In the fast-paced world of Amazon FBA, lead time is a critical factor for success. Shorter lead times allow you to sell products and generate profit more quickly while tying up less cash in the manufacturing process. In this article, we discuss the top 7 reasons why lead time can significantly affect your Amazon business.
- Production Lead Time Matters
A shorter production lead time means your cash is tied up in products for less time. The faster your products can be made and shipped to Amazon, the less money you need to invest in stock for long periods. Strive to reduce the time it takes from placing an order to having the products delivered to Amazon.
- Freight Considerations
The size and weight of your product impact shipping options. Sea freight can take 40 days or more, while air freight requires about 10 days. To address this challenge, consider sending a portion of your products via air and the rest by sea. New sellers should focus on smaller, lighter products that can be shipped via express courier to avoid lengthy sea freight times.
- Outpace the Competition
A fast lead time allows you to make changes quickly and stay ahead of competitors. If a rival alters their product offering, having a short lead time enables you to respond swiftly. Seek factories with rapid turnaround times to maintain competitiveness and reduce the amount of money invested in stock.
- Keep Stock Levels Optimized
Unexpected sales spikes can lead to stock shortages. If it takes 45 days to replenish your stock, you risk losing your BSR ranking and sales to competitors. A fast lead time enables you to restock quickly, ensuring you can meet demand during peak seasons.
- Maintain Positive Cash Flow
Cash flow is crucial when starting out on Amazon or reinvesting in growth. Long lead times tie up more cash in inventory, potentially resulting in negative cash flow. Minimize lead times wherever possible and consider keeping extra buffer stock for contingencies.
- Accelerate Break-Even and Growth Cycles
Reaching your break-even point faster means profits can be reinvested in growth sooner. If your lead time is short, you can test products more quickly and scale your business more rapidly. This approach also enables you to launch additional products at a faster pace.
- Improve Return on Investment
Shorter lead times result in higher profits and returns. If you invest $10,000 in stock that takes two months to deliver and sell, your return on investment will be lower than if the stock sells out within a month. Prioritize short lead times to maximize your profits.
Although you can’t always control a manufacturer’s lead time, you can make informed decisions when selecting products and suppliers based on their total lead time. Long lead times consume cash and limit your ability to adapt to changes in the market. Prioritize speed for a more successful and responsive Amazon FBA business.