Lead Time
The time from ordering with a supplier to receiving inventory. Critical for calculating the reorder point.
In practice
Lead time is the most important variable most owners ignore. A supplier from China with 45 days means ordering with 1,500 units still in stock.
Common misconception
'The supplier said 30 days, so that's the lead time.' Always add a 20-30% buffer.
How to fix it
Long lead time? (1) find closer suppliers, (2) add 30-45 days of safety stock, (3) get an accurate ETA on every order.
Example
A textile store switched from China (45 days) to Turkey (21 days) for Category A items, ensuring availability at peak demand and +15% sales.
Priority
Map lead time for every supplier by Category A. Mark reorder dates on the calendar.
Related terms
Keep learning. Metrics that touch the same area:
- Reorder PointLogisticsThe inventory level at which a new order must be placed with the supplier. ROP = (Average Daily Sales × Lead Time) + Safety Stock. Prevents stockouts between orders.
- StockoutOperationsA product unavailable for shipping. Immediate lost sales plus damaged trust.
- Safety StockLogisticsExtra inventory held beyond what average demand requires — protects against demand fluctuations, lead-time delays, and forecasting errors. Safety Stock = Z × √Lead Time × Demand STD.
- SKU – Stock Keeping UnitOperationsA unique identifier for each product variation. The basis for precise inventory management.
- Inventory ManagementOperationsTracking, ordering, and maintaining inventory. Too much means cash tied up. Too little means stockouts.
- DropshippingOperationsSelling without holding inventory — a supplier ships directly to the customer. Low margin (5-20%), no quality control.
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