors globally and have projects in multiple locations.
By vetting local vendors, you can uphold design standards without having to deal with all the risks that come with purchasing something from across the world. This is especially advantageous for brands that have begun localization projects that optimize abundant local materials into their project. It’s great for your pocket, and for the environment.
Lead time is an important factor in purchasing that can have a major impact on your bottom line. To ensure that you are able to maximize efficiency and reduce costs, it’s essential to understand the key levers of lead time management. In this article, we explored three such levers: technology, order strategy, and vendor distribution. By taking advantage of these strategies, businesses can drastically cut down their purchasing timeline while still maintaining quality standards - allowing them to stay ahead of the competition in today's ever-evolving market landscape.