What is the Order Cycle?
The stipulated amount of time required for the supplier to use a vendor’s supply to meet his target needs is the order cycle. It refers to the period between the time a consumer places an order and receives the finished product that intended for immediate sale or the consumer’s inventory stocking purpose.
The order cycle considers several parameters, including the order, reorder, and economic order quantity, to evaluate and analyze how much inventory is required for stocking and also have a rough timeline for when stocks are to be replenished. The amount of capital is also forecasted using the order cycle. It is an effective strategy and planning tool. Furthermore, it is one of the most vital KPIs used to track the order fulfillment process, which in turn helps you measure the efficiency of your workflow processes.
What is the Replenishment Cycle
The workflow process that helps you replace the stock being sold is called replenishment. The entire process behind restocking these sold products and services is called the replenishment cycle. The term “replenishment cycle” is mainly used in inventory management and refers to supply received from some central location. It also uses many quantitative models designed for inventory management processes to optimize and streamline workflows.
Replenishment intends to keep the supply continuously flowing through the supply chain while maintaining order and enhancing efficiency. With the lack of a well-designed replenishment plan, organizations run into the risk of putting their sales at risk. For example, a manufacturer could run out of raw materials, causing production delays and a roadblock. It then results in backorders and backlogs that make the customer antsy and lose interest in your products and services. It greatly affects the profits and sales, putting you at risk of losing your business.
The replenishment cycle involves many complex processes. It demands a precise planning phase that anticipates and predicts what inventory will be needed, where it will be required, and when it must be in stock. With the significant advancement in technology, organizations today use powerful algorithms with automated solutions through neural networks for predictive analysis using historical data to forecast future demand.
It is also vital to consider different factors like bulk buying discounts, shipping distances, supplier quantity restrictions, safety stock needs, and other factors affecting delivery time and overall expenses. The replenishment cycle also includes particular circumstances like discount sales, product seasonality, customer demographics, local competition, etc. Furthermore, lead times can vary and must be taken into consideration for every item that is procured.
Why is the Order Cycle Important
The order cycle is an excellent metric used to measure the efficiency of an organization’s fulfillment process. It also influences the KPIs, including on-time shipping rate and order lead time. The responsiveness of the organization is measured by the order cycle. The smaller the order cycle time, the greater the responsive nature of the business towards its consumers. It is important to establish brand trust and customer loyalty.
Order cycle time plays a significant role if multiple jobs or products are processed simultaneously. It indicates that the cycle time mirrors the longest processing time for a specific purchase order. It is important to note that the cycle time affects the amount of capital tied up, making the shorter cycle times more favorable.
- Measuring customer satisfaction
The order cycle time can have either a positive or a negative response from the customer, and good customer satisfaction reviews are the ultimate goal. Furthermore, the length of the order cycle time could impact this parameter and your overall service to your consumers. An extended order cycle delays fulfillment and delivery times, leading to more dissatisfied customers and poor ratings. It also affects your credibility in the market.
However, a short-order cycle time allows you to deliver a seamless fulfillment experience that leads to higher satisfaction levels and improved market traction.
- Supply chain problem detection
A good understanding of your organization’s order cycle time allows you to find issues in the supply chain management process that could cause potential delays in starting your fulfillment process. An extended order cycle time indicates that you need to review and replan the supply management chain process to detect any unnecessary steps that minimize overall efficiency.
Every organization must periodically review its supply chain processes to ensure they are streamlined and optimized. Automating processes helps avoid the delays and discrepancies seen in manual processes.
- Readiness to scale measurement
The order cycle time allows you to scale your business precisely. It is an excellent guide to help understand if you are ready to begin the fulfillment process and the capacity you can take up. Scaling your business demands a solid supply chain and inventory management process capable of handling multiple orders without affecting the product life cycle’s overall efficiency and performance. Business expansion is indicated by short order cycle times.
Order Cycle and Inventory Management
The order cycle is often referred to as the review cycle in inventory management. The order cycle is a sub-part of the inventory management process that makes or breaks the fulfillment process. A well-planned and designed strategy for managing orders is only possible after considering the order cycle’s effectiveness. It can save time and money while improving efficiency, bringing the organization’s different departments together without hassle, and enabling their harmonious work.
This simple formula determines the working of the order cycle concerning the inventory management process:
Order Point = Approximate Lead Time * Demand per Day + Present Safety Stock
Understanding the Order Cycle with an Example
Most organizations and businesses follow the same order cycle designed a long time ago. Reviewing and strategizing this plan is essential as it largely influences your responsiveness and efficiency. Let us consider an example of how the order cycle affects other processes.
Let us assume that a particular company is following an order cycle of 40 days for a concrete response from their primary supplier. However, suppose the company realizes they have completed the vendor’s target order requirement in 20 days instead of 40. In that case, it will create an overstocking incident as they had a time frame set for 40 days for the supply of each product from their primary vendor. It occurs irrespective of the economic order quantity for a particular item with a 20-day supply. They shall not overstock raw materials or products due to maintaining the economic order quantity. It also helps them maximize their profits.
