How to Best Calculate Supply Chain Lead Times

Executive Summary

  • Lead times are critical to understanding supply chain planning systems.
  • We cover the supply lead time, customer lead time, supply lead time in inventory, and how to calculate lead times.

Introduction: What Makes Up the Lead Time?

This article will cover lead time in several dimensions. We will start off with the lead time definition and the lead time in the supply chain. You will learn all of the sub-lead times that constitute the overall lead time.

Lead Time in Supply Chain or Lead Time Supply Chain

The lead time in supply chain or lead time supply chain relates to lead times specific to supply chain are terms that describe lead times specific to supply chain management, as lead times are a general term that can apply to non-supply chain topics.

What Lead Time Means and a Lead Time Definition to Define Lead Time

The lead time definition is required to define lead time.

What lead time means is the time required to complete a supply chain process required to provide product to a customer ultimately. Common lead times include:

  • Supplier Lead Time or Supply Lead Time
  • Manufacturing Lead Time
  • Purchasing Lead Time
  • Shipping Lead Time

Customer Lead Time and Order Lead Time

Additionally, there are lead times from the demand side. This includes:

  • Customer Lead Time
  • Order Lead Time

Supply Lead Time in Inventory

Supply lead time in inventory is the portion of inventory that is correlated directly to the lead time. Lead time in inventory is made up of the inventory without variability.

Safety stock for the lead time in inventory would then be where the variability (always higher as only the variability above the baseline is what is calculated in safety stock) of the lead time is maintained.

Supply Lead Time Analysis

There is a lead time analysis that can be performed to determine the position in the lead time in inventory. This lead time analysis can divide the product database by lead time length. But this required performing a lead time calculation.

How to Calculate Lead Time, Lead Time Calculation and Build a Lead Time Calculator

How to calculate lead time or perform a lead time calculation means knowing how lead time is added together.

The various lead times connect in the following way:

For Manufactured Products

Replenishment Lead Time = Manufacturing Lead Time + Procurement Lead Time (for raw materials, components, and subassemblies) + Shipping Lead Time

For Procured Products

Replenishment Lead Time = Procurement Lead Time (for raw materials, components, and subassemblies) + Shipping Lead Time

Often what is desired is a total lead time, and this means having a lead time calculator that combines multiple component lead times as is shown above.

There is often discussion of expediting the various lead times, but in many cases, the only lead time that is reasonably capable of being expedited is the shipping lead time. The shipping lead time can only be accelerated at considerable expense (unless the product in question is of high value and low weight)

Conclusion

In this article, we define lead time, and we covered lead time analysis which requires lead time calculation. But to calculate lead time and develop an accurate lead time calculator and perform a lead time calculation means knowing the independent lead time components. These include things like the manufacturing lead time, procurement lead time, supply lead time, etc..

Lead time in supply chain or lead time supply chain declare lead time separately from other types of non-supply chain lead times.

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References

Brightwork MRP & S&OP Explorer for Tuning

Tuning ERP and External Planning Systems with Brightwork Explorer

MRP and supply planning systems require tuning in order to get the most out of them. Brightwork MRP & S&OP Explorer provides this tuning, which is free to use in the beginning. See by clicking the image below:

Replenishment Triggers Book

Replenishment Triggers

Getting the Terminology Right

The terms make to order and make to stock roll quickly off of people’s tongues regardless of their knowledge of other supply chain conditions. Many executives speak about “moving to make to order environment.” For most companies, this simply is not realistic. And many businesses that say they do make to order/configure to order/engineer to order are doing assemble to order planning.

The Universality of The Manufacturing Environment Type

These terms are specific types of manufacturing environments. They are embedded in almost all supply planning applications ranging from the most basic ERP to the most sophisticated advanced planning system. However, each manufacturing environment leads to some implications, implications that are most often not completely understood.

Getting Clear on Requirements Strategies

Requirements strategies are what control what drives the replenishment of supply in systems. In most cases, the need strategies control whether the forecast or the sales order triggers replenishment.

This book cuts down the amount of time that is required for people in companies to understand the relationship between manufacturing environments (the business) and requirements strategies (the technology setting in the supply planning application).

By reading this book you will learn:

  • What are the major manufacturing environments and what determines which manufacturing environment a company follows?
  • How do the different manufacturing environments impact how inventory is carried?
  • How are the various production environments configured in software?
  • What is mass customization, and how accurate is useful is this concept in real life?
  • What is the interaction between variant configuration and the manufacturing environment and the bill of materials?

Chapters

Chapter 1: Introduction
Chapter 2: The Different Manufacturing Environments
Chapter 3: Triggering Replenishment
Chapter 4: Requirements Strategies
Chapter 5: The Make to Order Illusion
Chapter 6: The Limitations to the Concept of Mass Customization
Chapter 7: Forecast Consumption
Chapter 8: Variant Configuration in SAP ERP
Chapter 9: Conclusion