Lead Time

Lead time is one of the most important planning parameters in operations management because it determines how far in advance you need to act. If a component has a 12-week lead time, you need to order it at least 12 weeks before you need it in production. If your manufacturing lead time is 3 weeks, you need to start production at least 3 weeks before the customer delivery date. Lead time has several components. For purchased items, it includes the time to create and send the purchase order, supplier processing and manufacturing time, shipping time, and receiving and inspection time. For manufactured items, it includes queue time (waiting for the work center), setup time, run time, wait time (between operations), and move time (between work centers). Understanding these components helps identify where lead time reduction efforts will have the most impact. Lead time directly affects inventory levels and customer satisfaction. Longer lead times require more safety stock to buffer against uncertainty. They also mean longer quoted delivery times to customers, which can cost sales. This is why lead time reduction is a central goal of lean manufacturing. Techniques include reducing batch sizes, improving changeover times, eliminating queue time through better scheduling, and working with suppliers to reduce procurement lead times. Accurate lead times in the ERP system are critical for MRP to produce realistic plans. If lead times are overstated, you will order too early and carry excess inventory. If understated, you will experience shortages.