Glossary Term: Lead time

Lead time is the latency between a customer’s initial purchase and the delivery of the product. It is summed up as the total time a customer must wait to receive a product after placing an order. Lead time can be broken down into specific intervals through the manufacturing process including order preparation, setup time, run time, production time and inspection time. By breaking down lead time, managers can examine points in production where there are inefficiencies.

For products that are made-to-order, the lead time is the time between the order and the shipment of the final product that fulfills the order. Whereas for make-to-stock product lead time is the time between the order and when the product is received into the finished goods inventory.

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