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. It is the time between placing an order and when it’s available to fill orders, and it’s an important factor in replenishment. FACTS will automatically calculate the average lead time for each item from the Ordered date on POs and transfers and the receipt dates. That means that it’s important that these dates be accurate.

If you enter a PO but don’t send it to your vendor for several days, the ordered date should be updated manually to reflect the date you sent the order – failing to update the date will result in a lead time that is longer than it should be. Also, not all POs should be included in the average lead time calculation. For example, if you place a critical PO for an item and choose to have it expedited, the lead time on that PO is not an accurate reflection of the vendor’s performance for normal replenishment purposes. There is a flag in PO Entry to indicate that the lead time should not be updated by this PO. If you do not flag a PO properly to ignore lead time, it can be done after-the-fact by using the Lead Time Review program. How long it takes to get an item from your vendor becomes a critical part of determining when to place the order for the item, so it’s important to get the data right.

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.

Lead Time Adjusters and General Settings

Average Lead Time Minimum and Maximum

There are some scenarios in which the normal calculated average lead time should not be used ‘as is’ when calculating order point. A straight application of lead time assumes that you place an order for the item, and it arrives before you place the next order. For items with long lead times, this may not be the case – you many have several orders in various stages at the same time.

In such cases, for the replenishment math to calculate reasonable order points, you must limit lead time to more reasonable values. For example, if actual lead time is 90 days, but you place orders 30 days apart, you may want to set a maximum lead time to 30.

If the actual lead time is 1 day, order point may be calculated lower than you would like, so establishing a minimum lead time somewhat higher may result in more realistic values.

Minimum and maximum lead time fences can be set differently for items purchased from a vendor and those replenished from a DC warehouse.

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. 

You can set the following for lead time:

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)

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

Understanding Replenishment Values

Entering Lead Time Replenishment Parameters

Replenishment Variables Calculations

Inventory Control Replenishment Parameters

Replenishment Parameter Maintenance Procedures