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Lead time: supply lead time, how to measure and cut it

Lead time is the time from order initiation to actual receipt at the required location. Average LT determines replenishment speed, while LT variability determines the need for safety stock and the OTIF/Fill Rate service level.

What the Metric Measures

The speed and reliability of supply at every stage: order confirmation, manufacturing/picking, transit, customs, last mile, receiving/QA. Analyze both the total LT and each stage separately.

Calculation

  • Lead Time, days = Receipt date − Start date (PO / order / operation start)
  • Align start/finish with Incoterms (EXW/FOB/DDP, etc.)
  • Median (P50), P90/P95, σ, and CV as measures of level and stability
  • On-time to Promise, % = Delivered on time / All deliveries × 100
  • Safety stock: SS = z × σDL; if LT is constant, σDL ≈ σd·√LT

Account for partial receipts, different transport modes, and individual stages (production, transit, customs, delivery).

Calculation example

40 deliveries in a quarter took 18 days on average from order to receipt, ranging from 10 to 35 days. Selling 50 units a day, safety stock for the longest delivery is (35 − 18) × 50 = 850 units: an unstable lead time costs more than a long but predictable one.

Data Sources

ERP/1C (POs, confirmed dates, receipts), WMS (QA/incoming inspection), TMS/carriers (ETA/ATA), EDI/ASN, brokers and customs, MES (internal LT), holiday calendars.

Interpretation

  • LT↓, CV↓ — stable service, lower SS, better OTIF and DIO
  • LT↑/CV↑ — need for inventory and risk of disruptions; look for bottlenecks in each link
  • Levers: switching transport mode, changing Incoterms, dual-sourcing, VMI/consignment, pre-clearance through customs, proper buffering

Useful Breakdowns

  • Supplier / country / route / port
  • SKU / category / ABC class
  • Transport mode; Incoterms
  • Order type: standard / express / project
  • Season / peak periods

Dashboard Visualizations

  • Histograms and "violin" plots of the LT distribution
  • P50/P90 and CV trend
  • Heatmap by supplier/link
  • Time waterfall by stage
  • Route map with ETA/ATA and risk warnings

How to Set Targets

Define SLAs based on P90/P95, thresholds for On-time and CV; set rules for expediting/switching modes, a freeze window for planning, and early warnings (ETA leaving the corridor).

Common Mistakes

  • Mixing dates (order vs. confirmed/promised) and Incoterms bases
  • Ignoring time zones/holidays; tracking only the average without percentiles
  • Neglecting partial receipts and the difference between ship and delivery
  • Dirty ETA/ATA data; an incorrect safety stock formula

Questions for Discussion

  • Which 3 steps will cut LT by 20% and CV by 30%?
  • Is switching to another transport mode or Incoterms justified?
  • Where is the best place for a buffer: before customs or in the sales region?
  • How does stabilizing LT affect SS/ROP and OTIF?

Questions and answers

What is supply lead time?

The time from placing an order with a supplier to the goods arriving in the warehouse and being ready to sell or use.

How do you calculate lead time?

For each delivery count the days between the order date and the receipt date, then take the average, the median and the spread by supplier.

How do you shorten lead time?

Choose suppliers with shorter and more stable delivery, share your forecast with them and simplify order approval and receiving.