how to calculate lead time
lead time can be broken in several different components the pre processing the processing and the post processing these may be defined or stated differently but the general formula to calculate lead time is lead time pre processing time processing time post processing timefor a manufacturing company the pre processing time is the procurement stage where raw materials are sourced and delivered to its manufacturing headquarters or processing plant the processing time is the manufacturing stage the post processing time is the stage of processing the order and delivering the final good to the customer lead time for manufacturing company procurement time for raw materials manufacturing time shipping timefor a retail company there is no manufacturing time as the retail firm does not manufacture its own good in addition the procurement time is different as instead of procuring raw materials it sources final products to then sell directly to customers lead time for retail company procurement time for final products shipping timelead time and supply chainthe lead time varies among supply chain sources causing difficulty in predicting when to expect the delivery of items and coordinating production frequently the result is excess inventory which places a strain on a company s budget lead time scheduling allows for the receipt of necessary components to arrive together and reduces shipping and receiving costs some lead time delays cannot be anticipated shipping obstructions due to raw material shortages natural disasters human error and other uncontrollable issues will affect lead time for critical parts a company may employ a backup supplier to maintain production working with a supplier who keeps inventory on hand while continuously monitoring a company s usage helps alleviate the issues resulting from unanticipated events stockpiling necessary parts may be cost prohibitive but reducing the number of surplus parts also helps place a ceiling on production costs one solution is for companies to use kitting services to organize their inventory with kitting services inventory items are grouped based on their specific use in the project workers save time choosing from smaller lots of parts keeping production more organized and efficient using offsite assembly in overseas markets instead of shipping completed goods can help companies save money on tariffs the importance of short lead timeshort lead time is important as it impacts the financial emotional and operational aspects of a company and its relationship with its customer several specific examples of the importance of short lead time include 