What Is Lead Time?
Lead time is the time from placing an order to receiving it. It's the critical input for any stock replenishment decision.
Key Takeaways
- Lead time is the total time from placing a purchase order to receiving stock in your warehouse.
- It includes production time, freight time, and customs clearance time.
- Reorder points and safety stock must be calibrated to your actual lead time.
What lead time includes
Supply chain lead time is not just shipping time. It includes: supplier production or preparation time (days to weeks), freight transit time (sea freight from China takes 25–35 days; air takes 3–7 days), customs clearance time at destination (typically 1–5 days), and delivery from port to your warehouse. Total lead time from China by sea is typically 35–50 days door-to-door.
Why accurate lead time matters
Your reorder point — the stock level at which you place a new order — must be set to cover demand during the entire lead time. If you calculate lead time as 30 days but it's actually 45 days, you'll consistently run out of stock in the final 15 days of every replenishment cycle. Even one or two stockouts per year on your best-selling products can be extremely damaging.
Lead time variability
Average lead time is less important than lead time variability. A supplier who delivers in 30 days consistently is far preferable to one who averages 30 days but ranges from 20 to 55. Variable lead times make safety stock calculations harder and reorder point planning unreliable. When evaluating suppliers, ask for lead time history, not just quoted lead time.
Reducing lead time
Use air freight for urgent replenishment of fast-moving lines (higher cost, but prevents stockout). Build safety stock to buffer against variability. Develop relationships with local or near-shore suppliers for your most time-sensitive products. Place replenishment orders earlier — hold more stock if the alternative is stockouts on key lines.