In an ideal world, things would happen when you snap your fingers. But you know that it never works that way in reality. There’s always a delay — getting from point A to point B takes effort and, more importantly, time.
To plan anything effectively — whether it’s a project or a production process — you need to understand how long it takes to go from starting line to the finish line. That span of time? It’s called lead time.
Lead time definition: What is lead time?
As you look for a clear lead time meaning, you’ll quickly learn that the term seems to mean something different to everyone. It has almost endless industry-specific definitions and applications.
But, generally speaking, you can think of lead time as the amount of time that passes between the start of a process and the end.
You’ll likely hear about the concept of lead time most frequently in manufacturing or supply chain management. In those contexts, lead time describes the amount of time that passes between when a customer places an order and when the order is delivered to them. Your lead time is how much time you need to receive the order, create the product (whether you’re manufacturing it yourself or relying on suppliers), and deliver it to your customer’s doorstep.
However, lead time is applicable in other smaller or more specific situations, too. For example, it could mean how much time passes between when you order raw materials and when they arrive at your warehouse.
Lead time also comes into play outside of manufacturing. What is lead time in project management? The basic concept still holds water — lead time is how long it goes from project start to project completion.
That’s the straightforward approach, but you can also get more granular with lead time. You might consider your lead time to be the amount of time required to go from an initial project request to kicking off actual work on the project. That’s a time window in which you might need to ask clarifying questions and secure resources, and you’d want to account for those tasks and hours when setting expectations and creating project plans.
You’re probably getting a grasp that lead time itself is a pretty broad concept — and it’s one that’s highly customizable and adaptable to a huge variety of teams, situations, and industries.
Put simply, calculating your lead time is about understanding exactly how much time a given process (honestly, any sort of process) takes so that you can plan for it more effectively.
Lead time vs. cycle time: What’s the difference?
As you learn more about lead time, there’s another similar term you’ll come across: cycle time. Lead time and cycle time are sometimes used interchangeably, but be aware that there actually is a difference between the two. Here’s the gist:
- Cycle time: The time it takes to finish a project. The cycle starts when the project moves to “in progress” and ends when the project is completed.
- Lead time: The total amount of time it takes for the entire process. In manufacturing, that means the time from when an order is received to when it is delivered to the customer. But in a project management setting, your lead time would include all of the phases of project management — from project initiation to project close.
Your cycle time is shorter and fits within your overall lead time. For example, think about the process of creating a single blog post:
- Cycle time: Measures how much time passes from starting the blog post draft to finishing the draft.
- Lead time: Measure how much time passes from receiving the initial article request, doing the keyword research, creating the outline, and writing the draft, to publishing it on the blog.
Basically, think of cycle time as a piece and lead time as the whole puzzle. Again, these are most commonly used in manufacturing or supply chain concepts, but it certainly doesn’t hurt to have a basic understanding of these terms when you calculate your lead time for any sort of process.
How to calculate lead time
If you’ve been doing certain processes for a while, you likely already have a rough idea of how long they take you. You might estimate that six days pass between a customer placing an order and receiving it on their doorstep. Or you might guess that a blog post takes 10 days for your team to create and publish.
But when it comes to lead time, you can’t operate on a hunch or a best guess. It’s important to try to get a solid and realistic grasp on your lead time so that you can:
- Plan projects and tasks more efficiently
- Avoid unexpected bottlenecks and delays
- Effectively allocate labor and other resources
- Set adequate expectations with customers or stakeholders
So how do you calculate lead time? Since lead time is applicable to so many different scenarios, there isn’t one right way to calculate it — different industries and teams use entirely different approaches. Let’s take a look at some of the most common methods for calculating lead time.
How to use the general lead time formula
As it turns out, there isn’t even one tried and true “general lead time formula” that applies across the board — or even to one industry. Manufacturing, for example, has a few different lead time formulas that can be used. The simplest (and arguably most common) one looks like this:
Lead Time (LT) = Order delivery date − order request date
So, if a customer placed an order on March 2 and received it on March 7, you’d plug that into the formula like this:
LT = 7 − 2
You don’t need to be a math whiz to solve that equation. The answer is five, which means your lead time is five days.
