Delivery Lead Time: Meaning & How to Reduce It

Your customers expect their orders yesterday, but your suppliers say 4 weeks. Now you are panicking with the order lined up and customers asking, “When can we expect our order?” This is what happens when you fail to manage your delivery lead times. And it can impact your overall supply chain, and that’s poor inventory management. 

But dont worry. In this blog, this is exactly what we are going to touch on. What does it mean by delivery lead times? How can we calculate it for your business, and what are the ways to reduce your lead time to prevent delays, late arrivals, and stockouts? 

What is delivery lead time?

Delivery lead time or purchasing lead time is the time between placing your order to the time it gets delivered. This whole process is referred to as delivery lead time. 

There are different definitions of delivery lead time. Some stated that the time after completion of the order till delivery is known as delivery lead time, while others defined it as the time between placing an order until it gets delivered. Both are correct, and use is based on what you use in your internal channels and meetings. Because it’s important for the business to have a mutual understanding of concepts to make sure there is no misunderstanding. 

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Delivery lead time vs manufacturing lead time vs procurement lead time

Delivery lead time – the time it takes for a supplier to deliver the product to the designated place by both parties

Manufacturing lead time – the time it takes to manufacture a product from start to end. Could be raw materials or end product.

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Procurement lead time – The Time it takes from the initiation of a purchase order (PO) to the final delivery of goods and services 

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In short, all these lead times combine to make a complete supply chain lead time flow. 

Components that make up your delivery lead time

Lead time is how long a manufacturer needs to make the stuff you ordered, plus how long it takes to deliver it.  According to supply chain surveys, the average B2B delivery lead times range from 2-12 weeks, depending on industry. Let’s see which components contribute to the whole process.

• Order processing time – How long does it take to initiate the order (1-2 days average based on order)
• Inventory availability – the products you asked for are available or not  (immediate vs backorder)
• Manufacturing/production time – How long does it take to manufacture the end product  (varies by industry)
• Packaging and handling – How long does packaging take (often overlooked, 4-8 hours)
• Shipping and transit – What delivery service are we using, and how long does it take to deliver the order  (ground: 1-5 days, air: 1-2 days)
• Last-mile delivery – how long does it take to transfer your order from the distribution center to the receiver location (the biggest variable factor)

How to calculate delivery lead time?

There are two commonly used methods for the calculation of delivery lead time: first-time calculation and history-backed calculation.

1. Subtraction 

This is a backward‑looking check on how long orders really took to deliver once initiated.
How to do it:

Delivery lead time = (When order was received) − (when order was placed)

1. Pull the order date/time (e.g., 17 Aug @ 2 PM)
2. Pull the delivery date/time (e.g., 20 Aug @ 11 AM)
3. Subtract. In this case, that’s 3 days 9 hours.

The subtraction method is good for spotting seasonal trends, carrier slowdowns, or warehouse staffing gaps. But its not an ideal formula to use in every situation. It can’t predict a brand‑new product line because you need past shipments to measure.

2. Addition 

Another method to measure the delivery lead time is through the addition method. It’s a forward‑looking estimate built by adding up every task in the path.

• How to do it:
  • List the steps: Pick (1 h) + Pack (2 h) + Ship (48 h).
  • Add them: 1 + 2 + 48 = 51 h (≈ 2.1 days).
• Good for:

This method is ideal for new SKUs with no history. And to answer “What‑if” questions like, “If we move packing to a night shift, how much faster could we ship?”

But while measuring lead time, make sure to update the hypothetical time with the real time after the first attempt to make it more personalized and help with future predictions.

If you want to manage your lead times correctly, then update all the data in your warehouse or inventory management system so you can have a live dashboard to look at, and you can see how long orders took yesterday and where to shave hours tomorrow.

Why does delivery lead time matter to a business?

Every business has a customer base to deal with. And to fulfil customer orders, you must have your own inventory management system in place. What if it’s the holiday season, orders are rolling in, but you are waiting to get your delivery from the supplier? It’s a disaster and can hit your revenue hard. Therefore, delivery lead time is more than important for any business to manage so they can prevent late deliveries, unexpected delays, and stockouts. 

1- Customer satisfaction impact

73% of customers expect faster delivery each year, either same-day or, on average, two days or less. Therefore, to keep your customers satisfied, you need to focus on delivery times. 

2- Cash flow effects

If you already know that your lead time is 10 days, and you are placing an order when you only have 10 units left before you hit stockout. That means you are compromising your cash flow. 

In another scenario, a business knows that it takes 10 days for a supplier to deliver the order, and to prevent late deliveries, they overstock the inventory, which causes a poor cash flow cycle, and your cash is stuck in overstocked goods.

3- Poor visibility into the supply chain

Just like we discussed earlier, poor lead times can lead to poor visibility that leads to overstocking, stock-outs, and additional costs.

