Defining lead time

At this point in the week, we explore the issue of lead time.

Lead time can be defined as the elapsed time from order to delivery. It’s a crucial competitive variable, owing to the increase in time competition. A reduction of lead times can increase customer value, as well as decrease inventory level.

The lead time can be defined from two perspectives: the customer’s and supplier’s perspective.

From the customer perspective, this is how long it takes from making the order to receiving the delivery.

From the supplier’s perspective, however, this is how long it takes to convert an order to cash.

We’ll look at these perspectives in more detail over the next two steps.