Keep in mind that manufacturers and retailers typically have different lead times for different products, as they often have varying timelines for product fulfillment, specifications, shipping, and more. For example, your lead time to deliver a pre-printed coffee mug might be five days while your lead time to deliver a custom coffee mug might be nine days.
That’s the most straightforward lead time calculation, but there are other formulas that incorporate other more nuanced pieces of the process. Here are a few other examples:
- LT = Manufacturing time + procurement time + shipping time
(Most commonly used by manufacturers responsible for producing products) - LT = Procurement time + shipping time
(Most commonly used by retailers responsible for securing and delivering products)
The above types of equations use the basic approach of taking every single part of the process and simply adding them together. And that’s probably the easiest way to think about calculating lead time in any context: determine how long each step of the process takes and then add them.
Seems straightforward enough, right? However, things become a little more complicated when you’re calculating lead time in order to effectively manage your inventory and ensure you don’t run out of product.
When it comes to inventory management there are a few other aspects to consider: your reordering delay and your safety stock. You can use those two factors together to identify your ideal reorder point, meaning the exact time when you should place an order for more inventory.
Understanding your reordering delay
Your reordering delay is the amount of time it takes for a supplier to accept and process your order — which, in some cases, can add a decent chunk of time to your overall lead time.
Let’s clear this up with a simple lead time example. Imagine that your company sells athletic wear. You manufacture the items yourself but, to do so, you need to source your fabrics from a supplier who then accepts the fabric order, processes it, and ships the fabrics to you.
It can take suppliers some time to accept orders, particularly during busy seasons. So, if it takes your supplier three days to even start working on your fabric reorder, that’s your reordering delay. That’s an additional three days that should be accounted for in your lead time — and an additional three days that your existing inventory needs to last for.
Understanding your safety stock
If the past few years of a pandemic and relentless supply chain disruptions have shown us anything, it’s that inventory can be tough to manage — and having the right safety stock can provide some much-needed peace of mind.
Think of your safety stock like your buffer or your safety net. It’s essentially your “backup” stock that you can tap into if you experience supplier delays, an unexpectedly large order, or any other unanticipated events that could throw your inventory off track.
With that said, you don’t want to have a warehouse full of safety stock. That’s inventory that might not get used — which equates to wasted dollars.
Calculating your safety stock can be a little more complex, and there are a few important pieces of information you’ll need about the specific product:
- Maximum number of that product you’ve ever sold in a day (this is called “daily use”)
- Maximum lead time for that specific product
- Average number of that specific product you sell per day
- Average lead time for that specific product
Once you have that information, you can use this basic safety stock formula:
Safety stock = [Maximum daily use x Maximum lead time] − [Average daily use x Average lead time]
So, sticking with our athletic wear example, you identified the following information for your quarter-zip running top:
- Maximum daily use: 119 tops
- Maximum lead time: 13 days
- Average daily use: 95 tops
- Average lead time: 8 days
Here’s what your safety stock formula would look like with those digits plugged in:
[119 x 13] − [95 x 8] = 787 “extra” tops you’d want to keep on hand for your safety stock
How to calculate your reorder point
Ideally, you don’t need to tap into your safety stock — or, at least, you only need to do so very sparingly. And the best way to make that happen is to identify your reorder point, which is essentially the lowest stock level your product can reach before you should get a nudge to order more.
Since you’ve already done a lot of the legwork, the formula for calculating your reorder point is pretty painless:
Reorder point = Average daily unit sales x Average delivery lead time + Safety stock
Let’s run this for the same athletic tops we mentioned above. Here’s what that would look like:
[95 x 8] + 787 = 1,547
So, when your inventory of that specific running top reaches 1,547, you know it’s time to place another order — so you can have what you need for your customers, without ever running out.
3 other things to consider when calculating lead time
Feeling like you just walked out of high school algebra class? We don’t blame you — there’s a lot of math involved in figuring out your lead time, but it’s important to ensure that all of your timelines and plans are based on reality rather than best guesses.
We’ve covered the basic terms and calculations, but let’s take a look at a few other important considerations when figuring out your lead time.
1. Don’t skip the details
If you’re in manufacturing specifically, there are a couple more terms you’ll need to add to your lead time glossary:
- After receipt of order (ARO): Indicates that when the order is received is when the timeline or the countdown — whether that’s for payment, delivery, or something else — officially begins.
