Also called supplied lead time, vendor lead time is the time elapsed between supplier order placement and order delivery at the warehouse, factory, or retail store. The vendor lead time usually comprises shipping or transit time and time spent on inspecting products received at the company entry point. Manufacturers or sellers must know their vendor lead time as the number will help plan reorder schedules.
For instance, if a company’s base inventory level is 1000 units, the number of units sold daily is 1000 and it takes 5 days for 5000 units to arrive in the store or factory from the date of order, the company must order a refill when it has 6000 units in storage. This ensures by the time the stock depletes to 1000 units, the new order arrives and the inventory is replenished.
To accommodate any supplier-side delays and ensure there’s no lost sales due to stock unavailability, the reorder should be placed a few days before the in-house stock comes down to 6000 units. On the other hand, a reorder placement several days before the due date will cause overstock issues. In other words, lack of or inaccuracies in vendor lead time planning will result in increased warehousing costs and decreased net profits.