Lead Time

Lead time is the time that passes from the beginning of a process to its finish. Usually companies review lead times in project management, supply chain management, and manufacturing. Simply put, lead time is the time it takes for a piece of work to make its way through one’s entire workflow.

Reducing lead time results in improved productivity and operations, and increased revenue and output. On the contrary, longer lead time has a negative effect on the manufacturing process and the number of sales.

Lead time explained

Lead time can be influenced by inventory management. Completing the building elements of a finished product offsite may take less time, than building those elements onsite. The return of investment (ROI) and production output can be reduced if transportation issues result in a delay in delivery of important parts. This delay leads to delays in production.

In order to reduce speed of production, manufacturers can use local labor and also the needed parts that are sourced locally. Offsite sub-assemblies can also help producers save extra time. Decreasing production speed helps companies increase production during periods of heavy demand. Rapid production can greatly increase sales volume, and customer satisfaction as well as the company's bottom line growth. 

In order to keep up with production schedules, every company needs effective inventory management. Stockouts can happen when stock or inventory is unavailable. In case of a stockout product assembly gets halted and the lead time is prolonged. If an organization orders the amount of stock that is less than the amount of stock needed, production will be terminated. This can be expensive for the bottom line of a company. The longer the lead time, the more negative effect it has on customer satisfaction.

Using a vendor-managed inventory (VMI) program can be one of the solutions for maintaining effective management of the obtained inventory. VMI programs use just-in-time (JIT) inventory management to deliver and order components that production is in need of. 

From a technical point of view, lead time consists of four parts:

1. Cycle time. Cycle time is the value-adding time in a process;
2. Wait time. The time that a customer spends waiting for the service;
3. Non value added. The example of that is time spent fixing problems/defects in the product;
4. Business value added. Preparation of certain documentation, which the client is not requesting, but the business has to do it for legal/regulatory reasons.

Special considerations

It might be difficult for companies to predict when to expect item delivery, since the lead time is different in different supply chain sources. More often than not, it leads to excess inventory, which becomes an overwhelming burden on a business’s budget.

Scheduling lead time helps all the needed components to arrive in an appropriate time and to reduce the cost of shipping. Sometimes forecasting lead time delays can be hard to predict. There are many issues that can change lead times, including natural disasters, unprocessed material shortages, and human-caused errors. Sometimes, a company may hire an extra supplier in order to maintain the manufacturing process. Working with a backup supplier can help businesses avoid problems that may arise from accidents during the production process.

Keeping a supply of needed parts may be too expensive for companies. In order to solve this problem companies can resort to using kitting services, which can help organize company’s supplies. Using kitting services also helps to make the production process more efficient and organized. 

Example of lead time

Suppose that there is a large annual festival that takes place during the second week of June that usually attracts 150,00 people, and as a rule sells 30,000 helium festival balloons. The vendor needs one day to purchase the balloons and another day to ship the balloons. Since waiting for the balloon inflation service to finish inflating the balloons takes only a bit of time, it can be done just before the start of the festival. In this case the lead time would be two business days. So, the people who organize the festival need to place the order for the balloon supplier two business days before the festival 

Of course, there can be additional factors that can affect lead time. If the festival organizers decide to employ a balloon artist, they will need an extra day to find an artist who would create shapes from the inflated balloons during the festival. In this case the lead time would be at least three business days.

Components of the lead time

The main components of the lead time include waiting, transportation, inspection, pre-processing and processing.

Lead time in supply chain

Lead time can be summarized as the latency between the initiation and competition of the process. In a supply chain, lead time is usually involved whenever goods are purchased, transformed, or serviced.