Lead time is that the time that elapses between the placing of associate degree order (either a procurement order or a purchase order issued to the search or the mill floor) and truly receiving the products ordered.
If a supplier (an external firm or associate degree internal department or plant) cannot offer the desired merchandise on demand, then the client firm should keep associate degree inventory of the required merchandise. The longer the lead time, the larger the quantity of products the firm should carry in inventory.
A just-in-time (JIT) manufacturing firm, such as some automobile manufacturing companies, can maintain very low levels of inventory. Some of these companies take delivery of some merchandise as several as eighteen times per day. However, steel mills may have a lead time of up to 3 months. That means that a firm that uses steel made at the mill should place orders a minimum of 3 months prior to of their want. In order to stay their operations running within the meantime associate degree on-hand inventory of 3 months' steel necessities would be necessary.
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