E-file your Income Tax Returns for FREE

E-file your Income Tax Returns for FREE

Lead Time

Reviewed by Annapoorna | Updated on Jun 10, 2021


Introduction to Lead Time

Lead time is the time taken starting from the origin of a process until its completion. Entities examine the lead time in supply chain management, manufacturing, and project management in the stages before processing, during the processing, and after the processing. They can find out where the inefficiencies exist, by comparing the results against the set benchmarks.

Decreasing the lead time can streamline the operations and enhance productivity by increasing output and revenue. On the other hand, longer lead times affect sales negatively and manufacturing processes. Accordingly, the most-efficient production timelines have the least lead time possible.

Lead Time Explained

Both the production processes and inventory management can affect the lead time. With regards to production, onsite development, all elements of a finished product may take longer than offsite completion. Delivery of essential parts, pausing or slowing production, and cutting down the output and return on investment (ROI) can be caused by transportation issues.

The lead time can often be shortened by sourcing the labour and production parts locally. In turn, it can quicken the speed of production. Additionally, the offsite sub-assemblies can save any additional time.

Shortening the production time allows companies to increase production during periods of high demand. Swifter production can boost sales, customer satisfaction, and the organisation's turnover.

In order to maintain production schedules and meet consumer demand, efficient inventory management is required. Stockouts usually happen when inventory or stock is not available.

Consequently, it prevents the fulfilment of an order or the product assembly. Production ceases if an organisation undervalues the quantity of stock required or is unable to place a replenishment order and vendors cannot provide the materials immediately.

It can be expensive for a company's bottom line. One solution is to adopt a vendor-managed inventory (VMI) program, which gives an automated stock replenishment. These programs usually come from an offsite vendor, using popular inventory management method known as just-in-time (JIT) for ordering and delivering components based on usage.

How to Ensure an Effective Lead Time?

The lead time differs among the supply chain sources, leading to difficulty in the prediction of the time for delivery of items and syncing the production. Often, the result is excess inventory, which strains the organisation's budget. Scheduling lead time allows for the arrival of necessary components together, and reduces the shipping and receiving costs.

Some delays in the lead time cannot be predicted. Raw material shortages, human error, natural disasters, and other uncontrollable issues will cause shipping hindrances and, in turn, affects the lead time.

For crucial parts, an organisation may deploy a backup vendor to maintain production. Working with a vendor who manages the inventory on hand and who also continuously monitors an organisation's usage will help resolve the issues arising from unanticipated events.

Related Terms

Recent Terms