With the new year in full swing, most of us have made resolutions: lose weight; move more; be kind; whatever we think we need to be better. Businesses are no exception. We’re always looking for better ways to do things. Why waste time on outdated systems if there’s something better? You don’t see people reverting to music on 8-tracks instead of streaming services, do you?
So, let’s talk about lead time. In this industry, we live and die by lead times. The math is simple, the shorter your lead time, the quicker you make money. Too much lead time and you run the risk of losing a sale. And, if we’re in for another recession like some have predicted, we need to constantly think about making money and keeping our existing customers happy.
Here are 3 things shorter lead times can mean for the financial health of your business:
- Reduced carrying costs. Many companies order commodities in bulk every few weeks, like clockwork. This works because you (almost) never run out of inventory. The downside is that long lead times between orders can lead to excess (and sometimes unwanted) stock, which increases your carrying costs and fast. If you don’t sell, you’ll have to eat that cost. But, purchasing in smaller quantities more often can shorten lead times, increasing your inventory turnover and lowering those pesky costs.
- Increased cash flow. Typical lead times from overseas can be at least 24 weeks. And most of the time, you can plan for that. However, once the product gets to your customer, it can take an additional 30-60 days to get paid. That means your money is tied up (and you won’t see any return on your investment) for 6-8 months. With shorter lead times, you get your money faster, which allows you to use your freed-up cash to purchase more, and sometimes, different products to keep you competitive in the market.
- Reduced overhead expenses. Traditionally, companies stock as much inventory as they need to meet demand. However, alternative strategies, such as just-in-time (JIT), where a product is manufactured only after an order has been placed. This process eliminates bottlenecks, which improves lead time and allows for lower associated costs of sourcing, making and holding inventory.
To stay competitive in the market, companies have to get creative. Earnest Machine did the same thing when we created Zirks. Utilizing this new business model, where you purchase your commodity items while they’re on the water, you can drastically improve your lead times and experience a greater return on your investment.
Want to grow your fastener margin by 30%? Watch our webinar to learn how.