Understanding Lead Time and Delivery Time
In procurement and supply chain management, the terms “lead time” and “delivery time” are often used interchangeably in casual conversation, but they represent distinct phases of the order fulfillment cycle. Confusing the two can lead to inaccurate inventory forecasting, stockouts, and missed deadlines for end customers.
What is Supplier Lead Time?
Purchase order lead time (POLT) is the total interval between when a company places an order with a supplier and when that supplier delivers the order [1]. It is a comprehensive metric that encompasses every step required to get a product from the “request” stage to the “received” stage.
Components of Lead Time
Lead time is rarely a single event; it is the sum of several internal and external processes:
- Order Processing: The time it takes for the supplier to receive the purchase order, verify credit or payment, and enter the order into their system.
- Production or Procurement: The time required to manufacture the goods or, in the case of a distributor, to source them from another party [1].
- Shipping and Transportation: The time the goods spend in transit from the supplier’s facility to the buyer’s location.
Calculating Lead Time
Lead time is measured in days using a straightforward subtraction formula [1]:
Lead Time (LT) = Order Delivery Date – Order Request Date
What is Delivery Time?
While lead time covers the entire journey, delivery time (often referred to as transit time) is a subset of lead time. It refers specifically to the duration between the moment the goods leave the supplier’s warehouse (the shipment date) and the moment they arrive at the buyer’s destination.
Delivery time is primarily influenced by logistics factors such as the shipping method (air, sea, road), the distance between the origin and destination, and customs clearance processes for international shipments.
Key Differences at a Glance
The primary distinction lies in the scope of the measurement. Lead time is a measure of the supplier’s total responsiveness, while delivery time is a measure of the logistics provider’s efficiency.
| Feature | Supplier Lead Time | Delivery Time |
|---|---|---|
| Scope | End-to-end (Order to Receipt) | Transit only (Shipment to Receipt) |
| Includes | Processing, Production, and Shipping | Transportation and Logistics |
| Primary Driver | Supplier capacity and efficiency | Carrier speed and distance |
| Formula | Delivery Date − Order Date | Delivery Date − Ship Date |
Types of Order Lead Times
Depending on the stage of the procurement process, businesses track different variations of lead time to manage expectations [1]:
- Actual Lead Time: The real number of days elapsed between order placement and fulfillment.
- Requested Order Lead Time: The timeframe the customer expects or requests for delivery.
- Confirmed Order Lead Time: The number of days between the purchase order and the date the supplier officially confirms delivery will occur.
- Customer Lead Time: The duration between a customer’s order and when they receive the product.
Worked Example: Lead Time vs. Delivery Time
The following scenario is illustrative to demonstrate the calculation of both metrics.
Scenario: A packaging company orders custom printed boxes from a supplier.
- Order Request Date: October 1st
- Production Completed/Ship Date: October 10th
- Order Delivery Date: October 14th
Calculations:
- Supplier Lead Time: October 14 − October 1 = 13 Days
- Delivery Time: October 14 − October 10 = 4 Days
In this example, the supplier spent 9 days on processing and production, and the carrier spent 4 days on transportation. If the buyer only looked at “delivery time,” they might mistakenly believe the supplier can provide goods in 4 days, leading to critical inventory shortages if they wait until October 10th to order.
Practical Impact on Business Operations
Understanding the gap between these two metrics is essential for several operational reasons:
Inventory Management
Businesses use lead time to determine their Reorder Point (ROP). If a company knows the total lead time is 13 days, they must trigger a new order when they still have at least 13 days of stock remaining to avoid a stockout.
Customer Satisfaction
For ecommerce and retail businesses, shortening the overall lead time improves customer satisfaction and reduces inventory holding costs by optimizing the flow from order to delivery [1].
Supply Chain Risk Mitigation
Lead times can be affected by raw material shortages or supply chain disruptions [1]. By separating lead time into its components (processing, production, and delivery), a manager can identify exactly where a bottleneck is occurring. For example, if delivery time remains constant but total lead time increases, the issue lies within the supplier’s production facility, not the shipping carrier.
FAQ
Can delivery time be part of the lead time?
Yes, delivery time (transit time) is one of the key stages that make up the total purchase order lead time, along with order processing and production.
Why is it dangerous to use delivery time instead of lead time for planning?
Using delivery time alone ignores the time the supplier needs to process and manufacture the order. This often leads to ordering too late, resulting in stockouts and delayed fulfillment for the end customer.