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What Is Effective Lead Time?

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  • Written By: Alex Newth
  • Edited By: Angela B.
  • Last Modified Date: 07 November 2016
  • Copyright Protected:
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    Conjecture Corporation
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Effective lead time and lead time are both integral parts of almost any business, especially those that rely on ordering or manufacturing supplies and products. Both deal with the amount of time it takes until the supplies or products reach their destination, but there is a slight addition to effective lead time. Lead time is the exact amount of time it will take, while effective lead time adds a cushion to the lead time. This cushion is to account for any delays, such as shipping taking longer or workers being unable to make or move the supplies on time. Most of the factors in the lead time will add extra time, just in case anything goes against schedule.

Lead time is the amount of time it will take from the moment an item is ordered until it is at its destination. This timeframe includes ordering time, shipping time, inspections and any other factors for the specific ordering agent. Lead time is generally much less than effective lead time, because lead time does not account for any errors that may occur during shipping or manufacturing.

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Effective lead time is similar to lead time, but it is a more realistic measurement. For example, a warehouse manager is told that a crate of a product is needed. The manager knows it will take 10 hours to get the product ready without interruptions. At the same time, the manager knows how common interruptions can be and tells the ordering agent that it will take 12 hours for the product to go out.

While effective lead time is something of an estimate, the effective variant is more realistic than the more precise lead time. It is rare in ordering situations when no branches encounter any interruptions. By adding extra time and accounting for the possibility of problems occurring, store managers can plan. The branches of the shipping structure are all adding more time than needed, so the product will usually reach the store earlier than promised. If the early arrival does not happen, then managers will still be prepared, because they will have been expecting it later anyway.

A variable lead time is similar to an effective lead time in that it accounts for workload and interruptions. Some businesses will promise that a product will ship within a specific amount of time. Variable lead time is a business model that lets the manager quote a timeframe based on how much work he or she has at that moment. Much like effective lead time, this is generally a more realistic shipping measurement.

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