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What is Lead Time

In business, the term lead time is used for many purpose. But in the inventory management and production planning, it is the time between placing the purchase order of inventory and getting the same inventory. For example, you buy the kitchenware from Delhi and then pack in different bags and sell. So, after placing the order, you get delivery within 5 days. So, 5 days are your lead time.


For calculating reorder level, we need to calculate lead time. If we multiply the average consumption of units with lead time, we can calculate the consumption during lead time. If we add the minimum level in consumption during lead time, we can calculate the reorder level.

Definition of Lead Time 


Lead time is the amount of time you required to complete a service, a production lot or an order.

Calculation of Lead Time 


Lead Time = Date of Getting Delivery - Date of Placing Purchase Order 




OpenERP explain the lead time with following example. 


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Accounting Education: What is Lead Time
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