Lead time is that the time that elapses between the placing of associate degree order (either a sale order or a purchase order issued to the search or the manufacturing plant floor) and truly receiving the products ordered.
If a supplier (an external firm or associate degree internal department or plant) cannot provide the specified 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 firms, can maintain extraordinarily 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 a few months. That means that a firm that uses steel made at the mill should place orders a minimum of 3 months ahead of their would like. 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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