Lead time is how long it takes from the time you get an order to the time that order processes. Longer lead times can cause bottlenecks and disrupted workflows, while shorter ones can improve customer satisfaction and boost profits. Below, we’ll show you what lead time is, how to calculate it, and the impact it has on your business.
We’ve all heard those stories about the good ol’ days, when everything cost a nickel and the kids were outside playing instead of glued to their phones. But, we also know that our convenient modern life has its perks. Drone deliveries and tech giants have changed how businesses provide their services to customers, and with some packages arriving within hours, it’s safe to say that buyers expect things to move faster than ever before.
Which is why lead time is so important. In order to use effective time management and deliver the right stuff to your customers at the right time, you first need to know how long it takes. This is your lead time. In this article, learn how to use lead time metrics to boost customer satisfaction, improve production and processes, and expedite workflows for faster, smoother deliveries.
Lead time is how long it takes from the time you get an order to the time that order is processed. It's mostly associated with manufacturing, supply chain management, and project management—but it applies to any business that has customers, products, and a sales team. For example, manufacturing lead time would calculate the time between receiving a purchase order to the time it’s in the hands of a customer. Project lead team, on the other hand, begins when an order is received (in this case from the manager) and ends when an employee completes it.
No matter the business or department, reducing the time from order to delivery ultimately means you can process more orders and make more money.
Process time is the amount of time between receiving a purchase order and when it’s passed off to another department or process. Processing time is one part of the total lead time and it can have a big impact.
For example, if your facility processes and packages food items, a delay in processing time could mean your products are late to grocery stores. Because of this, fewer customers are eating your products, which means fewer sales for the stores. If you can’t fix the issue that’s increasing your processing time (say, you’re understaffed with no budget to hire), this could ultimately lead to your products being replaced on store shelves.
To calculate lead time, you need to add together the time for pre-processing, processing, and post-processing.
Pre-process + Process + Post-process = Lead time
Here’s a breakdown of lead time calculation:
Pre-processing: Measure your procurement and ordering times, factoring in potential shipping delays or shortages when necessary.
Processing: Determine the time it takes to fully process an order. Try to factor in every little detail, such as packaging items or employee breaks.
Post-processing: Here, you’ll forecast how long it takes for the customers to have your product in hand. Usually this is your shipping time or, if you’re in project management, this would be the time between completion and implementation.
Lead time touches most aspects of your business. If it’s too long, it can dampen your customer experience, create internal frustrations, and even lead to higher pricing if you try to compensate for the expense of longer production times. Shorter lead times boost profits and keep everyone happy, from supplier procurement all the way down to the customer.
Long lead times rarely happen overnight. Instead, they start as a slow leak. Because while most people want to keep lead times as short as possible, lead time can increase bit by bit without you even realizing. Maybe you made cuts to your team without adding in the technology to boost productivity. Then you felt disorganized, resulting in duplicate orders of raw materials and losing track of the finished product. Months go by like this and suddenly you realize—your lead time has changed dramatically. What at first felt like a few minor missteps has caused significantly longer lead times.
Which is scary. Because here’s the cold, hard truth—your customers will not wait for you if they can get the same services elsewhere. No matter how great your product or offering, there's only so long they will hold out before they seek out your competitor. Bottlenecks and delayed shipping time will cost you in the long run, with disrupted workflows, lower team morale, and inevitably, lower sales.
Let’s look at some examples of how to calculate lead time in different industries.
Manufacturing is the most common industry we think of when we say lead time. Thus, its calculations are relatively simple.
Procurement: In manufacturing, pre-processing is your procurement management stage. You’ll measure how long it takes for you to find, order, and receive items.
Processing: This is the stage where you’re building your product. How long does it take you to put together all the pieces of your product and make it customer-ready?
Shipping: Time to send it off! The shipping time is the number of days or weeks it takes to go from your processing facility to your customers.
Supply chain lead time is a bit trickier, because it’s dependent on many factors outside of your control. Because the supply chain is usually funneling goods from one place to another, it relies heavily on shipping times that can change at a moment’s notice.
Supply ordering: This is the time it takes for you to receive products. When a company ships to you, how long, on average, does it take to arrive?
Processing: This is where you have the most control in supply chain lead time. The faster you can turn those products back around and get them out the door, the shorter your overall lead time.
Shipping: Similar to manufacturing, this is the time it takes for products to arrive at their next stop once it leaves your facility.
In project management, lead time helps you place realistic expectations on your team, so you don’t overwhelm them with last-minute requests.
Delegation: The team lead reviews and organizes all related project tasks and assigns them to different members. Here, you’re looking at how long it takes for the lead to review the project details, create a strategic plan including any goals, milestones, deliverables, and delegate them out to the team.
Project work: Once the team understands expectations, how long does it take for them to deliver a final project?
Reviews and approvals: Once the project is finalized internally, it will often be reviewed and approved by additional project stakeholders. Finally, it’s passed on to another department or team for tracking or implementation. Calculate the time it takes from project completion until it’s in the hands of that other department.
The lead time calculation for business to consumer (B2C) or direct to consumer (DTC) companies is the time from when you receive the customer purchase order to when the customer has the product.
Pre-processing: For B2C or DTC companies, pre-processing starts with a purchase order receipt and ends when your team begins to assemble the product. In between, you need to process the payment and fill out required data fields before getting started on processing.
Processing: If your product is already manufactured, this stage is where you prepare it for shipping, including packaging and preparing shipping labels.
Shipping: Similar to other industries we’ve discussed, this final stage is the time it takes from when your package leaves you and lands with your customer.
Now for some good news—you can shorten lead time with pretty simple tweaks to your processing structures. Inefficiencies and human error can cause a longer lead time, but so can things completely outside of your control, like natural disasters and supply chain shortages. When shortening your lead time, it’s important to focus on the elements you can control and create plans for when things outside of your control inevitably happen.
Use tools and technology that streamline tasks and work about work.
Communicate effectively with your team from start to finish to clarify expectations and reduce confusion.
Use forecasting to predict what your needs will be in the future. This leaves less to chance and less reactivity, which means more focused work and shorter lead times.
Many of the processing errors that impact lead times can be automated. For example, you can automate tasks and owners for each stage of the production process. Review your overall workflow and look for places that are repetitive and manual. These are things that you can automate or streamline, naturally reducing lead times. Software won’t do the work for you, but it simplifies the process and makes your team more efficient. It’s a simpler way to shorten lead time, without the added expense of increasing staff.
Shortening your lead time can impact just about every aspect of your business. In today’s age of instant gratification, it’s crucial to get your products into the hands of your customers as quickly as possible. Bottom line, time is our most valuable resource. And this applies to your business, too.
Longer lead times are usually caused by inefficiencies. The good news: those are often things you can change. Asana’s automation and organization features can streamline your processes and shorten lead time.Try Asana for free