Inventory glossary

What is Lead time?

Lead time is the number of days between placing an order with a supplier and having that stock ready to sell in your store.

Lead time decides when you need to reorder, not just how much. If you wait until you are out of stock to order, and your supplier takes three weeks to deliver, you will run out and lose sales for all three of those weeks.

Use lead time to work backwards from your sales rate. The longer and less predictable a supplier's lead time, the earlier you need to place the order and the more safety stock you should carry to cover delays.

Formula

Reorder point = (Average daily sales x Lead time) + Safety stock

Example

A candle shop sells 6 units a day of its lavender candle. The supplier's lead time is 10 days. Lead time demand is 6 x 10 = 60 units. The shop also keeps 20 units of safety stock. That gives a reorder point of 80 units: when stock hits 80, it is time to order more.

Common mistakes

  • Using the supplier's quoted lead time instead of the actual time it has taken on past orders, which is often longer.
  • Forgetting to add the time it takes to unpack and list new stock before it can actually be sold.
  • Treating lead time as fixed when it changes by season, by supplier workload, or by shipping method.

Lead time and SteadyShelf

SteadyShelf stores each supplier's lead time and uses it to calculate an order-by date per SKU, so you place orders before stock runs out instead of after.

Work it out for your own products with our free tool: Supplier lead time.

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

Related terms

Reorder point · Safety stock · Lead time demand · Days of supply · Purchase order

Full inventory glossary

FAQ

What happens if I underestimate a supplier's lead time?

You will place reorder points too low and run out of stock before the new order arrives, leading to stockouts and lost sales.

Does lead time include production time or just shipping?

It should include both. Lead time is the full span from placing the order to the stock being ready to sell, covering the supplier's production and the shipping time.

Let SteadyShelf do this math for every SKU

Order-by dates per supplier, seasonal forecasts and draft POs for your Shopify store. $29/month after a 30-day free trial.

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