Lead time in the context of production and project management refers to the amount of time that elapses between the initiation and the completion of a process. It starts from the moment an order is placed or a project is conceived and ends when the product is ready for delivery or the project is completed.
In supply chain management, lead time often refers to the time it takes for goods to be delivered after an order is placed with a supplier. It includes time for order processing, production, and shipping.
Understanding and managing lead times is important for businesses as it directly impacts inventory levels, customer satisfaction, and overall operational efficiency. Shorter lead times can contribute to lower inventory holding costs and quicker customer response times, while longer lead times require more sophisticated planning and higher inventory levels to avoid stockouts.
Please note that lead time can vary widely depending on the specific industry, type of product, production capabilities, logistics infrastructure, and many other factors.
Example of Lead Time
Suppose a furniture manufacturing company receives an order for a custom-made table. The various steps in the process include:
- Order Processing: The company needs one day to process the order and plan the production schedule.
- Production: The actual manufacturing of the table takes five days. This includes selecting and preparing the materials, assembly, finishing, and quality checks.
- Shipping: Once the table is ready, it takes three days to pack and ship the table to the customer’s location.
So, in this example, the lead time for the custom table order is:
1 (Order Processing) + 5 (Production) + 3 (Shipping) = 9 days
From the moment the customer places the order to the moment they receive their table, nine days pass. This is the lead time for this order. The company needs to account for this lead time when it communicates delivery expectations to the customer.
Remember, reducing lead time where possible can help a company be more efficient, reduce costs, and improve customer satisfaction. However, it’s also important to ensure that quality is not compromised in an effort to reduce lead time.