What is Lead Time?
Lead time is a crucial part of managing a manufacturing business or any business that involves waiting for supplies or products to arrive. Generally, the lower the lead time, the more flexible a company is and the faster it can respond to changes in trends. However, shorter lead times can cost more money if the buyer has to pay for overtime, expedited shipping costs, or other rush charges. This in turn makes it difficult to say whether shortening lead time increase profits, though it usually will increase customer satisfaction.
How Does Lead Time Work?
For example, let's say Company XYZ makes and sells widgets. It has a customer, ABC Company, that wants to buy 10,000 widgets toin its retail stores in October for the Christmas season.
It takes two weeks to get the widget parts and a week to assemble 10,000 units, so Company XYZ has a lead time of about a month. That means that it must get the order from ABC company no later than September 1 in order to make the delivery on time.
Why Does Lead Time Matter?
Lead time is the amount of time between ordering something and receiving it.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
Read This Next
New college graduates may find themselves in a bind. They have significant student loans to pay off, but...Read More →
Ever feel like the return you are getting on your investments is not the same as what the market is doing -- or even what your own...Read More →