Lead Time – Definition, Examples, and Importance

Lead time can be defined as the total time elapsed between the initiation of a process and the completion of the process.

What is Lead time?

Lead time is the latency between the initiation of a process and the final production of the product. Lead time plays an important role in the success of a business. because of this reason companies pay duly attention to the lead time in the manufacturing process, supply chain process, etc. the manager compares the lead time with the standard lead time of a process and take corrective actions if there is the difference between standard lead time and current lead time.

Lead time impacts the performance of businesses, especially the manufacturing processes and inventory management makes the biggest portion of the lead time. The lead time starts as soon as an organization receives an order then the manufacturing of product and transportation of product from the manufacturing house to the doorstep of the customers makes up the total lead time.

An organization that takes the lowest lead time in delivering the product after the order is placed with the organization is considered efficient. Reduced production time increases the productivity of the organization and helps in generating more revenue. However, lower lead time can result in expensive production as a company has to either adopt automation methods which lower the production time or it has to continue its production process day and night.

This results in the increased cost of production and it will directly impact the price of the product. therefore, companies that deliver products in less time usually charge more than the other companies. Therefore, a fast production process helps in providing satisfaction to customers and to generate more and more profit.

Another factor that impacts the lead time is inventory management. Inventory means keeping the stock of goods and things that a company wants to resell. Effective inventory management makes the right prediction of the demand for the product in the future and keeps them ready for the peak period.

In addition to the production process and inventory management, one more factor which impacts the lead time is supply chain management. Supply chain management deals with movement and storage of raw materials and goods required for the production process and the movement of finished goods from the production site to in the hands of the customer.

Problems in the supply chain management cause delay in the production process because of the delay in the delivery of raw material required for the production process or worse when the final product manufactured on time be could be delivered on time because of the delay in the delivery.

Production lead time

Most of the part of lead time is made up of the production process. production lead time begins as soon as an order is a place with the organization. The production process consists of various activities such as order preparation time, queue time, set up time, run time, inspection time, move time, and put away time. The faster all these activities are performed lesser will be the production lead time.

There are various factors that increase production lead time such as the supply of raw material. The production process will halt in the absence of the raw material and it can only be resumed after the raw material is delivered. This problem can be solved by applying the proper inventory control, which means the inventory manager keeps raw material in the storage so that the production process does not stop. This requires placing an order at the right time so that material can be availed whenever required.

In addition to this, the production process time can also be reduced by adopting automation. Automation helps in fast the production process. All the work which was before done manually can be done using an automated machine, which reduces the production time significantly.

Examples of Lead time

1. let us understand the lead time with the example of an online business. An XYZ store places an order for printed t-shirts on an online website named ABC for giving to its customers as a present. The company makes the estimation that around 10,000 people will arrive in their store for shopping. Therefore, they place an order of 10,000 printed t-shirts. The website owner took around 3 days to deliver the 10,000 t-shirts. However, on the first day, 80% of the t-shirts were given out and store managers decide to place an order for more t-shirts in the hope to get extra stock by the next day. If the seller of the t-shirts has already kept stock ready then he will be able to deliver the t-shirts as demanded otherwise, he would need more time to get the stock ready. Otherwise, the seller can keep plain t-shirts in the stock and print them and deliver them in one day.
2. Another example of lead time is when you order food on Food App like Swiggy or Zomato. The lead-time begins as soon as you place an order on the app and the production lead time starts when the restaurant accepts the order and start preparing your food. Once the food is ready the food delivery boy picks your food delivery from the restaurant and the delivery lead time begins when the food is picked by the delivery boy. These all lead times make the total lead time. Similarly, when you go to a restaurant to eat out. The total lead time consists of time taken for order placement, queue time, food preparation time, and getting the food on your table.

Importance of lead time

1. Lower lead time helps in satisfying customers, as customers want products of good quality to be delivered as soon as possible. Because of this reason customers prefer to order from vendors that deliver food at the lowest time.
2. Lead time plays an important role in keeping the inventory. if a company has the estimation of manufacturing lead time then accordingly, they can place an order for more material and there will be low chances of shortage or excess of material in the inventory.
3. lead time is used as a USP to attract customers. as more and more customers prefer good quality products as soon as possible.
4. Lead time gives the estimation to a company how many products will be prepared and delivered at a particular time. By increasing the speed they can improve their revenue generation.
5. Lead time helpful in reducing the wastage of inventory. As manager will order the inventory as required at a particular point of time rather than keeping the excess material in storage.

How to reduce Lead time?

1. Keeping the right idea of stock required for the manufacturing process.
2. Use good machinery and equipment for the production process.
3. Reduce the supplier lead time by supplying from a local supplier.
4. Use faster shipping methods.
5. Sell good quality products, this will help you in reducing return lead time.
6. and last but not least, try to forecast accurately and plan your work to deal with the sudden occurrence of any expected event.

Liked this post? Check out the complete series on Operations Management