Lead Time
Lead time is the total time between placing an order and receiving the goods. It is the sum of several components — order processing, supplier or manufacturing time, transport (transit time) and receiving — and it can be measured for procurement, production or delivery.
The longer and more variable the lead time, the more safety stock a business must hold to avoid stock-outs. Reducing lead time, or making it more predictable, is one of the most effective ways to cut inventory without hurting service.
Lead time drives inventory. Every extra day of lead time — and every day of unpredictability in it — forces more buffer stock to protect service, tying up cash. Shortening and stabilising lead time frees working capital and improves availability at the same time.
Why does lead time affect inventory?
Because you must cover demand during the wait for replenishment. Longer or more variable lead time means more safety stock to avoid running out.