Lead Time

For inventory decisions the spread of lead time matters more than its average. Two suppliers with a mean of ten days behave differently if one delivers between nine and eleven days and the other between five and twenty‑five: the second forces the buyer to cover the worst case, and that extra stock is paid for every day of the year. Lead time also sets the forecast horizon – demand has to be predicted for the whole period until the next delivery can arrive, so each additional week is another week of forecast error the safety stock absorbs.

• Supplier lead time = order placed → goods received and put away, including order processing, production and transport.
• Replenishment lead time = supplier lead time + review period, the wait until the next order can be placed.
• Lead time demand = average daily demand × lead time in days – the quantity that has to be covered before the next delivery arrives.

Two habits decide whether the number is usable. Lead time is measured from the buyer's own receiving records rather than from the date the supplier promised, because the gap between the two is exactly the risk being planned for. And it is stored as a distribution – mean and standard deviation per supplier and item – not as a single agreed value in the item master. Fixed lead times entered once at go‑live and never revised are a common cause of stock that looks correctly parameterised and still runs out.

Lead time in practice

A long lead time cannot always be shortened, but it can be planned for. In the standard formula safety stock grows with the square root of lead time, so an item sourced from Asia needs several times the cover of the same item from a regional supplier at the same service level – and paying for that cover is cheaper than the stockout it prevents. Veritico STOCK computes lead time per supplier and item from actual deliveries, keeps it current, and feeds its deviation into safety stock alongside forecast error. See demand forecasting and inventory optimization, replenishment and allocation management and the Albert case study.

Related terms

• Safety stock
• Replenishment
• Service level
• Reorder point
• Warehouse management system (WMS)
• Bullwhip effect