Lead time refers to the total duration between initiating a manufacturing process or task and completing it.
This metric can be calculated for any process in manufacturing. The process itself does not matter. As long as companies identify start and end points, they can measure lead time.
Tracking lead time helps identify operational bottlenecks, enabling businesses to resolve inefficiencies and enhance productivity. As a result, lead time is a key performance indicator (KPI) for manufacturing firms. By measuring lead time across multiple processes, companies can improve customer service, enhance inventory management and gain a competitive edge.
Aiming to capture more lead time data, but not sure where to start? We’ve got you covered with a dive into lead time types, an overview of influencing factors, and practical strategies to reduce it.
Types of lead time in manufacturing
Lead time can be measured for any process with a defined beginning and end; however, not every process (or set of processes), offers actionable insights for organizations.
In practice, five types of lead time are common in manufacturing:
1. Customer lead time: This is the time between receiving an order and when the product is delivered to customers. It includes production, packaging and delivery. For example, if a customer places an order on September 1st and the package arrives on September 7th, your customer’s lead time is six days.
2. Material lead time: This measures the time required to receive materials after a purchase order. It is similar to customer lead time, however, in this case, your business is the customer. If you place an order on June 2nd and materials arrive on June 16th, your material lead time is two weeks.
3. Production lead time: This is the amount of time required to manufacture your product. Depending on the complexity of your design and the materials used, production lead time may be measured in days or hours. Consider a company that produces small-scale, specialized car parts. If production begins at 9:00 am and concludes at 11:30 am, your production lead time is 2.5 hours.
4. Delivery lead time: This covers the time required for products to ship and reach customers. Delivery lead time begins when packaged goods leave your warehouse on transport vehicles and ends when customers receive the product. If the product leaves the warehouse on May 5th and reaches the customer on May 7th, your delivery lead time is two days.
5. Cumulative lead time: Cumulative lead time combines all the lead times listed above. Here’s an example: It takes 14 days to acquire materials, after which an order is placed. Producing your product takes three hours, followed by another two hours for packaging. It then takes two days for the product to reach your customer. This yields a cumulative yield time of 16 days, five hours.
It’s worth noting that the examples above do not account for unexpected delays. Consider customer lead time. If packages sit in your warehouse for three days because delivery companies are backlogged, the time spent waiting is added to your lead time.
Factors that affect lead time
Both internal and external factors can affect lead time. The quicker companies can identify these factors, the better equipped they are to take targeted action.
Factors to consider include:
- Supply chain issues: If vendors struggle to source materials or logistics companies experience shipping delays, manufacturers may encounter inventory shortages. With no available inventory and no materials on hand to make new products, businesses are stuck waiting as lead times increase.
- Production bottlenecks: Problems on your production line can also create lead time delays. These issues may include machinery slowdowns or failures and backlogs at a specific machine as it struggles to keep pace with inputs. Other possible problems include labor shortages and production scheduling conflicts.
- Order complexity: Complex or bespoke orders typically take longer to make and may require more specialized packaging to ensure they are not damaged in transport, creating longer lead times.
- Planning and forecasting: If materials planning and demand forecasting are inaccurate, you may face material shortages or overstocking. Too few materials mean reduced production throughput, while excess inventory means staff must spend more time moving and organizing items instead of producing or packaging products.
- Approval processes: Quality checks, regulatory approvals and administrative requirements are necessary to ensure products meet expected standards and are safe to sell. Complex or redundant processes, however, can increase lead time without adding measurable benefits to final products.
Why lead time matters in manufacturing
In short, reducing lead times directly contributes to improved profitability. The less time it takes to manufacture, package and ship products, the more revenue you stand to gain.
There are also other advantages of improved lead times. First is that shorter lead times let companies respond faster to market demand. For example, if a new product you’ve produced suddenly starts trending on social media sites and demand ramps up, shorter lead times mean you can produce more products, more quickly.
Next are reduced inventory and holding costs. The more quickly you can get inventory out of your warehouse and shipped to customers, the less you pay to hold items and ensure they remain viable for sale. In practice, this means spending on temperature and moisture controls, along with tracking the order in which stock was produced.
Improving your lead time can also speed up your order-to-cash cycle. Consider two companies that produce similar products. If Company A has a production-to-delivery lead time of four days, and Company B has a lead time of seven days, Company A gets paid sooner and more often by contractors or clients.
Finally, lower lead times increase customer satisfaction. It makes sense; the sooner customers receive their items, the more satisfied they are. In addition, satisfied customers can help build your reputation online, leading to a competitive advantage. In today’s fast-paced economy, where customer expectations for rapid delivery are at an all-time high, ensuring lower lead times is a priority for manufacturing firms.
