# Lead Time


Lead time is the total elapsed time between placing an order and receiving it. In distribution it spans order processing, supplier production or picking, and transit. Shorter, more predictable lead times let buyers hold less safety stock. Order-entry delays are a hidden part of lead time that automation can remove.

## What makes up lead time

Lead time is the sum of order processing time, supplier handling or production, and shipping transit. Each segment adds delay and variability. Manual order entry quietly extends the processing segment, sometimes by a full day, before the supplier has even seen the order.

## Why lead time matters

Buyers size safety stock and reorder points around lead time and its variability. Faster, more consistent order handling shrinks both the average lead time and its swings, which frees up working capital that would otherwise sit in inventory as a buffer.

## Lead time formula

Add up each stage between order placement and receipt. Measure each stage separately so you can see which one is slow.

```
Lead time = order processing time + production or pick/pack time + transit time
```

## Types of lead time

The term means different things depending on whose clock you are reading.

| Type | Starts | Ends |
| --- | --- | --- |
| Customer lead time | Customer places the order | Customer receives the goods |
| Supplier (procurement) lead time | Buyer sends the purchase order | Goods are received |
| Manufacturing lead time | Production starts | Finished goods are ready |
| Cumulative lead time | First raw material is ordered | Finished product is ready to ship |

## Worked example

A retailer sends a PO on Monday morning. It sits in the supplier's shared inbox until Tuesday afternoon, 1.5 days, before anyone keys it in. Picking and packing take 1 day and transit takes 3 days, so lead time is 5.5 days. Entering the order the same morning removes the inbox delay and cuts lead time by about 27%, without touching the warehouse or the carrier.

## Lead time and the reorder point

Lead time drives when to reorder. The longer and less predictable it is, the earlier the buyer has to order and the more safety stock they hold.

```
Reorder point = average daily demand × lead time (days) + safety stock
```

## FAQ

### What is lead time in supply chain?

Lead time is the time from placing an order to receiving it, covering order processing, supplier production or picking, and transit.

### How can I reduce lead time?

Remove processing delays by automating order entry, and work with suppliers to shorten production and transit. Cutting the processing segment is often the fastest win.

### What is the difference between lead time and cycle time?

Lead time is measured from the customer's point of view, from order to delivery. Cycle time measures how long one step or process takes to complete, such as picking an order.

## Sources

- [ASCM supply chain terminology](https://www.ascm.org)