What happens after a customer places an order? The customer wants the delivery as soon as possible and is even ready to pay extra. On the other hand, the business is challenged by fulfilling customer orders quickly. From order production to shipping and tracking, many things could go wrong when dealing with large order volumes.
Inventory management is one of the primary activities of ecommerce businesses. When done right, it can improve customer satisfaction and help beat competition. Measuring inventory cycle times is widely done for process analysis and improvement and is an important metric to track and monitor.
For retailers and distributors, inventory cycle time is focused on inventory levels of finished goods sold. By taking actions to optimize inventory cycle time, sometimes simply called cycle time, ecommerce businesses can reduce inventory waste and stock build-up, prevent out-of-stock situations, decrease storage and delivery costs, improve customer retention, and more. Inventory cycle times are an important component in manufacturing operations, production scheduling and inventory control. This article explains inventory cycle time , along with the method to calculate its value and reduce it.
How to Measure Inventory Cycle Time
The method used to measure inventory cycle time is simple, but it varies slightly depending on if you sell products within the supply chain or to final retail customers.
- For manufacturers, inventory cycle time is also sometimes known as order cycle time. Typically, it is represented as the average time between any two orders shipped, and the order cycle time entails several composite parts. It can generally be split into the ordering phase, production phase, and delivery phase. The amount of time it takes from starting the ordering phase (ie. placing the order for raw materials or components) to ending the delivery phase (ie. successful receipt of the products by the buyer) is the inventory cycle time.
- For retailers, the inventory cycle time measurement is a little different. To start with, there is no production phase, as appears in the manufacturer’s inventory cycle. Instead, cycle time can be measured as the time between receiving products from a supplier to those products being sold, or turned over. It can be calculated either for each individual product sold, or for a batch of products as a whole.
Factors that Impact Inventory Cycle Time
Inventory cycle time is affected by a variety of factors, including availability, replenishment, and organization. Among these factors are:
The lead time refers to the period of time that elapses between the time a company places an order and the time when the product arrives. In order to meet its basic requirements, the company must plan ahead more frequently, owing to longer lead times.
Lead time and cycle time are often confused for each other, here is a good explanation of the difference between lead time and cycle time.
Lead time reductions allow the company to avoid higher shipping costs of expedited merchandise and give them more time between orders.
Demand for a company’s products can have a big impact on inventory cycle time management, since more demand can lead to more frequent cycling and better inventory management. During times of low demand, the company may keep less stocks on hand and cut costs.
Costs Associated with Orders
The cost of purchasing cycle inventory has an impact on the availability and quantity of inventory held in storage, in addition to the availability and amount of goods stored in storage. The cost of importing goods into the country, as well as tracking and warehousing them, is included in the order price. Increasing shipping expenses, such as fuel prices and driver compensation, can lead to an increase in the cycle inventory price for a corporation.
As a result of the price of the end product, price changes and demand may necessitate the use of other materials or a greater degree of manufacturing. Companies frequently raise their product pricing as a result of increased market demand or rising raw material and production expenses.
4 Tips to Reduce Inventory Cycle Times
Reductions in inventory cycle time are achieved by simplifying and streamlining manufacturing processes and by reducing the time spent on activities that don’t value-add. Organizations can reduce inventory cycle times by implementing the following strategies.
Using automation in your cycle counting process can improve the accuracy of your results. Automation also lowers labor costs, boosts worker productivity, provides trust in your stock levels and enables real-time visibility as your inventory changes.
Thanks to technology, the cycle counting process has become easier, less intrusive and requires even less manpower. By replacing Excel spreadsheets or other manual inventory control systems with inventory control software, companies can more efficiently track their stock — all while reducing human error and saving time, money and valuable man-hours.
Reduce Wait Time
The most direct and easiest way to reduce cycle time is by reducing the waiting time occurrences within the production processes. This can be achieved by ensuring production schedules can be met, materials necessary for the production process are on-hand and employees are adequately skilled or trained in their roles.
By identifying potential issues and supply chain bottlenecks in production activities you can optimize operations to reduce downtime. Revisiting the task schedule can also detect areas for improving the time management of employees and production processes. Setting limits on when to place inventory reorders is an essential step to avoiding stockouts and backorders, which can slow down your order cycle time. They can also be caused by poor planning, inaccurate forecasting, and inefficient processes.
Perform Tasks in Parallel
Often there are multiple tasks involved in the various production processes, by breaking down the work structure you can identify processes that can be undertaken in parallel to further reduce cycle times.
Employees are an obvious choice to provide input around those areas of the operation where improvement opportunities exist. You can achieve greater buy-in and will yield better results when staff working in the core process have been involved in generating ideas for improvements in cycle time reduction.
Your company’s role as a reliable and responsive part of your customers’ supply chains is as important to your company’s success as the reliability and responsiveness of your suppliers. Prioritizing inventory cycle time as a KPI, and using the right tools to measure and optimize them, lets you implement efficiency and accuracy improvements at all levels of the order fulfillment process. Trim the wasted time from your inventory cycle, and you’ll enjoy happy, loyal customers along with a robust reputation, accurate cash flow, and a very healthy bottom line.
Help with inventory management is one of the many benefits to working with a 3PL. If you are seeking logistics support we’d love to hear from you. Check out the many companies we work with to ensure great logistics support. Send us a note to connect about how we can help your company grow.
Tags: KPIs & Metrics