Lead Time

The total time between placing an order with a supplier and receiving the goods ready for sale. Lead time includes production, quality control, and shipping.

Long lead times create cash flow and stockout risks. If your lead time is 60 days, you must forecast demand 60 days ahead or risk running out of stock. Reducing lead times or holding buffer stock are two ways to manage this risk.

Your supplier takes 15 days to manufacture and 30 days to ship by sea. Lead time is 45 days. You run out of stock faster than expected. Your next order will not arrive for 45 days. You lose £12,000 in sales during the stockout.