Lead time is the period between a customer's order and delivery of the final product. A small order of a pre-existing item may only have a few hours lead time, but a larger order of custom-made parts may have a lead time of weeks, months or even longer. It all depends on a number of factors, from the time it takes to create the machinery to the speed of the delivery system. Lead time may change according to seasons or holidays or overall demand for the product.

Manufacturers are always looking for ways to improve the lead time on their products. Lead time can mean the difference between making the sale and watching a competitor sign the contract. If a company can deliver the product weeks ahead of the competition, it stands a better chance of receiving future orders. Because of this, management and labor teams routinely hold meetings to discuss lead time improvements.

For a real world example of lead time in action, let's order a pizza. When you as the hungry customer decide on a preferred local pizza restaurant, you may have already considered such factors as speed and consistency. The selected restaurant must first receive your custom order, based on their pre-stocked ingredients. Once you've placed your order, the restaurant may tell you to expect the finished pizza in 45 minutes to an hour. This would be considered lead time. The restaurant bases this time on several factors: the time it takes to prepare the pizza, the cooking time, the availability of delivery drivers and the distance to your home.

As the potential customer, you could still change your mind and place an order with a different restaurant known for its speedy delivery times. The same style of pizza may arrive in 30 minutes. It's an identical product, but the lead time is different. This other restaurant may use prepackaged pizzas or hire more delivery drivers. There may be some limitations on delivery areas, however, or the pizza may not be cooked well. Sometimes a shorter lead time is no guarantee of overall quality. Lead times may also change according to the day of the week -- demand may be higher on weekend nights, for example, creating a longer lead time.

This is the challenge many companies face when attempting to improve lead time on a product line. Some processes simply take more time to create a high quality product. A custom order may require months of preparation before the factory is capable of mass production. It can be challenging to offer a competitive lead time to the customer while still maintaining quality control over production. Companies must remain realistic with their lead time estimates, but constantly strive to improve their manufacturing process and reduce lead times.