Lead time

Lead time is the sum of the time required to place a replenishment order and for a supplier to deliver the ordered goods. A business must maintain a sufficient amount of inventory on hand to keep it from running out before the replenishment order arrives. Thus, a short lead time requires a smaller inventory investment by the ordering entity, while a long lead time requires a larger inventory investment. The lead time issue argues strongly in favor of using local suppliers that can deliver quickly.

Lead time problems can be reduced by using overnight delivery services from suppliers, and by reordering at frequent intervals.

Related Courses

Inventory Management