Time between placing an order with a supplier and receiving the goods
Lead time is the total time that elapses between placing a purchase order with a supplier and receiving the goods at your warehouse or place of business. It includes the supplier's processing time, manufacturing or packing time, shipping and transportation duration, and any customs clearance time for imported goods. For Indian small businesses, understanding and tracking lead time is critical for effective inventory management and reorder planning. Lead times in India can vary significantly due to factors like geographic distance between supplier and buyer, transportation infrastructure, seasonal disruptions (monsoon, festival holidays), and supplier reliability. A supplier in the same city may deliver within 1-2 days, while a manufacturer in another state may take 7-15 days depending on the route and transport mode. Imported goods can take 30-60 days including customs clearance. Accurate lead time data is essential for calculating reorder levels and safety stock quantities. If you underestimate lead time, you risk stockouts and lost sales. If you overestimate, you may order too early and tie up working capital in excess inventory. Businesses should track actual lead times for each supplier and item combination, review them periodically, and factor in variability when setting reorder points.
An electronics retailer in Bengaluru orders LED bulbs from a manufacturer in Noida. The order processing takes 2 days, manufacturing and packing takes 3 days, and transportation from Noida to Bengaluru takes 5 days. Total lead time = 2 + 3 + 5 = 10 days. The retailer sells an average of 50 LED bulbs per day. To avoid running out of stock, his reorder level = Daily Sales x Lead Time + Safety Stock = 50 x 10 + 150 = 650 bulbs. He must place a new order when stock drops to 650 units, ensuring continuous availability. During monsoon season, transport may take 7 days instead of 5, so he adjusts his lead time to 12 days and reorder level to 50 x 12 + 150 = 750 bulbs.
Lead time directly determines when you need to reorder. Your reorder level = average daily sales x lead time + safety stock. A longer lead time means you need to reorder at a higher stock level to avoid running out. For example, if lead time increases from 5 to 10 days and you sell 20 units daily, your reorder point increases by 100 units.
Yes, lead time can vary due to seasonal demand on the supplier's end, transportation disruptions, festival holidays, monsoon delays, and order size. It is best to track lead times across multiple orders and use the average for planning while using the maximum for safety stock calculations.
You can reduce lead time by choosing local or nearby suppliers, maintaining good relationships for priority processing, placing orders in advance during predictable demand periods, using faster transport modes for urgent items, and keeping safety stock for critical products. Some businesses also negotiate lead time guarantees in their supplier agreements.
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