What’s A Lead Time – And Why Should You Care?
A weak link in the supply chain can ruin your delivery times
By Bob Merriman
Amazon has forever changed the way we think about purchasing goods. From food to clothing or technology, we can buy millions of items at a moment’s notice. For a price, we can even get them in a couple of days, if not just a couple of hours.
I’ve seen it time and time again in my own life and, admittedly, have fallen victim to it for birthdays and anniversaries. (Sorry, honey!) While the option to receive something today is appealing from a gratification standpoint, it’s also a trap for poor planning.
This kind of thinking can be extremely problematic in the world of technology products. Many new creators tend to think of their products as being greater than the sum of their parts. While this is generally true, it means that creators are not thinking of the parts that create the sum.
Protect your delivery dates by watching your lead times
In the world of technology components, there is no Amazon to save the day, nor is there a place where you can walk in and pull an item off of a store shelf. The components in your device have to be purchased through a distributor. While you may have a predisposed concept of a distributor as nothing more than a middle man, it may surprise you to learn that most original equipment manufacturers (OEMs) won’t even take customer calls for orders.
Sales is expensive and requires additional overhead: sales staff, support staff, billing processes, order tracking, and on and on. Rather than focusing on those things, OEMs make their technology available to distributors, and you (the customer) purchase the technology from the distributors. This model creates some real advantages for the end customer, but also some very unique challenges.
The benefits of a distributor on lead times
A good distribution partner will provide some value-added services to help you with your design and buying decisions, to ensure you’re getting the right technology for your product. They’ll also help you tackle one of the biggest traps that creators can fall into: lead times.
Since the OEMs require the use of distributors, they use the massive orders from the distributors to create their sales forecasts. The OEMs then create their technology (sensors, batteries, micro controllers, etc.) to satisfy expected demand. This production cycle creates something known as a lead time. A lead time is the time it takes from when you place your order until you actually receive it.
This matters to you as a creator because your manufacturing partner cannot begin producing your product until they have every component in your bill of materials (BOM).
How lead times have a direct effect on delivery, bottom line
For example, let’s say your BOM has five components on it. Four of those components have a 4 week lead time, and one component on your BOM has a lead time of 20 weeks. If you’re that Amazon shopper (like me) who didn’t do a great job of planning, and you place your order today, it’s going to be 5 months (20 weeks) before you can begin production. That can be problematic if you’ve promised investors or crowdfunding campaign backers you’ll be shipping in two months.
Plus, lead times can change seemingly overnight. It’s not uncommon to see a lead time jump from 16 weeks to 32 weeks if a forecast was off or a major player announces a new product. If the OEMs budget 50 million units of a specific sensor and Apple and Samsung both announce new products using that sensor, it’s not hard to imagine a shortage in product available for smaller customers, resulting in longer lead times and pushed delivery dates.
This is where a strong distribution partner’s factory and OEM relationships can help. Distributors offer a unique service that is outside the wheelhouse of most contract manufacturers. They can help you keep a standing order for specific components with long lead times so that your technology is arriving to your manufacturer on time. They can also simply keep an eye on lead times and let you know when there’s a jump in a component you’re using.
So don’t Amazon your next project. Keep a close eye on your lead times—or get a partner to do it for you so you can focus on your IP.