The lead time is the total delay between when a need is triggered, an order is placed, a manufacturing order is launched, and its actual fulfillment, that is, the receipt of the goods or delivery to the customer. It covers all the intermediate times involved: administrative processing, production, transport, inspection.
Several lead times along the chain
Several lead times are generally distinguished depending on the link in the chain. Supplier lead time (or procurement lead time) is the delay between sending an order to a supplier and actually receiving the goods. Manufacturing lead time covers the time needed to produce an item once its launch has been decided. Customer order lead time measures the delay between the final customer placing an order and its delivery. These different lead times can stack up across several bill-of-materials levels to produce an overall end-to-end lead time, often longer than the simple sum of the individual delays because of queues and production batches.
Lead time is an essential input for sizing safety stock and for MRP/DDMRP-type calculations: the longer it is, the greater the uncertainty over the demand to be covered during that period, and the larger the buffer stock tends to need to be to maintain a good service rate. Reducing lead time, through a closer supplier, faster transport, or automating internal flows, therefore often makes it possible to reduce stock while improving responsiveness, without degrading customer service.
FAQ
What is the difference between lead time and delivery time?
Delivery time most often refers only to the transport time to the customer. Lead time is broader: it includes all the intermediate steps from the moment a need is triggered (order, manufacturing order) through to final receipt, transport included.
Why does lead time influence safety stock?
The longer the lead time, the longer the period that needs to be covered by stock in case of demand variability, which generally increases the safety stock required to maintain the targeted service rate. Reducing lead time therefore often makes it possible to reduce this buffer stock.
Related terms
Safety stock · MRP / DDMRP · S&OP / PIC · Scheduling · Service rate · OTIF.
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