13. Lead Time Explained
Why Timing Is Everything in Logistics and Inventory Management
In supply chain and inventory management, lead time is one of the most critical — yet often misunderstood — concepts. If you don’t understand lead time, you’ll either run out of stock and lose sales, or overstock and tie up cash.
Let’s break it down clearly and in depth.
What Is Lead Time?
Lead time is the total amount of time it takes from the moment you place an order (or start a process) until the moment the item is delivered or becomes usable.
In other words:
Lead time = Wait time.
It’s the gap between decision and availability.
Types of Lead Time in Business
Depending on context, lead time can mean different things:
1. Procurement Lead Time
Time from placing a purchase order with a supplier to receiving the goods.
Example:
You order 500 units of packaging on June 1st. They arrive on June 15th.
→ Lead time = 14 days.
2. Manufacturing Lead Time
Time it takes to manufacture a product from raw materials to finished goods.
Includes:
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Setup time
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Production time
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Inspection or testing
Example:
It takes 3 days to make a bracelet once all parts are in stock.
→ Manufacturing lead time = 3 days.
3. Customer Lead Time
Time from when a customer places an order to when they receive the product.
This is what customers perceive as your speed — it includes order processing, picking, packing, shipping, and delivery.
Example:
Customer orders on Monday, receives item Friday.
→ Customer lead time = 5 days.
4. Cumulative Lead Time
Total time from start to finish across the entire supply chain — including procurement, production, and delivery.
Why Lead Time Matters
Understanding lead time allows you to:
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Prevent stockouts
You can’t reorder last minute if your supplier takes 3 weeks to deliver.
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Plan production efficiently
If a key component takes 14 days to arrive, your production schedule must account for that.
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Set accurate reorder points
Your inventory system needs to know when to trigger a reorder based on consumption and lead time.
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Improve customer satisfaction
Faster, reliable delivery = better experience, more repeat sales.
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Reduce holding costs
The shorter your lead time, the less inventory you need to keep on hand "just in case."
Lead Time Formula for Reordering
A common formula in inventory management is:
Reorder Point = (Average Daily Usage) × (Lead Time in Days)
Example:
Factors That Affect Lead Time
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Supplier response time – How quickly they confirm and ship
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Production speed – How long it takes to make the product
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Transportation time – Air, sea, or land freight durations
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Customs clearance – For international orders
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Order batching – Delays from waiting to group orders
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Internal processes – Purchase approvals, payment delays, or manual data entry
Each link in the chain adds risk of delay — so the more complex your supply chain, the longer and more variable your lead time becomes.
How to Reduce Lead Time
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Work with local suppliers (less transport time)
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Negotiate better supplier terms (faster processing, prioritized orders)
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Automate ordering (fewer delays from manual approvals)
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Improve forecasting (order earlier, avoid rush orders)
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Use safety stock or buffer inventory for critical items
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Switch to suppliers with better fulfillment speed
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Use faster shipping methods (e.g., air instead of sea)
Lead Time vs. Delivery Time vs. Takt Time
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Lead Time: Time from order to availability
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Delivery Time: Time from shipment to arrival
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Takt Time: The maximum time allowed to produce one unit to meet demand (used in lean manufacturing)
All are time metrics, but serve different roles.
In Summary
Lead time is the heartbeat of your supply chain — it determines how fast your business can react, fulfill, produce, and serve customers.
If you don’t track and plan for lead time, you’re flying blind. If you master it, you unlock faster cash flow, better customer service, and leaner operations.
In logistics, success isn’t just about what you move — it’s when you move it.
