Lead time: definition, examples, and how to reduce it

What is lead time?

Lead time is the elapsed time from the start of a process to its completion. It can be applied to any process in which a set of actions takes place. 

For example, a highly customized product, such as a work of art, may have an extended lead time due to its unique, customer-centric requirements. Standardized products, such as vacuum cleaners, may have a short lead time due to established production processes and inventory management.

Lead-time metrics are crucial for understanding and optimizing various business processes. They’re an essential part of strategic planning and decision-making, leading to improved customer satisfaction and continuous improvement.

The concept extends beyond manufacturing into service industries, software development, and even administrative processes. A restaurant's lead time might be the duration from order placement to meal delivery, whereas a consulting firm measures lead time from client engagement to project completion.

How to calculate lead time

Calculating lead time follows a straightforward formula: 

Lead Time = End Date - Start Date. 

The most challenging part is defining exactly when processes begin and end, as this varies significantly across industries and specific workflows.

For a basic manufacturing example, if a customer places an order on January 1st and receives the product on January 15th, the lead time is 14 days. However, this simple calculation can become complex when accounting for business days, holidays, and different time zones.

Establishing clear start and end points for measurement makes all the difference in accuracy. Start points might include order receipt, material requisition, or project initiation. End points could be product shipment, customer delivery, or project sign-off. Consistency in these definitions ensures accurate tracking and meaningful comparisons over time.

Types of lead time

Different types of lead time serve different purposes in business operations. Understanding these distinctions helps organizations identify specific areas for improvement and allocate resources more effectively. Each type focuses on particular process segments, allowing for targeted optimization efforts.

Customer lead time

Customer lead time is the time between when a customer places an order and when they receive the product. It often begins with the order confirmation, but can also include the time it takes to place the order. It encompasses preparing the product, packing, and shipping, and concludes with the final delivery.

Material lead time

Material lead time is common in product manufacturing. It measures the time between identifying the need for materials and receiving them. For example, if a manufacturer uses raw steel, the material lead time includes defining the quantity and grade needed, placing the order with the supplier, understanding the supplier’s lead time to produce materials to specifications, and accounting for packing and shipping.

Production lead time

Production lead time is the time it takes to create a product once all raw materials are available. This internal lead-time metric doesn’t include shipping to customers but ends with a product-ready status. For example, production lead time in software development encompasses gathering requirements, crafting design and development specifications, developing software, testing, and releasing.

This type of lead time is primarily within a company's control, making it an ideal target for process improvements. Manufacturers might focus on equipment efficiency and workflow optimization, while software teams might emphasize iterative processes and automated testing.

Cumulative lead time

Cumulative lead time represents the total time from material procurement to final delivery, encompassing all other lead time types. This comprehensive measurement reflects the entire production and supply cycle, providing the most complete picture of operational efficiency.

Understanding cumulative lead time helps organizations identify which components contribute most significantly to overall delays. A company might discover that while production is efficient, materials procurement creates the longest delays, suggesting a need to focus on supplier relationships and inventory management.

Delivery lead time

Delivery lead time specifically measures the time taken to transport finished goods to the customer. Shipping methods and logistics partners heavily influence this component, making vendor selection and logistics strategy crucial considerations.

Geographic location plays a significant role in delivery lead time, with companies often establishing regional distribution centers to reduce transportation time.

Components of lead time

Lead time breaks down into specific elements to help measure, track, and optimize processes. These components include the following:

• Pre-processing encompasses the activities that occur before purchasing materials or products, such as identifying requirements, creating the job or statement of work, and placing the order. These activities precede placing the actual order and can vary by industry.
• Processing includes the time from receiving the order to producing the product. In software development, this is the time needed to create a new feature. In manufacturing, it’s the time to build the physical product.
• Wait time is the period between pre-processing and processing. For example, if the product is on a strategic roadmap but has projects ahead of it, the wait time indicates the elapsed time between placing the order and when processing begins.
• Storage refers to the period during which a product is stored in a facility, such as a warehouse, before it is shipped.
• Transportation is the amount of time a product spends in transit, from leaving the warehouse to reaching the customer.
• Inspection is when the customer must verify that the product meets their approval. For manufactured items, this may involve testing to ensure the product functions as expected. In software development, this is commonly the user acceptance testing period. In all examples, the inspection time may include making product corrections.

