A purchase order is sent on Monday, the goods do not arrive until the following Friday. It is simple to describe this as an eleven day lead time. Knowing what happened during those eleven days is better, because the lead time is not simply the time the product travels from point A to point B.
A retailer places an order for 200 boxes with a vendor. The vendor gets the purchase order on Monday, sees it on Tuesday, takes two days to prepare it, and has the boxes ready on Thursday night. The carrier picks up the boxes on Friday, it takes four days to transport, the warehouse receives them on Friday. Every step adds to the total lead time, even though only four of those days were spent on the road.
This is one of the common mistakes beginners make when they underestimate the replenishment time. They see the carrier has quoted four days, and they plug that number into their reorder point calculation. They omit the supplier processing, production, collection scheduling, weekends, receiving, put-away, etc. Their inventory might drop to zero, while the shipment is still moving through the “expected” lead time.
Take a piece of paper. Break the order into parts: purchase order sent, vendor confirmation, preparation/production, carrier pick-up, transportation, warehouse receiving, and available in stock. Now add the time spent in each part. Now, identify which parts are physically moving material, and which are driven by information flow, approval, waiting, etc. You might be surprised to find out that most of the delay was happening before the carrier got the shipment.
This is important when you need to know where to make changes. Shipping faster will not fix a three day vendor confirmation delay. You could increase safety stock to buffer against that delay, but that will increase your average inventory levels and carrying costs. Sending the purchase order sooner might help, but it depends on the customer demand and your forecasting. Lead time analysis ties directly to procurement, inventory management, vendor performance, and warehouse operations.
Pay attention to your units. If your customer demand is in units/week, then convert the total lead time to weeks before you calculate the amount of inventory that will likely be consumed in that lead time. Don’t mix units/day demand with lead time in weeks. Don’t treat working days as equal to calendar days. Write down your assumptions, don’t keep them in your head.
Next time you get an order late, don’t ask, “How long did it take to deliver?” Ask when the purchase order was sent, vendor confirmed it, shipped it, the carrier picked it up, and when the warehouse received it. Focus on the longest time period between these events, because the delay that you experienced at the end of the chain might have originated several steps back in the chain.