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5 Min. Read

What Is Lead Time? Definition, Importance & How to Reduce It

What Is Lead Time? Definition, Importance & How to Reduce It

There can be a lot to worry about as a small business owner. You need to worry about overall operations, marketing, and accounting needs. Plus a hundred other things that are going on each day.

Lead time is a way to measure how much time has passed between the time a task is created until it's completed. And if you’re not tracking lead time properly you might be seeing some issues with your development process.

Here is everything you need to know about lead time. Plus, why it’s important and some tips to help you reduce it.

Here’s What We’ll Cover:

What Is Lead Time?

Different Types of Lead Time

Why Is Lead Time Important?

Tips to Help Reduce Lead Time

Key Takeaways

What Is Lead Time?

Simply put, lead time is the amount of time that passes as soon as a process is started until the conclusion. It can be a common measurement if you are in manufacturing, project management or supply chain management.

It monitors the time during pre-processing, processing and throughout the post-processing stages. It can provide you with actionable insights into your company’s benchmarks. Which can help you identify any inefficiencies in your processes.

In manufacturing, for example, lead time relates to the time it takes to fully create a product and deliver it to your customer. There are lots of factors that can affect lead time, and they can include things like labour shortages, human error or a lack of raw materials.

Lead time is important to consider because it can get affected by your inventory management and production processes. And having effective inventory management is critical to help keep your production schedules on track. It also helps make sure that you can meet customer demand.

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Different Types of Lead Time

There are a few different types of lead time depending on the type of business that you operate.

  • Customer lead time. This is the amount of time that it takes between a customer completing their purchase and when they receive it.
  • Material lead time. This is the amount of time that it takes when you place an order with a supplier for materials and when you receive it.
  • Factory and production lead time. This is the amount of time that it takes to create a product and then ship it.
  • Cumulative lead time. This is the amount of time that it takes from an order getting submitted to the product getting delivered. It also includes the time needed to order and receive certain materials.

Why Is Lead Time Important?

Some issues can make your lead time higher. Understanding your lead time and how you can maximize it is important to help you avoid some of those issues. Here are some common examples of what lead time can help you avoid.

  • Inefficiencies in backlog management
  • Issues with environmental management
  • Manual procedures that get delayed
  • Approval delays
  • Manual testing of software
  • Manual deployment of software

Any one of these issues can cause delays and increase your lead time. This is why understanding and tracking your lead time will provide valuable insights into which areas cause the most issues.

Lead time is an important factor in your overall customer satisfaction. Your customers want the product or service they purchased as soon as possible with no delays or headaches.

Tips to Help Reduce Lead Time

Here are some tips to help you reduce lead time.

  • Change your shipping methods. Take a look into your current shipping methods and see if there are any inefficiencies or areas that could get improved. An alternative shipping method might offer quicker turnaround times than the one you’re currently using.
  • Source your materials locally. Importing raw materials can be costly. Look into some local suppliers to see if they have any of the raw materials you require. This will help reduce your lead time since receiving the materials can happen quicker.
  • Reduce anything that is non-value added. Is there anything that is prolonging or making your lead times increase? Think about some of the activities or processes that you have that could get eliminated. This can help you maintain product quality and reduce lead time.
  • Automate your processes. Sometimes mistakes can happen and human error can be unavoidable. For example, an employee might order the wrong stock or raw materials. This will cause a delay and increase your lead time. Automating your processes can help remove the possibility of those mistakes happening.

Key Takeaways

Understanding lead time for your business is a crucial metric to track. It helps you recognize what is working and what might be causing delays. You can then make any necessary adjustments for your processes to become more efficient.

There are also a few different kinds of lead time that you can monitor depending on the type of business that you are in. It could be customer lead time or material lead time. Or, it could be production or cumulative lead time.

The customer is the most important aspect of your business. Without them, you wouldn’t be able to stay profitable. And having an excellent lead time will contribute to increased customer satisfaction.

If you have been having issues with lead time or you aren’t sure why it is increasing, use some of the tips outlined above. You can identify any inefficiencies and streamline processing times.

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