Economics/Business

What is lead time in business/Advantages/Calculation/Example

What is LeadTime?

Lead Time in business  is the time used to run the entire production cycle – from a customer‘s order to the delivery of the product. This involves a series of processes, such as the transformation of raw material into product, purchasing, production logistics, company administration, etc.

It is important to point out, however, that the lead time of the customer and the company can be different. 

While the lead time in business in the customer‘s view is the time from the moment of purchase to receipt of the order. For the company, the lead time is more detailed, as it involves all stages of the production and logistics process – and how long each of them takes.

In practice, the company must consider these two perspectives when analyzing lead time , but keeping in mind that customer satisfaction does not always indicate an optimized lead time .

What are the Advantages of Measuring Lead Time?

To measure lead timein business  , the manager of a company needs to map all its processes, then analyze them. That is, even before the lead time is calculated, it is already bringing advantages to the business, since this analysis of steps helps to identify errors and points for improvement.

Once calculated, lead time is a great ally of supply chain planning and management . 

Knowledge about it helps structure the purchase of materials, determine the right time for new purchases and provide more accurate delivery times for the customer, which can contribute to a positive shopping experience.

These are some of the advantages of measuring production lead time :

  • process standardization: by working with lead time , you can optimize and standardize processes, which can help the company to have more results and fewer errors;
  • increased productivity: with standardized processes and optimized logistics, it is natural that all work becomes more efficient;
  • higher product quality: mapping processes to calculate lead time is the perfect opportunity to apply improvements and make production even better;
  • customer satisfaction: in the end, all this impacts the customer experience, which is increasingly demanding both in terms of quality and deadlines;
  • more competitiveness: delivery is today one of the main differentiating factors at the time of purchase. According to Reclame Aqui, 64% of consumers have already given up on a purchase because of the cost of shipping and almost 19% have done the same because of the delivery time.

How to Calculate Your Business Lead Time?

Now that you know what lead time is and how important it is to the business, it’s time to learn how to calculate it. 

List All Processes and Inputs Used for Production

As we said, process mapping is the first step in the lead time calculation . This is because, in order to know the total production time, it is necessary to individually measure the time of each step. 

This step will also help you understand which processes are faster or slower in your flow!

Then it is also important to list all the inputs used for production. Make a list of everything that was requested by the company for the operation, considering raw materials, operational inputs, repairs, maintenance and installations necessary for the completion of the product.

Analyze Delivery Time for Acquisition of Each Item

Now it’s time to understand how long each of those items ordered by the company takes to arrive – and don’t forget to consider possible unforeseen events. 

If your suppliers only work on working days, consider this when doing the math, so you don’t find a result that doesn’t correspond to reality!

Identify the Item With Longest Delivery Time

Items that have the longest lead time should be highlighted in your list. If you have inventory for the start of production, set the lead time to one day for the manufacturing of items to begin.

Define the Time Required for Production and Delivery of Each Product

To understand how much time is needed, you need to consider several factors, such as average production time, breaks, holidays and weekends, and even the state of the machines – after all, if they need to stop for maintenance, production time will increase.

Include the Ideal Time for the Consumer to Receive the Product

In addition to the time required for the product to be ready, be sure to consider the delivery time, that is, the number of days or hours that the product takes from your company to the customer – add the collection time to the travel time. to get to the final result.

Lead Time Calculation Example

To make it easier to understand how to calculate lead time , imagine that a cosmetics company received an order for a lot of moisturizing lotions on a Monday. 

The manager promptly began to calculate the amount of raw material needed to produce the moisturizers, seeking to reconcile his deadlines with those of the suppliers.

Then it highlights the item that has the longest lead time of all. Let’s assume that this period is 7 days. 

And as he needs to have all the items on hand to start producing, he considers that the time to start production is 7 days. In addition, he must add another two hours for the receipt of inputs, conference and inventory.

To make all the ordered products, the factory needs another 3 days. Then the product spends another 2 days on its way to the customer

Therefore, to calculate the lead time of this order, it is necessary to add:

  • 7 days for product delivery;
  • 2 days of the weekend that takes place during the delivery period of the inputs (assuming that the factory does not operate during this period);
  • 2 hours of conference and inventory;
  • 3 days of production;
  • 2 weekend days after production;
  • 2 days for delivery.

That is, the lead time for ordering moisturizers is 16 days and 2 hours.

How to Optimize Lead Time?

A low lead time indicates that your company has optimized processes and increases the chances of customer satisfaction. 

Here are some tips that will help reduce this number:

  • develop workflows: when all steps are planned, they can be performed more efficiently and conveniently;
  • create productive patterns: this facilitates the team’s work and reduces the incidence of errors;
  • maintain a good relationship with suppliers: this way it is possible to negotiate terms, prices and payment methods;
  • invest in technology: it can help to understand which are the points for improvement and make the entire management more agile and transparent.

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