- Manufacturing lead time: The amount of time it takes for a manufacturer to produce and ship the goods. It’s particularly relevant for retailers who don’t manufacture their own products and rely on third-party manufacturers to send the products to them, so they can send them to customers. Retailers need to account for manufacturing lead time when calculating their total lead time.
2. Review actual data
To be as helpful as possible, your lead time calculations need to be as accurate as possible. That means you can’t rely on assumptions and guesses.
Comb through reports to get a more realistic grasp on how long things take. You might look back at your project management dashboard and realize that a typical blog post draft takes three days — and not one day like you originally estimated.
3. Build in a buffer
You know the old saying about best-laid plans, right? They fall apart — and that’s why it never hurts to pad your lead time calculations just a little bit.
Don’t go too overboard here, as accuracy still matters. But you’d rather err on the side of estimating a higher lead time and delivering early than estimating too low and dealing with missed deadlines and disappointed customers. It’s always better to underpromise and over-deliver, rather than the other way around.
4 strategies to minimize lead time
Understanding lead time is an important part of the process, but the real magic happens when you start to figure out ways to minimize your lead time. Doing so means you can streamline your operations and get products or projects across the finish line even faster.
Because lead time means so many different things in different industries, there also isn’t one default way to reduce it. However, there are several strategies that have proven effective and are worth a try.
1. Optimize your supply chain
For manufacturers specifically, there could be some fat to trim out of the supply chain to make it more efficient — and, as a result, reduce lead time. A few ideas include:
- Placing smaller orders from suppliers more frequently, rather than placing sporadic large orders
- Looking for local or regional suppliers so goods don’t need to travel as far to get to you
If you aren’t in manufacturing, you can apply a similar concept to any sort of project process or business process management. For example, maybe you can partner with a freelancer for a specific skill rather than needing to wait for an in-house team member to be available.
2. Manage supplier relationships
Business is all about relationships, particularly when you want to prevent your lead time from getting out of control.
For manufacturers, vendor management could involve incentivizing suppliers to prioritize their orders. In project management, it could mean booking a freelancer on a retainer so you have first priority in their workload.
Regardless of the specifics, it’s all about keeping those bonds strong so that you can get what you need when you need it and lower your lead time.
3. Pinpoint dependencies and simultaneous tasks
Dependencies can throw a whole other wrench into figuring out your lead time — particularly if you’re using any lead time calculation that involves summing up the different parts of a process.
As a quick example, drafting a blog post might take three days while editing takes two days. But editing can’t happen without the draft — it’s dependent on it. So, a delay in the drafting task adds to your entire lead time.
Similarly, it’s also worth looking for tasks and processes that can happen simultaneously. You can’t edit without the blog post draft, but you might be able to design the graphics. That could cut a few days out of your lead time, rather than doing the design tasks only after the draft is done.
4. Automate repetitive processes
And finally, automation helps you work more efficiently — which means you can cut out manual work and minimize your lead time. You don’t need to get too fancy here. You can try things like:
- Using dynamic work request forms so you have all of the details you need for a project upfront, rather than needing to chase them down
- Setting up automatic creation of tasks or assignments so you don’t need to manually set them up in your own project tracking software
- Creating automated reminders that will nudge you when it’s time to order more stock
All of those will help you stay on top of the moving parts, avoid delays, and maintain a reasonable lead time for any sort of project or process.
Wrike is here from product ideation to fulfillment and beyond
Despite the fact that the lead time formula itself is relatively straightforward, calculating your lead time can still feel a little murky. Fortunately, having the right technology on your side can help you move forward with confidence.
Wrike gives you the visibility you need to understand tasks and processes, get a realistic grasp on your lead time, and plan more winning projects. With Wrike, you get access to helpful features such as:
- Custom workflows so you can stay on top of where work currently stands and what’s happening next
- Time tracking so teams can get real data and insights about how long tasks actually take
- Customizable reports and dashboards so you can easily get the historical information you need to make more educated decisions about the future
- Templates so you can simplify and streamline even the most complex processes
While there’s still no easy way to get things done with just the snap of your fingers (that’d be nice, wouldn’t it?), Wrike is the next best thing. Start your free two-week trial today to plan more efficient and successful projects.
