Manufacturing
In the manufacturing environment, lead time has the same definition as that of Supply Chain Management, but it includes the time required to ship the parts from the supplier. The shipping time is included because the manufacturing company needs to know when the parts will be available for material requirements planning. It is also possible for lead time to include the time it takes for a company to process and have the part ready for manufacturing once it has been received. The time it takes a company to unload a product from a truck, inspect it, and move it into storage is non-trivial. With tight manufacturing constraints or when a company is using Just In Time manufacturing it is important for supply chain to know how long their own internal processes take.
Lead time is made of:
- Preprocessing Lead Time (also known as "planning time" or "paperwork"): It represents the time required to release a purchase order (if you buy an item) or create a job (if you manufacture an item) from the time you learn of the requirement.
- Processing Lead Time: It is the time required to procure or manufacture an item.
- Postprocessing Lead Time: It represents the time to make a purchased item available in inventory from the time you receive it (including quarantine, inspection, etc.)
Example
Company A needs a part that can be manufactured in two days once Company B has received an order. It takes three days for company A to receive the part once shipped, and one additional day before the part is ready to go into manufacturing.
- If Company A's Supply Chain calls Company B they will be quoted a lead time of 2 days for the part.
- If Company A's Manufacturing division asks the Supply Chain division what the lead time is, they will be quoted 5 days since shipping will be included.
- If a line worker asks the Manufacturing Division boss what the lead time is before the part is ready to be used, it will be 6 days because setup time will be included.
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