In such a case, the 40-day order cycle will destroy their customer and delivery services. Placing an order for a 20-day supply of products every 40 days causes an out-of-stock situation that also leads to loss of customers and bad credibility. Moreover, a sudden increase in demand for a specific item could lead to backorders. If the company replenishes after stock-outs, it could take a considerable time for the replenished stock to arrive, leading to unhappy customers.
What is Order Cycle Optimization
Order cycle optimization is a strategy to enhance process flow and minimize the overall time required for procurement. It enables harmonious functioning and on-time delivery to your consumers. There are several ways to improve your order cycle optimization:
- Reduction of travel time
It is one of the easiest methods to shorten your order cycle time. You can complete a task in a smaller duration by minimizing the distance traveled. Traveling time tends to increase the time needed to begin the fulfillment process. You can use time better and enhance productivity by choosing centralized locations at optimal distances. Travel being the most significant component of the cycle time, the most optimization ideas can be deployed here to improve efficiency.
Additionally, you can also choose the right times, like early or late hours during the day, to beat traffic and make the best use of time. Slotting SKUs based on your organization’s picking ability can also minimize idle time spent waiting.
- Stocking of material in the right places to minimize distribution time
Accessibility on your shop floor also determines the efficiency of the overall process. Keeping things in inaccessible areas and the time spent idle waiting for the material minimizes your organization’s output and increases the time required to deliver the product to the customers. Resources must be strategically placed such that there is minimal movement on the shop floor. By grouping necessary raw materials close to the area of use, you can significantly reduce unnecessary travel time within the facility. Moreover, it minimizes the risk of hazards and accidents.
Resource location is a threatening issue in smaller organizations. These must be adjusted and aligned as it grows to improve overall strategy and reduce the order cycle time.
- Avoiding idle resources
While orders are processed, the goal is to ensure that picking, packing, and shipping are as simple as possible. Thus, loading several orders into one area already occupied with a large amount of work will only increase your order cycle time. Furthermore, it increases the risk of damage and hazard, causing you a loss.
Throttling the orders to diverse areas that are free can help you organize better and keep things simpler. Order management systems allow you identify spaces that are not as busy at any given instance so that you can channel your sources and finish orders seamlessly. Another way to distribute workload across multiple areas while reducing clogging is to spread faster-moving products throughout the picking area. This should improve workflow efficiency.
- Understanding order profiles
Understanding your order profiles allows you to easily create and develop strategies that enable efficient work functions and finally ship them. Wave picking tactics are simply one of the easiest methods to boost efficiency exponentially. It allows you to create workflows that enable easy routing of personnel and resources and minimizes the order cycle time. Irrespective of the fact that every organization has its aspects and challenges, the picking strategy remains unique. It determines the overall time needed for fulfillment.
- Embracing technology
Running out of stock is one of the biggest blunders of any production line. In the worst-case scenario, it can completely shut down all operations. It gives rise to a massive roadblock and a large amount of idle time that decreases your productivity and extends your order cycle time. It makes you lose out on on-time delivery to your customers.
Avoiding stock-outs using technologies and software that automatically track your inventory needs can help optimize your order cycle. These platforms remind and notify you when a reorder is needed with sufficient lead time. Warehouse management systems combined with inventory management systems can quickly help prevent this blunder and keep your productivity up.
How to Calculate the Order Cycle?
The order cycle can be easily calculated using the formula given below:
Order Point = Approximate Lead Time * Demand per Day + Present Safety Stock
Before placing a reorder for resources, you should have sufficient supply to meet the demands of your current orders. You mustn’t run out of things during production. It is also essential to ensure that you have sufficient safety stock in hand to cover all your bases. The reorder formula is given below:
Reorder Point = Average daily usage rate * Lead time + Present Safety stock
- How to reduce the delivery time of an order?
- Increasing the inventory visibility can minimize the delivery time using expedited delivery, direct vendor-to-consumer shipment outsourcing transport requirements, etc.
- What is the length of an order cycle?
- An order cycle begins when the first order is placed and ends when the next order is placed. The cycles are the total number of order cycles completed in one year.
- How do I improve my order fulfillment cycle time?
- You can easily improve your cycle time by Analyzing the Warehouse Flow. Placing resources optimally can easily streamline all your processes and ensure your efficiency is at its highest.
- How can a reduction in cycle time lead to improvements?
- Cycle time reduction enables the producers to detect and eliminate all the roadblocks that arise during manufacturing. The elimination of backlogs in work in the process helps you make improvements in your fulfillment cycle.
- What factors affect order cycle time?
- Both internal and external factors govern cycle time. The controllable elements that improve cycle time include capacity constraints, manufacturing congestion, labor, product quality, inventory surplus, etc.