Lead Time
Definition
Lead time is the elapsed time between initiating a process, such as placing an order, and its completion, such as receiving the goods. It is one of the most important inputs to inventory, planning, and customer promise decisions.
In Practice
Lead time comes in several flavors: supplier lead time (order to receipt), manufacturing lead time (release to finished goods), and customer lead time (order to delivery). Total replenishment lead time often includes overlooked components like order processing, quality inspection, and customs clearance, which is why measured lead times usually exceed quoted ones.
Lead time drives how much inventory you must hold. Both the average and the variability matter: safety stock formulas scale with lead time length and its standard deviation, so an unreliable 30-day supplier can be more expensive than a consistent 45-day one. Long lead times also force you to commit to forecasts further out, where they are least accurate.
An importer buying from Asia with a 75-day door-to-door lead time must order spring product in December, betting on a forecast made a full season ahead. Cutting that lead time shrinks both the bet and the buffer.
Related Calculators
Related Terms
A stockout occurs when inventory of an item is exhausted and demand cannot be met from available stock. It results in lost sales, backorders, expediting costs, and eroded customer trust.
Supply PlanningSupply planning determines how a company will meet the demand plan: what to make or buy, in what quantities, where, and when. It translates forecasted demand into production schedules, purchase plans, and inventory targets.
Just-in-Time (JIT)Just-in-Time is a production and replenishment approach in which materials arrive only as they are needed, minimizing inventory throughout the system. It originated in the Toyota Production System.
Bullwhip EffectThe bullwhip effect is the amplification of demand variability as orders move upstream in a supply chain, so small changes at the consumer level become large swings for manufacturers and raw material suppliers.