What is Lead Time? Why Is it Important?
Lead Time is the length of days between when an order is placed and the date the goods are available for use. The largest impact to lead time accuracy is found by comparing the expected receipt date to the actual receipt date for each purchase order. In simple terms, the variance is calculated as the absolute value of the difference [expected or requested receipt date – actual receipt date] for each line on the purchase order. These variances in days across multiple purchase orders establish the need for lead time accuracy testing and lead time forecasting.
What is the Impact When Supplier Lead Time is Not Accurate?
Suppliers provide an estimate of lead time, but these numbers are not always accurate. The differences between your expected receipt date and the actual receipt date can become expensive from the resulting unplanned overstocks, out of stocks, and deflated consumer opinions. Lead time tracking and lead time forecasting are mission-critical to the success of your supply chain. Lead Time Forecasting, like Demand Forecasting, should use a set of math algorithms to calculate the correct lead time days to use in planning purchase orders. Also, like Demand Forecasting, the Lead Time Forecast should move up and down according to changes in the market, business influences, and seasonality of the product.