Order Lead Time in Warehouse Management

Lead time, as you know, is an essential aspect of the warehouse management and order management process. It is the reason that builds or breaks the trust in the business.

Lead time is for all sorts of warehouse and business operations, and order lead time, which will be the focal point of this write-up, is for the orders posted by the customers or the companies.

Order lead time is the key to a consumer’s list of its favorite companies. The shorter the order lead time, the easier it is to get into the good books of a consumer. However, there are consumers that wouldn’t want order lead times to be shorter, so it’s this trickier situation that an ecommerce company needs to manage. Therefore order lead time and its calculations are crucial.

What is Lead Time?

Lead time is the amount of time taken by a process from its start until it is completed. Industry monitor lead time of all their departments like manufacturing, and project management during pre-processing, supply chain management, processing, and post-processing stages to determine whether their industry is ranking high on efficiency by comparing the lead time to the industry benchmarks.

What is Order Lead Time?

What is Order Lead Time

Order lead time in layman terms can be called as the amount of time taken by an ecommerce company or a supplier to fulfill an order after it has received an order from a customer or a purchase order from its buyer.

It is a crucial parameter to judge an ecommerce company’s order management prowess.

However, there are other definitions, as well. According to law insider dictionary,

“Order Lead Time means the minimum amount of time (outlined in the applicable Statement of Work) between the date on which a Purchase Order is received by Supplier and the date for the delivery of the Product to the shipping location designated by Customer, as set forth in such Purchase Order.”

Also, the business dictionary has a shorter version of the order lead time definition, and it is” period between placing an order and receiving the ordered item. See also order cycle time.

Order lead Time Calculations

Oder lead Time Calculations

To calculate the order lead time, we need to understand the different types of order lead times.

  • The Actual Order Lead Time (A -OLT ) – refers to the period between the receipt of the customer’s order and the fulfillment of the goods.
  • The Requested Order Lead Time (R-OLT) – it’s the time between the date when the order is placed by the customers and the requested delivery date by the customer. The R-OLT could give you a great insight into the consumer behaviors and needs on the order fulfillment time.
  • The Quote Order Lead Time (Q-OLT) is the time between order entry date and the supplier’s or a company’s delivery date of goods as written in the contract.
  • The Confirmed Order Lead Time ( C- OLT) – The confirmed lead time for the delivery of an order between the consumer and the supplier.

 

OLT formula –

R – OLT (requested order lead time)= Wish Date – Order Entry Date

Q- OLT (quote order lead time)= Quote Date – Order Entry Date

A – OLT (Actual order lead time) = Delivery Date – Order Entry Date

C – OLT(Confirmed order lead time) = Confirmed Date – Order Entry Date

 

Average OLT Based on Volume

The Average OLT based on Volume (OLT) is cumulative of all the multiplications between the product volume a supplier delivers and the OLT divided by the total quantity fulfilled in a particular designated amount of time for which the warehouse is being studied.

Average OLT Volume = Quantity. OLTTotal quantity Delivered

This formula will help the companies to understand the relation between the Volume of the products required for an order and the time asked to fulfill that order. This volume metric is valid and can be applied for all the four types of OLTs.

The result from the formula will be the average time between the day when the order is registered, and the customer’s requested delivery date considering the average quantities ordered during a particular period.

Advantages of the Order lead time measurements.

  • An improved grasp on consumer behavior in the market can help you develop a more profitable order fulfillment process that is beneficial for both you and your consumers.
  • You can detect any errors or flaws that are hampering the terms of the agreement and rectify them by contacting your supplier or within the warehouse.
  • Order lead time measurements give you a chance to build a more intimate relationship with customers by providing what they want in the time they requested.
  •  With the help of lower OLT, you can compete in a highly competitive environment by knowing the OLT calculations and adjusting the order lead time accordingly.
  • Increased profits because if you are in line with the order demands, then you will attract more orders
  • Increased perfect order percentage
  • Fewer returns as the orders are fulfilled in time according to the customers’ needs
  •  Very few SLA breach rates

Summing Up

To recapitulate, order lead time can determine the way your business shapes and can be the reason behind your increasing popularity among the customers because you will be able to perform warehouse and order management procedures smoothly. Also, as far as the calculating warehouse performance is concerned, order lead time is one of the primary parameters determining how you are managing your warehouse.

Essential Resources:

Devendra Gupta
WRITTEN BY

Devendra Gupta

A creative human existing on the planet just like others, nothing new. A poet who loves to write stories that can influence people and hence can write anything(believe me I can). Would choose watching movies over novels. Loves to laugh, observe, and talk nonsense because if making sense was the reason for our existence then, believe me, God wouldn’t have put all of us here in the first place. Also, a Content Writer at Orderhive who strives to deliver something unique.