Lead time is — by its simplest definition — the time taken to complete a task. When different industries or businesses talk about lead time, the period of time they’re referencing can change.
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What are the different types of lead time?
As we mentioned above, lead time is often industry- or even business-specific. That said, there are a few different types of lead time which we can give a fairly set definition to:
- Customer lead time: the time between the end consumer placing and receiving an order
- Delivery lead time: also known as just shipping time, or delivery time, it’s the time taken between an order being shipped and received by the end customer
- Material lead time: the time taken to gather raw materials to have ready for manufacturing
Lead time in retail
When we talk about ‘lead time’ in reference to inventory management, this is generally the time taken between placing an order for more stock, and that stock being received.
Understanding, monitoring and — where possible — reducing lead times is crucial when it comes to successfully managing your inventory, especially if you work directly with manufacturers, who will often need several months’ notice to process an order.
Lead time at CREOATE
On CREOATE, a seller’s lead time refers to the time between the seller receiving an order, and it being fulfilled. Essentially, it’s the time a brand needs to prepare an order, rather than the time it will take for you, the retailer, to receive it.
We take this measurement of lead time because it’s the fairest for our sellers, and the most transparent for our customers. It allows the brand to set one lead time which they’re completely in control of, without having to adjust for shipping different distances, and to different continents.
Are lead time and flow time the same?
Yes, lead time and flow time (a term included in the Little’s Law theorem) are generally considered to be the same thing, although lead time is a more common term in most industries.
What is a formula for lead time?
As we mentioned above, it depends a bit on the industry, lead time type, and individual business.
But let’s take a retail example. Supposing a retailer runs out of stock from a particular brand, the lead time for that stock would be:
Pre-processing time for brand + order prep time for brand + shipping time
Although keep in mind that on CREOATE, we don’t include shipping time in our definition of lead time, because the products are shipped to multiple locations.
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