Inventory Cycle Time: What is it and Why it Matters

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.

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.

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.

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.

Improve Scheduling

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.

Employee Contribution

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.

Bottom Line

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. You can read DCL’s list of services to learn more, or 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.