How to find your delivery lead time (Step-by-step)

Step 1: Define Your Supplier Lead Time Measurement Points

Start Point: When you submit a purchase order to your supplier (PO sent date) 

End Point: When you physically receive the goods at your facility (goods received date)

Step 2: Collect Supplier Performance Data

For Each Purchase Order, Track

• PO submission date and time
• Supplier order acknowledgment date
• Promised delivery date (from supplier)
• Actual ship date (from supplier)
• Goods received date (at your warehouse/facility)
• Quantity received vs quantity ordered

Step 3: Calculate Individual PO Lead Times

Supplier Lead Time = Goods Received Date – PO Submission Date

Example

• PO sent to supplier: March 10, 9:00 AM
• Goods received: March 22, 2:30 PM
• Supplier lead time: 12 days, 5 hours, 30 minutes (or 12.2 days)

Step 4: Build Your Supplier Database

Track by Supplier Categories

• Primary suppliers (80% of your volume)
• Secondary suppliers (backup options)
• Important suppliers (single-source items)
• Geographic regions (domestic vs international)

Minimum Tracking Period

• New suppliers: First 10 orders minimum
• Established suppliers: 30-90 days of orders
• Critical suppliers: Continuous monitoring

Step 5: Calculate Supplier Performance Metrics

Average Lead Time: Total all lead times ÷ Number of orders

Lead Time Variability: Standard deviation of lead times (shows consistency)

On-Time Delivery Rate: Orders delivered on/before promised date ÷ Total orders × 100

For example

Supplier A: Average 8.5 days, 85% on-time, low variability

Supplier B: Average 7.2 days, 60% on-time, high variability

Winner: Supplier A (more predictable despite longer average)

Step 6: Segment Your Analysis by Critical Factors

By Product Category

• Raw materials vs finished goods
• Standard items vs custom/made-to-order
• High-volume vs low-volume items

By Order Characteristics

• Small orders (<$1,000) vs large orders (>$10,000)
• Rush orders vs standard orders
• First-time orders vs repeat orders

By Supplier Location

• Local suppliers (same state)
• Domestic suppliers (within the US)
• International suppliers (import lead times)

Step 7: Account for Different Lead Time Components

Break Down Total Lead Time

• Order processing time (supplier confirms and schedules)
• Manufacturing/sourcing time (supplier produces or sources)
• Packaging and shipping prep (supplier prepares shipment)
• Transit time (carrier delivers to your facility)
• Receiving time (your team processes incoming goods)

Identify which component takes the longest? This shows where to focus improvement efforts.

Step 8: Set Up Supplier Performance Monitoring

Weekly Monitoring

• Track orders expected this week vs actual receipts
• Flag any orders running late
• Update delivery forecasts

Monthly Supplier Reviews

• Calculate rolling 30-day averages for each supplier
• Compare actual vs promised lead times
• Identify trending issues (getting better/worse)

Quarterly Business Reviews

• Formal supplier scorecards
• Negotiate improvements for underperformers
• Recognize top performers

Step 9: Handle Special Situations

Partial Deliveries

• Measure when the final shipment arrives
• Track partial delivery frequency by supplier
• Calculate the impact on your operations

International Suppliers:

• Separate manufacturing time from shipping/customs time
• Track seasonal variations (Chinese New Year, etc.)
• Monitor currency and trade policy impacts

Emergency/Rush Orders:

• Track expedited fees and lead time improvements
• Measure supplier responsiveness to urgent requests

Step 10: Create Supplier Lead Time Reports

Daily Operations Report

• Orders expected today
• Overdue shipments
• Critical shortages

Management Dashboard

• Average lead times by supplier (trending)
• On-time delivery rates
• Lead time variability metrics
• Cost impact of delays

Supplier Scorecards

• Monthly performance summary
• Year-over-year comparisons
• Improvement recommendations

How to reduce delivery lead times

1- Punch a smaller order

Depending on your supplier capabilities and manufacturing capacity, you have to manage the order volume. For instance, if your supplier can’t handle the big order and it doubles the lead time, then punch a smaller order, but not too small to not be able to enjoy bulk discounts. 

Yes, smaller orders mean more frequent orders, but it’s still more valuable than getting a delayed order. What you have to do is manage when to place an order so you receive it before the stockout.

2- Check if you have enough labor

No matter how fast your lead time, if you don’t have labour to manage and report back – you won’t be able to have data to build your strategy. Therefore, invest in labour that keeps track of your lead times, goods, cross-checks with POS, and helps you make a strategy for future orders. 

3- Automate the whole process

If you are still using spreadsheets to enter every order detail manually, then it might cost you extra time and cost in addition to lead time. Because every time you receive an order the next step you would take is to put every detail in sheets to process it further; otherwise, your inventory will get misplaced. 

Therefore, to prevent any such delays and misplacement, use Seebiz inventory management software that automates everything from reorder point to back orders, lead times, and safety stock levels. And cut costs and additional time that you could use in building new strategies and improving your product. 

Conclusion

For a business to scale, it must follow a timeline. Without a proper timeline, from inventory to supply chain, everything could fall apart. Therefore, invest in good software to automate your lead times and present details, understocking, and stockouts.

FAQs

Is lead time the same as delivery lead time?

While lead time is generally used for the entire process from initiating any process of delivery until it gets delivered, it serves multiple purposes, such as manufacturing lead time or procurement lead time. However, delivery lead times specifically refer to the time it takes for a supplier to deliver goods from the start of the order to the delivery. Both of these terms are used interchangeably. 

How to calculate delivery lead time?

Delivery lead time is the period between the order placement and delivery. You can calculate it by adding the time required to complete all the steps involved in the entire process. 

What causes long lead times?

There are a lot of reasons that could cause long lead times, such as manufacturer issues, working conditions, weather, unexpected outrages, raw material shortages, remote locations, and transportation problems.