What Is Lead Time?
Also known as: leadtime, planning lead time, replenishment lead time
Definition
Lead time is the elapsed time between initiating an order and having the material available for use. In ERP it is the offset MRP applies when back-scheduling a planned order from its due date to its release date.
Lead Time Explained
ERP systems distinguish several lead times that are often conflated. Purchase lead time covers supplier acknowledgment, production, transit, and receiving inspection. Manufacturing lead time is derived from the routing and covers queue, setup, run, move, and wait across all operations. Cumulative lead time, sometimes called the critical path lead time, is the longest chain through the entire bill of materials from raw material purchase to finished good, and it is the number that actually determines how far ahead you must commit money to hit a delivery date.
MRP treats lead time as a fixed offset regardless of quantity, which is a meaningful simplification. Ordering ten units and ten thousand units of the same part get the same planned lead time unless the item is configured for variable or lot-size-dependent lead time. Some ERPs support a fixed plus variable model, where a base duration is added to a per-unit increment. Where that option exists it is usually worth configuring for high-volume items, because a single fixed value will be wrong at both ends of the quantity range.
Lead time interacts directly with safety stock and reorder points. Demand during lead time is the core term in the reorder point formula, and safety stock sizing depends on the variance of both demand and lead time. A supplier who averages 30 days but ranges from 20 to 60 forces far more buffer inventory than one who reliably delivers in 35. This is why lead time variability, not just lead time length, is the metric worth negotiating with suppliers.
The most damaging pattern in practice is the aspirational lead time. Someone sets a value that reflects what the supplier promised or what the shop achieves on a good week, and MRP then releases every order too late. Because expediting usually rescues the situation, the data defect stays invisible while expedite freight and overtime quietly become structural costs. Measuring realized lead time from actual order and receipt dates, and setting the parameter near the 80th percentile rather than the mean, corrects most of this.
Why It Matters
- Lead time is the single parameter that determines when MRP releases orders, so an error here shifts every commitment date for that item.
- Lead time variability drives safety stock, meaning unreliable suppliers cost working capital even when their unit price is lowest.
- Cumulative lead time defines how far into the future you must forecast rather than react, which sets the planning horizon.
- Quoted customer delivery dates are only credible if they are built on realistic internal and supplier lead times.
In Practice
Worked example: a part has a 30-day planning lead time and 10 days of demand-during-lead-time variability. If you set the parameter to the 30-day mean, roughly half of orders arrive late. Setting it near the 80th percentile, about 38 days, converts chronic expediting into a small amount of planned earliness that is almost always cheaper.
Frequently Asked Questions
What is cumulative lead time?
Cumulative lead time is the longest path through the bill of materials, adding purchase lead time for the slowest raw material to the manufacturing lead times of every level above it. It tells you the minimum horizon over which you must forecast, because any customer order shorter than cumulative lead time can only be met from inventory already committed.
Should lead time include receiving inspection?
Yes. Planning lead time should end when material is actually available to consume, not when the truck arrives at the dock. If inspection typically holds material for three days, and that is excluded, MRP will believe stock is available three days before it is, producing shortages at the work order pick that look like inventory accuracy problems.
Related Terms
MRP (Material Requirements Planning)
MRP (Material Requirements Planning) is the ERP calculation that explodes demand through bills of materials, nets it against on-hand and on-order inventory, and offsets by lead time to produce timed purchase and work order suggestions.
Safety Stock
Safety stock is buffer inventory carried above expected demand to protect against variability in demand and supply during replenishment lead time. In ERP it is netted out of available inventory so MRP plans replenishment before the buffer is consumed.
Reorder Point
A reorder point is the inventory level at which a replenishment order is triggered. It equals expected demand during the replenishment lead time plus safety stock, so stock on hand covers usage until the new supply arrives.
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