Quick product turnaround time is key to faster sales and profit generation. An efficient lead time can minimize cash entanglement in manufacturing, boosting your Amazon FBA business’s agility. Here are the top reasons lead time is so significant:
Importance of Production Lead Time
Production lead time directly impacts your business’s cash flow. The longer your goods take to produce and ship to Amazon, the more cash gets tied up. Therefore, always aim to reduce order to delivery time.
Consider a product that costs $10 from the factory. If the product takes over a month to manufacture and ship, you’ll need at least a month’s worth of product in advance. Consequently, the faster you sell, the more cash you need to reinvest due to long lead times.
Product size and weight affect shipping method and time. Sea freight could take more than 40 days, and air freight typically needs around 10 days.
When ordering from countries like China, you might need to account for 60 days of stock due to manufacturing and shipping time. To mitigate this, you could ship a fraction of your products via air and the rest by sea. Alternatively, focusing on small, lightweight products allows for quicker shipping via express courier.
Lead Time and Competitiveness
A shorter lead time allows quick adaptation to market changes. For instance, if a competitor suddenly starts selling a more attractive package and starts stealing your market share, a quick lead time allows you to respond promptly. Therefore, sourcing from factories with rapid turnaround times can be advantageous.
Lead time can significantly impact seasonal sales events like Christmas. If your product sells out quickly due to a sales spike, a lengthy restocking time could cause a significant drop in your BSR ranking and shift customers towards competitors. Short lead times offer the flexibility to restock rapidly in case of unexpected sales increases.
Cash Flow Management
Starting an Amazon FBA business can be cash-intensive, especially when you are reinvesting for growth. Extended lead times tie up more capital in inventory, which could result in a negative cash flow despite turning a profit. Reducing lead times or maintaining a buffer stock for products with longer lead times could help manage cash flow effectively.
Breaking Even and Expansion
The quicker you break even on a product, the sooner you can start generating profit for growth. If your product has a long lead time, breaking even might take several months. Conversely, a short lead time of around 10 days accelerates the process, allowing for faster product testing, expansion, and launch of additional products.
Enhancing Return on Investment
If you invest $10,000 in stock and it takes two months to deliver and sell, your return on investment (ROI) will be much lower than if you could sell out in a month. Therefore, shorter lead times correlate with higher profits and ROI.
In conclusion, while it’s not always possible to control a manufacturer’s lead time, you can make informed product and supplier choices based on lead time. Long lead times can drain cash reserves and reduce your agility to adapt to market changes. Strive to optimize your lead time for a successful and responsive Amazon FBA business.