Operations
Lead time
The time from placing an order to receiving it.
Facts checked against sources onWhat does Lead time mean?
Lead time is how long it takes from placing an order until the goods arrive and are ready to use. Longer or less reliable lead times force a business to hold more inventory, commit to orders earlier and forecast further ahead. Example: a fashion retailer sourcing from Asia with a 16-week lead time must order winter coats in summer. Moving part of production closer to home to cut lead time to 4 weeks lets it reorder only what sells, which cuts markdowns, even at a higher unit cost. In a factory, lead time can also mean the time to make a product from order to finish.
Where does it come up in case interview prep?
- Supply chains explainedLesson in How industries work: the toolkit
- Procurement and sourcing: where the money goesLesson in Sourcing, trade and supply risk
- Inventory and the cost of holding itLesson in Sourcing, trade and supply risk
- Using this in a caseLesson in Sourcing, trade and supply risk
- Lean basics as economics: waste, flow, and the hidden cost of inventoryLesson in Making operations better, and planning for what can go wrong
- Workforce planning: headcount maths, attrition and hiring lead timesLesson in People, rules and responsibility: organisation, regulation and sustainability
- Industrial economics and operations: installed base, OEE and make or buyLesson in Industrial manufacturing, machinery and aerospace
Related terms
- Safety stockExtra inventory held to protect against demand spikes or late deliveries.
- Landed costThe full cost of getting a product to your door, not just its purchase price.
- MarkdownA lasting price cut to clear stock that is not selling.
- Bullwhip effectSmall changes in shopper demand grow into large swings in orders further up the supply chain.
- BottleneckThe slowest step, which limits the output of the whole process.
- Capacity utilizationActual output as a share of the most that could be produced.
- Little's lawItems in a system = arrival rate × time each item spends in it.
- Inventory turnoverHow many times stock is sold and replaced in a year.
Learn it in context
See Lead time at work in a lesson from How industries work: the toolkit, with checks as you go.
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