Lead time is the total time between when a customer places an order and when the order is delivered. In logistics and warehouse systems, it helps managers understand how quickly goods move through picking, packing, dispatch, transit, and final delivery. Shorter and more predictable lead times improve customer satisfaction, reduce uncertainty, and make inventory planning easier.
Measuring lead time also reveals where delays happen in a supply chain.
Key Facts
- Total lead time = order processing time + picking time + packing time + dispatch time + transit time + delivery time
- Order cycle time often measures the time from order placement to customer receipt.
- Average lead time = sum of all lead times / number of orders
- Lead time variability = how much actual lead times differ from the average.
- Safety stock increases when lead time or demand becomes less predictable.
- Reorder point = average demand during lead time + safety stock
Vocabulary
- Lead Time
- Lead time is the total elapsed time from the start of a process, such as a customer order, to its completion, such as delivery.
- Picking
- Picking is the warehouse process of locating and collecting items from storage to fulfill an order.
- Dispatch
- Dispatch is the stage when a packed order is assigned to a carrier or vehicle and sent out for delivery.
- Transit Time
- Transit time is the time a shipment spends moving from one location to another.
- Safety Stock
- Safety stock is extra inventory held to reduce the risk of stockouts caused by demand changes or lead time delays.
Common Mistakes to Avoid
- Counting only transit time as lead time is wrong because lead time also includes order processing, picking, packing, dispatch, and delivery steps.
- Using the average lead time without considering variability is risky because two systems with the same average can have very different delay patterns.
- Ignoring warehouse delays is a mistake because slow picking or packing can add as much time as transportation delays.
- Setting the reorder point without including safety stock is wrong because unexpected demand or late shipments can cause stockouts.
Practice Questions
- 1 An order takes 2 hours to process, 3 hours to pick, 1 hour to pack, 4 hours before dispatch, 36 hours in transit, and 2 hours for final delivery. What is the total lead time in hours?
- 2 A warehouse recorded lead times of 4, 5, 7, 6, and 8 days for five orders. What is the average lead time?
- 3 A company has a low average lead time but frequent random delays at the packing stage. Explain why this can still create inventory and customer service problems.