Lead Time: A Key Performance Indicator for Efficient Supply Chains

As soon as an order is received, the clock is ticking. How quickly do the ordered goods actually reach the customer, how long do the processes in intralogistics and the actual transport take? In logistics terminology, this is referred to as lead time. The following article explains the term, provides background information and gives tips on how to optimize this important key figure.

Table of Contents:

  1. The importance of lead time
  1. Lead Time: Definition of the technical term
  1. Lead time logistics and its effects
  1. Calculate delivery time in Sites
  1. Measures to shorten lead time
  1. Lead Time: Efficient warehouse logistics make the difference

The importance of lead time

Just unloaded from the truck, the delivered components from the supplier flow directly into the ongoing production: The automotive industry took the lead years ago with this model of closely timed logistical processes under the catchphrase "just in time delivery". The advantages of this concept are obvious: less warehousing means less capital tied up. Production can be managed much more flexibly and in line with demand. In addition, storage capacities are outsourced from the manufacturer's plant to the suppliers.  

Time-critical transports continue to increase

Today, "just in time" has become a matter of course throughout logistics. The boom in e-commerce, digital procurement and integrated process chains in many industries mean that the proportion of time-critical transport orders has increased continuously - and is still growing. In many cases, fixed, guaranteed time slots are specified for deliveries. Lead time is an important variable in this context.

Lead Time: Definition of the technical term

Lead time refers to the period of time that elapses from the receipt of an order for a product until it is delivered to the customer. The formula is:

Delivery Date - Order Date = Lead Time

For the sake of simplicity, lead time is usually specified in calendar days. The specification of the lead time has a direct impact on all process steps along the entire supply chain: from order processing to picking the goods to placing the transport order and its timely execution. Individual time specifications are made for each step and compliance with them is monitored.

Importance of lead time as a key performance indicator

In view of today's logistics processes, which are designed to maximize efficiency and speed, lead time is of crucial importance. Alongside values such as delivery accuracy, storage and transport costs, the frequency of goods turnover at Sites , and the accuracy of inventory data, it is therefore one of the key logistics indicators. From these, in turn, company-specific key performance indicators (KPIs) can be derived as target values.

Lead time in logistics and its impact

Lead time has a direct impact on various processes, not only in logistics. Therefore, the value should be known to the most diverse areas in the company:

  • The sales department needs a reliable lead time in order to be able to make deadline commitments to customers.
  • For procurement, it is important to know the lead time of suppliers in order to ensure sufficient stock at all times.
  • Production planning must take into account the lead time for the transport process in order to ship just-in-time goods on time.
  • For warehouse logistics and distribution, on the other hand, the lead time represents the internal benchmark that must be adhered to daily in the operational business.  

Calculate delivery time in Sites

A particular challenge when calculating lead time: In addition to the internal participants, for example in order picking, external partners on the part of the transport companies in particular must also be included in the planning of the processes. This includes precisely planning time slot for delivery and dispatch in warehouse logistics in order to reduce or - even better - completely prevent idle times, overloading of internal personnel resources or annoying and costly truck waiting times.

Lead time as an indicator of service quality

Precise knowledge and control of lead time are indispensable for planning logistics processes optimally and efficiently. For this purpose, the commitments made by suppliers and transport companies, for example, must be continuously compared with the actual values from the delivery history. Lead time is also an important indicator of a company's service quality.  

A rule of thumb: The shorter the lead time that a supplier can promise its customers and keep to, the higher its service level. This is particularly important in time-critical production processes (just in time) or, for example, in the case of urgently needed spare parts deliveries, in order to keep unplanned plant or machine downtimes and the associated financial disadvantages to a minimum.

Calculate lead time reliably

The shortest possible lead time supports reliable demand planning and creates the prerequisite for reducing inventories on the customer side. Efficient warehouse logistics therefore pays off for both business partners. In view of megatrends such as e-commerce, Logistics 4.0, omni-channel sales, and automated procurement, lead time is becoming increasingly important as a logistics target.

The shorter the lead time that a supplier can announce to his customer and also implement, the higher his service level.

Measures to shorten lead time

To identify potential for improvement, the first step is to break down the entire lead time into individual stages along the process chain: How long do production, delivery preparation, picking and the actual transport process take in each case? Only with exact data and knowledge of all sub-processes, especially in warehouse logistics, can times be further reduced.  

Optimization potential in warehouse logistics

Intralogistics offers a wide range of opportunities for improvement: From the flow of materials to the optimized arrangement of storage locations and the organization of picking stations. An important tool here is suitable warehouse management software such as TradeLink, which intuitively brings together the various players on one platform and provides them with valid data in real time.

In this way, sources of error and bottlenecks can be identified as early as possible so that appropriate countermeasures can be initiated. The planning of the entire delivery and collection processes is of central importance here. Experience has shown that better timing can result in considerable savings and time benefits. Cost optimizations of up to 30 percent in warehouse logistics are just as much a part of this as 95 percent less waiting time for arriving trucks.  

Reduce lead time with optimized planning

Efficiency is created when everyone works together. TradeLink provides a simple, fast and targeted entry into collaborative logistics. All parties involved benefit from the optimization of delivery coordination and a shortened lead time - warehouse operators, transport companies and, last but not least, the recipients of the goods. For more information and a free demo of the TradeLink software, simply contact our experts.

Lead Time: Efficient warehouse logistics make the difference

Lead time - the period from receipt of an order to delivery of a good - is a key logistics indicator. The efficient organization of the entire warehouse logistics is an essential step to improve process chains and shorten delivery times. Smart tools such as TradeLink provide support for efficient warehouse management. The software organizes collaborative logistics and creates maximum transparency. And it does so 100 percent digitally: Time-consuming e-mails, phone calls and Excel spreadsheets, as well as expensive and error-prone paper processes, become superfluous!

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