Lead time is the interval between determining that an order needs to be placed and the ordered items being available for issue to the end user and includes things such as:
- Time to identify then authorise replenishment;
- Establish supplier contact and complete paperwork;
- Obtain, produce and have the goods delivered;
- Goods inwards/receiving and quality checking time;
- Lead time calculations can be on the basis of:
- The last order lead time;
- Averages over a given period, e.g. 12 months; and
- Running averages.
The lead time needs to be taken into account when calculating order quantities and will include consideration of things such as cost of carrying a safety reserve (‘safety inventory’) balanced against the estimated costs of running out of.
