The lead time definition refers to the amount of time that passes between the beginning and the end of a procedure. It refers to the period in production between placing an order and getting the finished product. Lead time may also be used to describe the period between beginning production and delivering the finished product to the client. The lead time is important for customer satisfaction, inventory management, and cost control. To remain competitive, a company should strive for a short lead time. This glossary article covers the components, types, and benefits of lead time.
Components of Lead Time
Lead time consists of multiple components of time. Each component represents a stage in the production and delivery process. All the below-mentioned times sum up to the total lead time.
- Order Processing Time: The amount of time needed to process an order after it has been placed.
- Production Time: The amount of time needed to create or produce a product.
- Shipping Time: The amount of time that passes between the product’s completion and readiness for shipping and its arrival at its destination.
- Queue Time: The amount of time a product must wait in line to be processed through several phases.
- Transit Time: The amount of time, including shipment or delivery time, needed to move something from one location to another.
Types of Lead Time
Different industries can calculate lead time in various ways. For example:
- Manufacturing Lead Time: This is the total time that it takes from an order that has been placed or production that has begun to when the product is completed and ready to be delivered or shipped.
- Order Lead Time: This refers to the total time it takes from when a customer places an order until the order is completed and ready for delivery or shipment. It is closely related to but distinct from manufacturing lead time.
- Supply Chain Lead Time: This is the total time it takes for a product or raw material to move through the supply chain.
- Customer Lead Time: This is the time from when a customer places an order to when they receive the product.
- Procure Lead Time: This is the time it takes to acquire raw materials, components, or products from suppliers. It starts when a company places an order and ends when it receives and prepares the order for production.
Benefits of Lead Time
The lead time should be as short as possible in order to achieve customer satisfaction, inventory management, and cost savings. The reduction of lead time can be very beneficial for a business. A few key benefits are the following:
- Increased Customer Satisfaction: Shorter lead times turn into faster delivery. Ultimately, this affects the satisfaction of consumers.
- Enhanced Efficiency: Lead time optimization reduces waste and inefficiencies in the production or supply chain by streamlining procedures.
- Improved Inventory Management: Companies can save storage costs while maintaining demand by keeping lead times shorter and inventory levels lower.
- Increased Competitiveness: By enabling a business to react to market needs more rapidly, faster turnaround times can provide a competitive advantage.
- Savings of Cost: Cutting lead time can save operating costs, including personnel, storage, and transportation expenditures.