Factors that affect lead time

Many factors can influence lead time, including:

• Supplier availability: Your lead time predictions are only as good as your suppliers. If the supplier is unable to secure materials, their lead times lengthen.
• Supplier reliability: The quality of the materials your supplier receives can significantly impact your lead time, particularly if products require repairs or replacements.
• Production processes: Each step in the production process has the potential to lengthen or shorten lead times. Efficient processes reduce lead times, whereas opaque or complex processes can increase lead times.
• Inventory levels: Low inventory levels during high demand can lengthen lead times. However, too much inventory that requires storage can also lead to inefficiencies in order processing.
• Transportation: The distance products must travel between your warehouse and your customer, as well as whether they need to clear customs or undergo regulatory inspections, can affect lead times.
• Quality: The reliability of your products and whether they meet customer expectations can impact the need to ship replacement products. When this happens, the lead time from order to customer roughly doubles.
• Demand: Product demand can be seasonal. For example, if you manufacture patio furniture, demand increases during warm months. If demand outpaces the production process, this can result in backlogged orders. Every moment an order is in backlog, the average lead time increases.
• Communication: Poor communication across teams, or with suppliers and shippers, can create inefficiencies. This can include orders not shipping when the product is available or a delay in ordering raw materials.
• External events: The COVID-19 pandemic disrupted the supply chain, leading to extended lead times. Other events, such as natural disasters, power outages, road construction, and political events, can also impact lead times.

How to reduce lead time in 6 simple steps

Reducing lead times creates a competitive advantage by lowering costs and improving cash flow, while simultaneously increasing customer satisfaction. 

Cutting lead time improves multiple areas of your business at once. You’ll get better results by tackling processes, technology, and team skills together rather than fixing one thing at a time. Focus on changes that yield the greatest return for the effort you put in.

These strategies work across different industries. The details might change depending on your business, but the basic approaches consistently reduce lead time.

1. Understand what’s causing delays in the first place

Review the processes that contribute to lead time. If there are unnecessary steps or waste, eliminate them. Remember that process optimization may require adding new steps to reduce lead time.

For example, if regulatory reviews affect your lead times, determine the rate of rework your finished products undergo. Assign an individual or team to understand compliance and validate that the specifications meet those requirements. Additional steps, such as compliance testing for finished products, may also be beneficial. While these steps may initially increase production lead time, they can ultimately decrease the cumulative lead time for your products. 

If you’re purchasing raw materials, review the rate of reorder and rejection due to quality issues. Look for opportunities to improve the quality. These can include defining clearer requirements for the materials you need, auditing the quality of various suppliers, and reviewing how you store and use materials.

2. Improve supplier relationships for faster turnaround and better results

Get to know your suppliers, and do your homework. The cheapest products can become the most expensive if they impact your lead times through rework, unreliability, or inconsistent availability. Managing supplier relationships is crucial for procuring high-quality materials, negotiating favorable prices, and effectively handling rejected or reworked materials.

When selecting suppliers, review their lead times, locations, and reliability. Local suppliers can often deliver more quickly, and proximity allows you to develop better relationships. When a problem occurs, having a strong relationship with your supplier can help you overcome challenges rapidly.

3. Streamline internal processes to focus on impactful work

Automating repetitive tasks eliminates human error and significantly reduces processing time. Identify bottlenecks where work consistently accumulates and redesign these areas to facilitate smoother workflows. Cross-team collaboration is crucial for maintaining streamlined workflows, as handoffs between departments frequently lead to delays.

Standardizing procedures across teams ensures consistent execution and reduces variation in processing times. Document best practices and create clear protocols for common scenarios. This approach helps new team members contribute more quickly and reduces the learning curve for complex processes.

4. Optimize inventory management

Just-in-time (JIT) inventory strategies can dramatically reduce storage time and associated costs, but they require accurate demand forecasting to prevent stockouts. Safety stock strategies provide buffer protection against demand uncertainty while maintaining reasonable inventory levels.

