Lead Time

Lead time is the total elapsed time from placing a replenishment order to having the goods on the shelf and available. It decomposes into order processing time (transmission and supplier confirmation), production or pick-pack time, transit time, and receiving plus customs clearance. Lead time matters on two levels: (1) its mean enters the reorder point in the classical (s,S) policy (#004) as ROP = d·L, and (2) its variance is the main driver of lead-time-demand uncertainty in safety-stock calculations (#011 newsvendor logic). Under stochastic lead time the safety-stock variance becomes σ² = L·σ_d² + d²·σ_L² — variance in the lead time is amplified by the square of mean demand, so long and unstable lead times disproportionately inflate safety stock. In an SMB context, a domestic supplier typically runs 3-7 days, a continental European supplier 2-3 weeks, a far-east container supplier 6-10 weeks. Lead-time reduction — switching to air freight, contracting a short-cycle backup supplier, or moving to vendor-managed inventory (VMI) — shrinks safety stock directly and is what makes make-to-order or assemble-to-order business models viable.