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Practical guide · Value stream mapping and flow

What is lead time? Definition, formula and how to reduce it

Short answer

Lead time is the total time from a request or order until delivery. It includes every wait along the way, not only the time spent working, so it is almost always much longer than the work itself. It is measured from a start point to an end point you choose, such as order placed to goods delivered. Shorten it by cutting waiting, not by working faster.

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What is lead time?

Lead time is how long it takes from the moment something is asked for until it arrives. For a customer it runs from placing the order to receiving the goods. For a purchaser it runs from placing a purchase order to the material arriving at the dock.

The key point is that it counts waiting. An order sits in an inbox, waits for material, waits in a pile before a machine, waits for a truck. The time spent actually working on it is usually a small part of the total.

In business, supply chain and inventory management the meaning is the same. What changes is where the clock starts and stops, so always say which lead time you mean. A number with no start and end point cannot be compared with another.

The lead time formula

There are two ways to calculate lead time. Use the first to measure one order, and the second to estimate an average for a process.

How to calculate lead time
MethodFormulaUse it when
From datesLead time = end date minus start dateYou can track an order or batch from start to finish
Add the partsLead time = all the waiting time + all the processing timeYou are mapping a process step by step
Little's LawLead time = work in process (WIP) divided by output per dayYou can count WIP and know the average daily output

Use the same units throughout, and the same start and end points. The [lead time calculator](/tools/lead-time-calculator) does the Little's Law sum for you.

Little's Law holds for averages in a steady process. It is a good check on the other two methods: if the dates say one thing and WIP divided by output says another, a pile has been missed.

The types of lead time

Which lead time you need depends on who is asking. A customer cares about one, a planner about another, a buyer about a third.

Types of lead time
TypeClock startsClock stopsWho uses it
Customer lead timeThe customer places the orderThe goods reach the customerSales, customers
Production lead timeThe order is released to productionThe finished product is readyPlanners, production managers
Supplier lead timeYou place the purchase orderThe supplier's goods arriveBuyers, planners
Material lead timeYou decide the material is neededThe material is received and ready to useInventory and materials planners
Cumulative lead timeNothing is in stockThe finished product is readyPlanners quoting a made-from-scratch order

Names vary between companies. Our post on the [four types of lead time](/blogs/four-types-of-lead-time) uses material, customer, production and cumulative.

A worked example

This example is illustrative. A shop makes brackets to order. Follow one order from placement to delivery.

Illustrative lead time for one order of brackets
StageWorking daysWhat is happening
Order entry and checks1The order waits to be entered and approved
Waiting for material5Sheet metal is ordered after the order arrives (supplier lead time)
Queue before the first operation3The job waits behind other jobs
On the floor, all steps4Cutting, bending, welding and finishing, including waits between them
Shipping and transit2Packed, collected and delivered
Customer lead time15Sum of the stages above

Production lead time here is the 4 days on the floor. The same figure falls out of Little's Law: if 120 jobs are in process and 30 leave each day, 120 divided by 30 is 4 days. If the job is worked on for about 6 hours in total, the other 3.5 days or so are waiting.

The lesson is where the days are. Machines were busy for hours, but the customer waited 15 days. Running the machines faster would barely move that number. Removing the 5 days waiting for material, or the 3-day queue, would.

To measure your own, use the free lead time worksheet. It turns the inventory at each step into days of demand and adds them up.

How lead time differs from cycle time

Cycle time is how often a step finishes a part. Lead time is how long the part takes to get through everything, waiting included. A step can have a cycle time of 80 seconds and a part can still take days to reach the end.

Throughput time sits between the two: first step to last step, waiting included, but not the order handling or the material waiting outside the floor. Cycle time vs lead time follows one part through all of these with a full set of numbers.

How to reduce lead time

Lead time falls when waiting falls. Five causes of waiting account for most of it. Start with the biggest block of days in your own table, like the one above.

Five causes of waiting and what to do about each
CauseWhat it looks likeWhat to do
QueuesPiles of work in front of a stepCap the pile at a marked limit, and release work only as the next step takes it
BatchingParts wait for the rest of the batch to finishMake the batch smaller, and move parts on in smaller groups
HandoffsWork sits between people, teams or departmentsCut the number of handoffs, and make the next step visible to the one before
ChangeoversLong setups push people to run big batchesShorten setups so smaller batches pay off
Waiting for material or informationA job stops because something has not arrivedFix the shortage at its source, and agree what the next step needs before a job starts

Our post on [how to reduce lead time in manufacturing](/blogs/how-to-reduce-lead-time-in-manufacturing) goes through each lever. Batch size is covered in [batch production](/blogs/batch-production) and setups in [reducing changeover time](/blogs/reduce-changeover-time-in-manufacturing).

Measure first, then change one thing, then measure again. Run the lead time calculator before and after, so you know whether a change shortened the whole lead time or only moved the queue to another step.

Common mistakes

  • Comparing numbers with different start and end points. Check where each clock starts and stops.
  • Using the supplier's quoted lead time as the real one. Measure how long orders actually take, from your own records.
  • Counting only time on the machines. Most of the lead time is waiting, so it is missed.
  • Speeding up one step. If the bottleneck is elsewhere, the lead time does not change.

Go deeper

This page is the short version. These guides cover each part in full.

All our articles on this subject are in the value stream mapping and flow topic.

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FAQ

Questions about what is lead time

  1. Lead time is the total time from a request or order until delivery, waiting included. For a customer it runs from placing the order to receiving the goods. It is usually much longer than the time spent working on the product, because most of it is waiting.

  2. In business, lead time is how long a customer or buyer waits between asking for something and getting it. Sales uses it to quote delivery dates, planners use it to schedule work, and buyers use it to decide when to order material. State the start and end points whenever you quote one.

  3. Subtract the start date from the end date for one order. For a process, add all the waiting time and processing time, or divide work in process by output per day (Little's Law). Use the same units and the same start and end points each time.

  4. Common types are customer lead time (order to delivery), production lead time (order released to product finished), supplier lead time (purchase order to goods received), material lead time (material needed to material ready) and cumulative lead time (the whole chain from nothing in stock).

  5. Cycle time is how often a step finishes a part. Lead time is how long a part takes to get through the whole process, waiting included. A step can run fast and the lead time can still be days, because the part waits between steps.

  6. Cut the waiting, which is most of lead time. Cap queues in front of steps, make batches smaller, reduce handoffs, shorten changeovers so small batches pay off, and fix shortages of material or information. Measure before and after to confirm the whole lead time fell.

  7. Delivery time is usually only the last part: shipping and transit once the goods are ready. Lead time starts earlier, when the order is placed, and includes order handling, waiting for material, production and delivery. Check which one a quoted number means.

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