Strategies to reduce lead time
So, how do companies reduce their lead times? It’s not enough to simply speed up processing; if quality suffers, production runs must be repeated, in turn leading to longer lead time.
Five strategies can help reduce lead time while keeping quality high:
1. Optimize your supply chain: Start by identifying and building relationships with reliable suppliers that have a reputation for delivering materials on time and being upfront about possible delays. It’s also worth using a multi-supplier model to provide a fallback if sourcing or logistics become an issue. Using local suppliers is another way to reduce lead time, thanks to faster procurement and delivery.
Last but not least? Make sure you have a safety stock of critical components on hand to reduce the impact of unexpected disruptions.
2. Implement lean manufacturing processes: Lean manufacturing processes focus on reducing waste, streamlining workflows and prioritizing just-in-time production. In combination, these components can help limit lead time delays.
3. Automate key operations: Using systems such as ERP and MES, solutions such as predictive analytics and emerging technologies like robotics, you can automate complicated production operations and better map processes to production efficiency. Combined with IoT-connected sensors, this automation also helps detect possible production problems that can be resolved with preventive maintenance.
4. Improve communications: Clear scheduling processes, combined with visibility-enhancing tools, ensure that teams stay aligned across production, packaging and logistics.
5. Conduct preventive maintenance: By creating and implementing a preventive maintenance schedule that prioritizes regular maintenance over reactionary fixes, manufacturers can reduce the risk of unplanned downtime.
Measuring lead time effectively
This is the standard formula for lead time:
Lead time = Completion date – order date
For example, if a customer places an order on November 1st and the product is delivered on November 7th, your customer lead time is six days. It’s worth noting that lead time can be measured in any unit of time. For production lead time, you might use hours as the basic tracking unit. For individual machine processes, the lead time could be minutes.
Key metrics to measure alongside lead time include:
- On-time delivery rate: This is a measure of how many deliveries arrive on time, compared to all deliveries made.
On-time delivery rate = Number of on-time deliveries / Total number of deliveries x 100
If the company makes 100 deliveries and 75 are on-time, its on-time delivery rate is 75%. Higher on-time rates mean reduced lead time.
- Production cycle time: This is a measure of how long it takes to complete one product on average.
Cycle time = Production time / Number of units produced
If your production line produces 200 units in eight hours, your cycle time is eight hours / 200 units, or 0.04 hours per unit.
- Order-to-ship time: Order-to-ship time is a measure of how long it takes between receiving an order and it leaving your warehouse for delivery. Steadily increasing order-to-ship times may suggest an issue with production line processes.
Leveraging a partner to improve lead time
While it’s possible to measure, analyze and improve lead time on your own, this can be a time and resource-intensive process. For example, one common way to track lead times is by installing IoT sensors that measure cycle times, failure rates and carry out quality assurance. Deploying and implementing these sensors, however, can be challenging for organizations, especially if they rely on in-house SCADA systems or outdated ICS controllers.
By partnering with outsourced maintenance experts, manufacturers gain advantages such as:
- Skilled technicians: Outsourced partners can place skilled technicians on-site to help reduce lead times with bottleneck analysis and train your staff in more efficient processes.
- Reliability programs: Third-party providers bring industry expertise to design and implement custom-built reliability programs that reduce downtime by considering factors such as staff experience, machinist’s age and performance, and manufacturing capacity analysis.
- Predictive maintenance: Predictive maintenance frameworks identify machinery with higher-than-average failure rates. Combined with preventive maintenance services, companies are better prepared to identify and resolve issues ASAP.
- Custom-designed lead time plans: Experienced providers have the skills and knowledge necessary to help you design custom lead time plans tailored to your needs.
- Industry 4.0 expertise: As digitally-native systems become the industry norm, manufacturers need partners with expertise in IoT sensor implementation and data-driven analytics.
Staying ahead of the curve
Manufacturing lead time is a critical metric for manufacturers. Reduced lead times help improve operational efficiency, limit inventory costs, and increase customer satisfaction.
In practice, managing lead time is an ongoing process. Lead times that initially meet expectations can shift due to MRO supply chain management issues or machine failures, increasing the risk of missed deadlines and potential impacts to customer trust. As a result, it’s critical for manufacturers to continuously monitor, analyze, and work to improve lead times from initial component sourcing to production line processes to packaging and delivery.
Stay ahead of the curve with reduced lead time and continuous process visibility. Schedule a consultation with ATS today, and discover how we can help reduce downtime, streamline workflows and improve lead time performance. Get started here.
References
Gosling, S., Pan, I., Li, L., & Shenoy, S. (2025, February 13). What do US consumers want from e-commerce deliveries? McKinsey & Company. https://www.mckinsey.com/industries/logistics/our-insights/what-do-us-consumers-want-from-e-commerce-deliveries
