Lead time, as you know, is an essential aspect of the warehouse management and order management process. It is the reason that builds or breaks the trust in the business.
Lead time is for all sorts of warehouse and business operations, and order lead time, which will be the focal point of this write-up, is for the orders posted by the customers or the companies.
Order lead time is the key to a consumer’s list of its favorite companies. The shorter the order lead time, the easier it is to get into the good books of a consumer. However, there are consumers that wouldn’t want order lead times to be shorter, so it’s this trickier situation that an ecommerce company needs to manage. Therefore order lead time and its calculations are crucial.
Lead time is the amount of time taken by a process from its start until it is completed. Industry monitor lead time of all their departments like manufacturing, and project management during pre-processing, supply chain management, processing, and post-processing stages to determine whether their industry is ranking high on efficiency by comparing the lead time to the industry benchmarks.
Order lead time in layman terms can be called as the amount of time taken by an ecommerce company or a supplier to fulfill an order after it has received an order from a customer or a purchase order from its buyer.
It is a crucial parameter to judge an ecommerce company’s order management prowess.
However, there are other definitions, as well. According to law insider dictionary,
“Order Lead Time means the minimum amount of time (outlined in the applicable Statement of Work) between the date on which a Purchase Order is received by Supplier and the date for the delivery of the Product to the shipping location designated by Customer, as set forth in such Purchase Order.”
Also, the business dictionary has a shorter version of the order lead time definition, and it is” period between placing an order and receiving the ordered item. See also order cycle time.
To calculate the order lead time, we need to understand the different types of order lead times.
OLT formula –
R – OLT (requested order lead time)= Wish Date – Order Entry Date
Q- OLT (quote order lead time)= Quote Date – Order Entry Date
A – OLT (Actual order lead time) = Delivery Date – Order Entry Date
C – OLT(Confirmed order lead time) = Confirmed Date – Order Entry Date
Average OLT Based on Volume
The Average OLT based on Volume (OLT) is cumulative of all the multiplications between the product volume a supplier delivers and the OLT divided by the total quantity fulfilled in a particular designated amount of time for which the warehouse is being studied.
Average OLT Volume = Quantity. OLTTotal quantity Delivered
This formula will help the companies to understand the relation between the Volume of the products required for an order and the time asked to fulfill that order. This volume metric is valid and can be applied for all the four types of OLTs.
The result from the formula will be the average time between the day when the order is registered, and the customer’s requested delivery date considering the average quantities ordered during a particular period.
To recapitulate, order lead time can determine the way your business shapes and can be the reason behind your increasing popularity among the customers because you will be able to perform warehouse and order management procedures smoothly. Also, as far as the calculating warehouse performance is concerned, order lead time is one of the primary parameters determining how you are managing your warehouse.