Toral: Lead time benchmarking: How to measure up against industry standards

SunStar Toral
SunStar ToralDigital Rebel

In my e-commerce and Kapatid Mentor Me Program discussions, a popular topic that I usually cover is supply chain management, exchanging ideas on how to make it efficient. It is a crucial topic for leaders in the manufacturing sector as efficient supply chain management directly impacts our ability to meet customer demands, control costs and stay competitive in the market.

Supply chain efficiency refers to the optimal management of all activities involved in sourcing, procurement, production and distribution of products. The goal is to minimize costs and maximize customer satisfaction by delivering products quickly and accurately. Key performance indicators for supply chain efficiency include lead time, inventory turnover, order accuracy and transportation costs.

Benchmarking your lead time vs. industry average

The first step towards improving supply chain efficiency is to assess your current performance. This can include activities including:

Data Collection: Gather data on your supply chain operations, including lead times, inventory levels, supplier performance and transportation costs. Ensure this data is accurate and represents a comprehensive view of your supply chain performance.

For example, let’s talk about lead times. Calculate the average lead time for your company by summing the total lead times for all shipments and dividing by the number of shipments.

Let’s do an example calculation. Assume your company’s lead time data shows January: 12 days, February: 11 days, March: nine days, and April: 10 days.

For January to April 2024, the Purchasing Managers Index (PMI) Manufacturing Philippines lead time indices suggest an average trend toward faster delivery times. January: 50.91, February: 52.51, March: 48.28, and April: 49.37. Interpret these numbers in the context of “faster” or “slower” trends. The PMI indices suggest a trend toward faster delivery times in March and April (indices below 50).

The PMI Philippines Manufacturing is managed by the Philippine Institute for Supply Management and its advocacy arm, the Foundation of the Society of Fellows in Supply Management, along with I-Metrics Asia-Pacific Corp.

If your average lead time is 10.5 days and the industry shows a trend towards decreasing lead times (e.g., moving from 11 days to nine days), your lead times are slightly longer than the industry’s improving trend.

Identify bottlenecks: Analyze the data to identify areas where delays or inefficiencies occur. Common bottlenecks include slow supplier deliveries, long production cycles, and inefficient transportation routes.

Improve processes

Implement process improvements such as better supplier management, advanced planning systems and efficient logistics solutions. Utilize technologies like real-time tracking, automation and artificial intelligence for better supply chain visibility and efficiency. Work closely with suppliers and logistics providers to streamline operations and improve lead times.

By systematically comparing your lead times with industry trends and implementing targeted improvements, you can align your performance with or exceed industry standards.

Enhancing supply chain efficiency requires a strategic approach and the adoption of best practices that address your specific challenges and goals. By collaborating with suppliers, leveraging technology, and continuously improving your processes, you can significantly reduce lead times and improve overall supply chain performance.

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