Definition of Lead Time:
« Back to Glossary IndexThe age of online shopping is upon us, and woe to the companies that can’t meet the growing expectations of customers. Whether it’s individual retail shoppers or companies looking for suppliers, your clients expect prompt response to their orders. If you don’t deliver fast enough, they will find someone else that will.
Overview: What is lead time?
The basic definition is simply the time it takes to complete a specific process once it has begun. For businesses, this usually means the time lapse between a customer or client placing an order and them actually receiving the finished product. This can apply to physical goods as well as services rendered.
4 drawbacks of long lead time
As you’ve likely experienced many times in your own daily life, waiting too long for something you’ve paid for is frustrating. When it’s a thing you need to do something important or urgent, like get to work on time, then it’s even worse.
1. Losing customer confidence
Companies with unpredictable or excessive delays in product delivery should expect complaining and angry customers. Depending on the nature of your industry and length of delay, you may lose clients immediately. Unsatisfied customers may also pepper the internet with negative reviews and are unlikely to recommend your company to others.
2. Total system disruption
Failure to manage your supply chain and production time can also lead to the collapse of your entire process. This is a major risk in manufacturing environments, where every step builds upon the last. If one stage can’t be completed due to lack of supplies, for example, then the rest of the plant grinds to a halt.
3. Prevents economic supply purchases
Lack of knowledge or control over lead times means you can’t plan your purchases effectively. Economic bulk-buying of supplies is key to building your profit margins. An unpredictable delivery schedule leaves you constantly scrambling to patch leaks, which usually means you’re making more frequent and less economical purchases.
4. Causes confusion and low morale in workforce
Lack of control in your workflow is a source of stress and confusion in the workforce. This leads to lower morale, less confidence and general lack of productivity. It’s harder to coordinate team efforts and motivate employees in a chaotic workplace.
Why is lead time important to understand?
This concept is crucial to understand because it’s a key efficiency benchmark for your company. Consistent and acceptable time between order and delivery is essential for long-term business health and success.
1. Represents your supply chain control
There are some factors that are out of your control, like global economic conditions or natural disasters, but long lead times usually indicate a lack of knowledge and control on the company’s part. Leaders need to know how long it takes them to deliver on client orders, what standards for industry competitors are and how frequently their company deviates from these metrics.
2. Customer retention and satisfaction
Without customers, your business will perish. Failure to deliver your products or services on time can be more than an annoyance if your customers rely on you as a supplier for their own business. Even a few days delay can cause serious damage to them, so don’t expect them to just forgive and forget if you keep making these mistakes.
3. The domino effect
Even a momentary hiccup in your own supply chain and production process can create a backup, which then causes more and more delays. This kind of domino effect can turn an isolated problem into a widespread disaster. That’s why you need to understand and appreciate the gravity of poor inventory management and crisis planning.
An industry example of lead time
An automotive repair company routinely fixes cars and patches paint jobs as part of their daily operations. They need to apply a primer chemical before every paint job, but they recently ran out and are unable to get more from their supplier until next month. This delay then prolongs the repair jobs for the cars in the shop by several weeks. Many of their customers demand their cars back and take them to a different shop where they don’t have to wait.
In this example, long lead times from the primer supplier caused production delays in the repair shop. The repair shop also made a mistake in that they didn’t manage their inventory ahead of time or have alternative suppliers of primer on hand. Unexpectedly long lead times compelled some of their customers to leave and go to a competitor.
3 best practices when thinking about lead time
Short and predictable lead times are the goal. You should always watch for ways to streamline your workflow to reduce latency between order and fulfillment.
1. Designate an inventory management specialist
Inventory management is an essential task that requires specialized knowledge and clear role responsibilities. Full-time personnel dedicated to this task are likely needed in a larger organization, but smaller companies may want to delegate these duties to an existing position.
2. Drive decisions with lots of data
There are lots of data sources to draw from when dealing with lead times. Historical data about your own processes as well as researching lead times of competitors are both important. Data is how you set informed goals and evaluate your ongoing performance, so gather as much of it as possible.
3. Create crisis and contingency plans
Expect the unexpected. You can be sure that you will face sudden shortages or delays from your own suppliers, which is why you should have contingency plans in place. These practices may include maintaining a set amount of material reserves or staying in contact with alternative suppliers for key resources, even if you don’t use them regularly.
Frequently Asked Questions (FAQ) about lead times
1. What’s the difference between lead and cycle time?
Lead time describes the total chronological lapse between the moment an item appears in the workflow to when it’s discharged to the recipient. Cycle time describes how long it takes for the production process or team to complete a particular item, service or product from start to finish.
2. What factors can cause longer lead times?
There are dozens of possible factors that influence production latency. Common issues include lack of supplies, insufficient manpower, workplace accidents, internal miscommunication and transportation failures.
3. How do you calculate lead times in business?
Lead times are simply the sum of each part of the process from beginning to end. Typically, this figure is the result of adding the time it takes to receive and process an order, length of the production process, and time for delivery of the product or service to the customer.
Don’t let time get away from you
No company is perfect. Delays happen, and sometimes there’s really nothing you can do. However, this should not be the norm in your workplace. You should be the master of your production schedule, so make plans, stay proactive, and be prepared. Short and consistent lead times are a key metric for customer satisfaction, productivity, and success. Don’t take your eyes off of this goal, and don’t let time get away from you.
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