Lead Time

Lead time is the amount of time required to replenish a product in your warehouse, from the moment a purchase order is generated in the system, to the moment it is on the shelf and ready to sell. The average lead time is stored for each product in Warehouse/Item F/M. It is updated each time new product is received in PO Receipt Entry. Lead time, expressed as a number of days, is used to calculate a product’s order point, an indicator of “when to buy.”

Order Point = [Usage Rate * (Average Lead Time Days / 28)] + Safety Allowance

Lead time days are also used to calculate safety quantity when safety is defined in Warehouse/Item F/M as a percentage.

There are times when lead time on a particular receipt should be ignored and not factored into the average lead time. Generally, this occurs when a product’s lead time varies significantly from the average, and, if factored into the average, could result in an order point that is too high or too low. Other examples of receipts where you might ignore the lead time include:

• When a product was shipped using a faster shipping method to expedite delivery on a specific order
• When stock is purchased as a “pre-buy” to take advantage of early purchase discounts, but shipment is delayed
• When stock is received in the system long after it actually showed up in the warehouse (delay in data entry)
• When a purchase order was not created until the date of receipt
• The Lead Time options provide parameters that can be set to monitor exceptional lead times and automatically override lead time. You can set to ignore the lead time on product replenishment transactions in several FACTS functions.

Lead time is calculated by adding the last lead time and the most current lead time and dividing by two. If the next-to-last recorded lead time is over six months old, the last lead time is used (no averaging is performed) or by calculating lead time based on a user-defined number of receipts, over a user-defined number of months.

Vendor Approved Replenishment Path (ARP)

Transfer Approved Replenishment Path (ARP)

Receipts Used to Calculate Lead Time

Abnormal Lead Time Parameters for ARP Vendors

Abnormal Lead Time Parameters for ARP Transfers

Vendor Approved Replenishment Path (ARP)

Lead Time is part of the calculation for Order Point, and in cases where very long lead times occur, they can cause the order point to grow to unrealistically high levels. Similarly, if average lead time ends up being a very small number, it can lead to meaninglessly small order points.

To prevent either of these situations from occurring, you can establish a minimum and maximum lead time to use in the order point calculations. 

Transfer Approved Replenishment Path (ARP)

Same as above except for warehouse transfer ARPs.

Receipts Used to Calculate Lead Time

For calculated lead times to be accurate, you need to have a reasonable number of recent receipts. These parameters establish the limits on how and when to calculate average lead time.

The first two indicate how many receipts you must have within a given number of months in order to be able to calculate the average lead time.

Assuming those minimums are reached, the next set of values indicate how many receipts you can use over the given number of months for the calculation.

Abnormal Lead Time Parameters for ARP Vendors

For calculated lead times to be accurate, you also need to set parameters to determine if a new lead time is normal or abnormal. These parameters establish what lead time information is used to calculate average lead time.

Abnormal Lead Time Parameters for ARP Transfers

Same as above except for warehouse transfer ARPs.

See Also

Replenishment Parameter Maintenance Procedures

Replenishment Variables Calculations

Inventory Control Replenishment Parameters