Operations
Lead time
The time from placing an order to receiving it.
Last reviewedWhat does Lead time mean?
Lead time is how long it takes from placing an order until the goods arrive and are ready to use. Longer or less reliable lead times force a business to hold more inventory, commit to orders earlier and forecast further ahead. Example: a fashion retailer sourcing from Asia with a 16-week lead time must order winter coats in summer. Moving part of production closer to home to cut lead time to 4 weeks lets it reorder only what sells, which cuts markdowns, even at a higher unit cost. In a factory, lead time can also mean the time to make a product from order to finish.
Where does it come up in case interview prep?
Related terms
- Safety stockExtra inventory held to protect against demand spikes or late deliveries.
- Landed costThe full cost of getting a product to your door, not just its purchase price.
- MarkdownA lasting price cut to clear stock that is not selling.
- Bullwhip effectSmall changes in shopper demand grow into large swings in orders further up the supply chain.
- BottleneckThe slowest step, which limits the output of the whole process.
- Capacity utilizationActual output as a share of the most that could be produced.
- Little's lawItems in a system = arrival rate × time each item spends in it.
- Inventory turnoverHow many times stock is sold and replaced in a year.