Effective inventory management balances carrying costs with service levels. Advanced forecasting techniques and real-time demand monitoring help organizations maintain optimal inventory levels. Consider implementing automated reorder points and aim for supplier partnerships that enable rapid replenishment when needed.

5. Invest in technology that aligns work to goals

Enterprise Resource Planning (ERP) systems integrate various business processes and provide real-time visibility into operations. AI-powered analytics can find patterns and predict potential delays before they occur. These tools enable proactive management rather than reactive problem-solving.

Real-time tracking systems enable the immediate identification of delays and facilitate rapid responses. Predictive insights help teams anticipate problems and implement preventive measures. Mobile apps and cloud-based platforms enable team members to access crucial information and make informed decisions, regardless of their location.

6. Train your team and inform other stakeholders

Ongoing education on process improvements and technology tools ensures that team members can contribute effectively to efforts that reduce lead time. Well-trained teams proactively identify potential delays and implement solutions before problems escalate.

Cross-training team members in multiple skills reduces dependency on specific individuals and enables more flexible staffing.

Example of lead time for an online custom order

Consider a customer ordering a custom laptop configuration from an online retailer. The process begins when the customer submits their order on Monday morning, triggering several parallel activities that illustrate different lead time components. 

The pre-processing phase takes 2 hours as the system validates the configuration, processes payment, and generates work orders. Materials procurement runs concurrently, requiring 1 day to gather specific components from various suppliers. The longest wait occurs for a specialized graphics card that takes 3 days to arrive from the manufacturer. 

Production begins once all components are available, taking 6 hours to assemble, test, and package the laptop. Quality inspection adds another 2 hours to ensure the system meets specifications. The completed laptop then enters the shipping process, spending one day in the warehouse before being picked up by the carrier. Transportation takes 2 days via ground shipping to reach the customer. 

The total lead time from order placement to delivery is 7 days.

3 templates to take control of lead time

Managing lead time is much easier when you have the right visual tools to track progress and identify problems before they escalate. The following templates turn complex project timelines into clear, actionable roadmaps that keep teams aligned and deliverables on schedule. With Jira and Confluence’s built-in optimization features, these templates provide immediate visibility into where delays occur and how to prevent them. 

Jira Project Timeline template

This template helps teams map out project phases with clear start and end dates, creating visual roadmaps that span weeks or months. It improves visibility across departments and identifies potential bottlenecks early in the planning process. Teams can track milestone dependencies and adjust timelines proactively when delays occur. 

Try the Project Timeline template

Jira Project Schedule template

This template breaks down large deliverables into manageable tasks with clear dependencies and resource assignments. Scheduled tasks help reduce uncertainty and align team members on delivery expectations. The template includes built-in time tracking and progress indicators that highlight when projects are falling behind schedule. 

Try the Project Schedule template

Confluence Timeline Workflow template

This template supports cross-functional planning with a visual timeline that connects strategy to execution. Teams can document progress, link directly to Jira issues, and maintain alignment across multiple workstreams. The template includes stakeholder communication tools and status updates that keep everyone informed, eliminating the need for lengthy meetings. 

Try the Timeline Workflow template

Optimize lead time tracking with Jira

Jira provides powerful capabilities for measuring and monitoring lead time in software development and project management workflows. Teams can configure custom workflows that track issues through each stage of the development process. 

Jira's workflow tracking features allow for detailed analysis of where time is spent during development cycles. Automation rules can trigger notifications when issues remain in specific states too long, helping teams proactively address potential delays. Built-in reporting tools provide insights into project management phases and identify bottlenecks in the development process. 

Jira's integration capabilities allow teams to connect with other tools in their development ecosystem, providing comprehensive visibility into lead time across the entire project planning process. Custom dashboards can display lead-time metrics in real time, enabling data-driven decisions about resource allocation and process improvements.

Advanced features, such as burndown charts and cumulative flow diagrams, help teams visualize lead time trends over time. These visualizations support annual planning activities and help teams establish realistic time management expectations for future projects.

Teams can also create action plans based on lead time data, focusing improvement efforts on the most impactful areas. These activities support broader product strategy objectives and help organizations set goals more effectively.