Inventory glossary

What is Lead time demand?

Lead time demand is the amount of stock you expect to sell during the time between placing a purchase order and receiving it from the supplier.

Lead time demand tells you how much inventory you need just to survive until the next delivery arrives. If you ignore it, you set reorder points too low and run out of stock before the new order shows up, even if your supplier isn't late.

Use it as the core number in your reorder point calculation. Once you know your average daily sales and your supplier's lead time, multiply them together to get a baseline, then add safety stock on top to cover demand swings.

Formula

Lead time demand = Average daily sales x Lead time (in days)

Example

A candle store sells 8 units of its lavender candle per day on average. The supplier's lead time is 14 days. Lead time demand is 8 x 14 = 112 units. The store needs at least 112 units on hand or on order at any point to avoid running out before the next shipment arrives.

Common mistakes

  • Using total monthly sales instead of average daily sales, which throws off the math.
  • Forgetting that lead time demand changes when a supplier's lead time changes, like during holidays.
  • Treating lead time demand as the full reorder point and skipping safety stock, leaving no buffer for demand spikes or late shipments.

Lead time demand and SteadyShelf

SteadyShelf calculates lead time demand automatically from your sales forecast and each supplier's lead time, then uses it to set the order-by date for every SKU.

Work it out for your own products with our free tool: Reorder point calculator.

SteadyShelf is launching on the Shopify App Store. Join early access to get the install link first.

Related terms

Reorder point · Lead time · Safety stock · Average daily sales · Stockout

Full inventory glossary

FAQ

How is lead time demand different from safety stock?

Lead time demand covers expected sales during the wait for a new order. Safety stock is extra stock on top of that to cover unexpected spikes in demand or delays in the shipment. Together they form the reorder point.

What happens if I underestimate lead time demand?

You reorder too late. By the time the new stock arrives, you have already sold out and are turning away customers or losing sales to backorders.

Let SteadyShelf do this math for every SKU

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