Lead time is how long it takes from asking for something to having it. A supplier's lead time runs from when you place an order to when the goods arrive; a customer's lead time runs from when they order to when they receive it. Lead times add up along a chain: if a factory needs 6 weeks to get parts and 2 weeks to make the product, it can't promise anything new in less than 8.
Long lead times are what make supply chains hard. If your supplier needs 12 weeks, you have to decide today what you'll sell in 12 weeks' time, and you'll be wrong by some amount. Shorter, steadier lead times mean you can hold less stock and react faster.
There are two basic ways to run a chain. In a push system, you make or buy goods based on a forecast and push them towards the customer, so the shelf is full before anyone asks. Supermarkets, fashion and most things you can buy off a shelf work like this. The risk is making the wrong things.
In a pull system, nothing is made until a customer orders it, so actual demand pulls goods through. A made-to-measure suit, a custom PC or a sandwich made while you wait are pull. There's no unsold stock, but the customer has to wait.
Most chains mix the two. A computer maker might push standard parts into stock based on a forecast, then pull: build each computer only when it's ordered. The point where push turns into pull is called the decoupling point. Moving it upstream means less stock but longer waits for customers; moving it downstream means faster service and more stock.
Parts take 5 weeks to arrive and the factory needs 3 weeks to make the product. What's the shortest lead time it can promise for a brand new order, in weeks?
| Lead time | From asking for something to having it. |
|---|---|
| Push | Made to a forecast, stocked before demand. |
| Pull | Made or bought only when ordered. |
| Make to stock | Push: off the shelf. |
| Make to order | Pull: built for each order. |
| Decoupling point | Where push turns into pull. |