Procurement Glossary
Lead time: definition, measurement and strategic importance in Procurement
November 19, 2025
Lead time is a key performance indicator in procurement management that measures the time from the order trigger to the receipt of goods. It has a significant influence on a company's planning reliability, capital commitment and ability to deliver. Find out below how lead times are measured, which factors influence them and how you can strategically optimize them.
Key Facts
- Throughput time includes all process steps from demand identification to available material
- Typical components: Order processing, production time, transportation and goods receipt
- Direct impact on safety stocks and capital commitment
- Industry-specific differences: from a few days to several months
- Optimization possible through supplier development and process digitalization
Contents
Definition and importance of lead times
The lead time defines the entire period between the triggering of an order and the availability of the material in the company.
Core components of throughput time
The total throughput time is made up of several partial times:
- Internal order processing time (release, transmission)
- Supplier processing time (order confirmation, production preparation)
- Production or provision time at the supplier
- Transport time and goods receipt processing
Lead time vs. delivery time
While the delivery time only covers the period from order confirmation to goods receipt, the lead time also takes internal lead times into account. This distinction is crucial for materials planning.
Importance of lead time in Procurement
Lead times determine planning cycles and directly influence inventory optimization. Shorter lead times enable more flexible reactions to market changes and reduce the risk of obsolescence.
Measurement, database and calculation
The precise measurement of throughput times requires systematic data collection and standardized calculation methods.
Data acquisition and time stamp
Relevant measuring points include requirement notification, order release, supplier confirmation and goods receipt. ERP systems record these time stamps automatically and enable the calculation of average and maximum values. The delivery time variance shows the reliability of the suppliers.
Calculation methods
The lead time is typically calculated as an arithmetic mean over a defined period of time:
- Average throughput time = Σ(individual throughput times) / number of orders
- Consideration of working days vs. calendar days
- Separate consideration according to Categories and suppliers
Segmentation and analysis
The ABC-XYZ analysis enables a differentiated view of throughput times. A-items require more precise measurement, while C-items can work with standard values.
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Interpretation & target values for throughput times
The evaluation of throughput times requires industry-specific benchmarks and differentiated objectives.
Sector-specific target values
Lead times vary considerably between industries and material groups. Standard items often reach 5-15 days, while customized products can take 6-12 weeks. The warehouse key figures help to classify performance. Continuous benchmarking studies provide orientation values for realistic targets.
Performance indicators
In addition to the absolute lead time, key figures such as on-time delivery, variance and trend are decisive:
- Lead time variability (standard deviation)
- Proportion of late deliveries
- Improvement rate compared to previous period
Balanced Scorecard Integration
Throughput times should not be optimized in isolation, but should be considered in the context of costs, quality and delivery service level. Target values that are too aggressive can cause additional costs or quality losses.
Risks, dependencies and countermeasures
Lead times are subject to various internal and external risk factors that require proactive management.
Supplier dependencies
Single-source strategies significantly increase the risk of lead time extensions. Supplier failures, capacity bottlenecks or quality problems can affect the entire supply chain. Dual-sourcing approaches and regular supplier evaluations reduce these dependencies. Automatic replenishment can suggest alternative suppliers for critical materials.
External disruptive factors
Natural disasters, political instability or pandemics can unpredictably extend lead times. Robust risk management strategies include geographical diversification of the supplier base and flexible transportation routes. Safety time buffers compensate for short-term fluctuations.
Internal process risks
Inefficient approval processes, incomplete specifications or IT failures extend internal throughput times. Standardized workflows, digital approval processes and redundant systems minimize these risks. Regular process audits identify optimization potential.
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Practical example
An automotive supplier analyzes the lead times for electronic components. The average lead time is 28 days with a variation of ±8 days. By implementing a supplier portal and introducing Kanban systems for A-items, the company was able to reduce the lead time to 18 days and halve the variance to ±4 days.
- Digitization of order processing (-5 days)
- Supplier integration and capacity planning (-3 days)
- Optimized transport logistics (-2 days)
Current developments and effects
Digitalization and global supply chains are fundamentally changing lead time optimization.
AI-supported forecasts
Artificial intelligence is revolutionizing lead time planning with more precise predictions. Machine learning algorithms analyze historical data, supplier performance and external factors such as weather or traffic conditions. These technologies enable dynamic adjustments to consumption forecasts and automatically optimize order times.
Supply Chain Visibility
Real-time tracking and IoT sensors create complete transparency across supply chains. Companies can identify delays at an early stage and initiate countermeasures. The integration of supplier systems enables precise lead time forecasts as soon as the order is triggered.
Nearshoring and regionalization
Geopolitical uncertainties are encouraging the relocation of supply chains to geographically closer regions. This significantly shortens transportation times and reduces the volatility of lead times. Just-in-time concepts are therefore becoming more attractive again.
Conclusion
Lead time is a key performance indicator for efficient procurement management that has a direct impact on capital commitment, delivery capability and competitiveness. Through systematic measurement, continuous optimization and the use of digital technologies, companies can significantly improve their lead times. The balance between short lead times and cost efficiency requires a strategic approach that involves all stakeholders in the supply chain.
FAQ
What is the difference between lead time and replenishment lead time?
The replenishment lead time only includes the time from order initiation to goods receipt, while the lead time also includes internal lead times such as requirements recognition and release processes. Both key figures are relevant for replenishment.
How does the lead time influence the safety stock?
Longer lead times require higher safety stocks, as there is more uncertainty about future demand. Reducing the lead time by 50% can reduce the safety stock by up to 30% and thus significantly reduce the amount of capital tied up.
What role does lead time play in supplier selection?
Lead times are a decisive selection criterion, especially for time-critical materials. Suppliers with shorter and more reliable lead times enable more flexible production planning and reduce the risk of production downtime, even if their prices may be higher.
How can lead times be optimized without additional costs?
Process optimizations such as digital order processing, standardized specifications and improved communication with suppliers reduce throughput times in a cost-neutral manner. Maintenance of scheduling parameters and regular data cleansing also contribute to optimization.
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