What is lead time in inventory management?

The lead time formula

Lead time = Date goods received − Date order placed

Date order placed

the day you sent the purchase order

Date goods received

the day the stock was checked in and available to sell

Count the days stock spends being received, counted and shelved, not just the day the truck arrives. Until it's in your system as available, you can't sell it.

Types of lead time

The term means different things depending on who's waiting:

For inventory planning, supplier lead time is the one that matters. It usually breaks down into:

1. Order processing: the supplier confirms the order and schedules it.
2. Production: the goods are made, or picked from the supplier's stock.
3. Transit: freight, plus customs clearance for imports.
4. Receiving: you check the shipment in and make it available to sell.

Production and transit are usually the longest stages. Receiving is the one most stores forget to count.

How to measure lead time and its variability

A single number hides the risk. Record the order and receipt date for every purchase order, then look at both the average and the spread.

Worked example: five purchase orders from one supplierExample numbers

Purchase order	Lead time
PO 1	18 days
PO 2	21 days
PO 3	19 days
PO 4	24 days
PO 5	18 days

1. Average lead time = (18 + 21 + 19 + 24 + 18) ÷ 5 = 20 days
2. Worst case = 24 days, four days longer than average

If this product sells 10 units a day, those four extra days are 40 units of sales you need covered when a shipment runs late.

The spread matters as much as the average. A supplier who always takes 30 days is easier to plan around than one who takes anything from 10 to 40.

Lead time in the reorder point formula

Lead time is the core of your reorder point, the stock level that should trigger the next order:

Reorder point = (Average daily sales × Lead time in days) + Safety stock

Using the example above, at 10 units a day and a 20-day average lead time, you'd expect to sell 200 units while waiting for a restock. Add safety stock to cover the late shipments and busy days.

Reorder Point CalculatorThe exact stock level that should trigger your next reorder.Open calculator

Lead time variability is also what drives most of your safety stock. The safety stock calculator sizes the buffer from your average and worst-case lead times and sales.

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Planning for seasonal lead times

Lead times rarely stay constant through the year. Factory holidays, freight congestion before peak retail season, and everyone reordering at once can stretch them well beyond normal, right when your own demand is rising.

That's a double hit: you need more stock to cover higher sales, and you need it to last through a longer wait. Plan for it by:

• Asking suppliers for peak-season lead times well before you need to order.
• Ordering the seasonal buffer early, using the peak lead time, not the normal one.
• Splitting large seasonal orders into waves, so a single delay doesn't wipe out your peak.

Seasonal Lead-Time Buffer CalculatorThe extra stock you need to survive peak-season demand and slower lead times.Open calculator

How to shorten lead time

• Share forecasts with suppliers so they can plan production before your order lands.
• Keep order sizes and timing predictable. Irregular orders tend to get scheduled behind regular customers.
• Dual-source best-sellers with a closer or faster supplier as backup.
• Use faster freight selectively, for products where a stockout costs more than the shipping premium.
• Speed up receiving. A day saved in your own warehouse is a day off every lead time.

Tracking lead time in a spreadsheet

You don't need special software to measure lead time. A sheet with one row per purchase order is enough:

To summarize one supplier, use =AVERAGEIF(B:B,"Acme",E:E) for the average lead time and =MAXIFS(E:E,B:B,"Acme") for the worst case. Both work in current versions of Excel and in Google Sheets.

After a few months, the sheet shows which suppliers are reliable, which run late, and how much their lead times swing. That's exactly what you need to set reorder points and safety stock.

Common lead time mistakes

• Measuring to the ship date, not the received date. Stock in transit or waiting to be checked in can't be sold yet.
• Planning on the supplier's quoted lead time. Quotes are often optimistic. Use your actual history.
• Using one lead time for every product from a supplier. Made-to-order items and stocked items can have very different lead times.
• Never updating it. A new freight route, a new factory or a busy season all change lead time. Review it every few orders.
• Forgetting your own delays. If purchase orders sit in your inbox for days before you send them, that's part of your lead time too.