Also called total lead time or customer lead time, lead time is the time taken to execute a customer order – starting at order placement and ending at delivery. For example, in a restaurant, the lead time starts when the customer orders the food and ends once the food is served on the table. The time needed to prepare the food and make it ready for service is the chef’s cycle time.
Within lead time lies cycle time, transit time, build time, etc. Unlike cycle time, lead time is not completely under the manufacturer or seller’s control since there are many external parties (suppliers, logistics, etc.) constituting total lead time. To reduce lead time or maintain consistency, the stakeholders must be in sync with each other.
Lead Time Breakup
Generally, within a manufacturing sector, lead time is broken down to order processing and procurement, production, and delivery time. Order processing time is the total duration between order placement and the commencement of production work on the order. Production lead time is the time needed to build the product. Delivery lead time is the time a product takes to reach the buyer once its packaged and ready for delivery.
Also, lead times vary across industries and companies. For instance, an Internet-based seller’s lead time is likely to be longer. Also, any delay from the vendor side with regard to raw material procurement or reordering delay inflates lead time. Companies therefore must calculate reorder schedules based on their average lead time.