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Manufacturing lead time is the amount of time between the placement of an order and the receipt of the order by the customer. It includes a number of different components of the manufacturing process and can be predicted by a manufacturer with established systems in place for handling orders. When customers call a manufacturer to make an order, the manufacturer should provide a lead time quote so that the customer knows when to expect the product. Such quotes may also be listed in catalogs to provide customers with an estimate of how long it will take to receive the items they order.
The first step in manufacturing lead time is the placement of the order, followed by processing of the order. This can represent a sizable delay if a company has numerous orders to process or limited personnel for inputting and scheduling orders. Once recorded in the system, the order moves into preparation time, with personnel scheduling the actual process of manufacturing the item.
Items to be manufactured are placed in a queue, where they may wait for varying amounts of time depending on the availability of equipment, complexity of the order, and size of the order. Generic orders tend to move more quickly than customized made-to-order products because no special adjustments are needed to equipment. When an order comes for manufacturing, the order moves into setup time, where the equipment is readied for production, and then into run time, which is the time it actually spends on the manufacturing line being made.
Once produced, the item still needs to be inspected for quality control before being packaged. Packaged products are ready for shipment to the final consumer or to a warehouse where stock is stored. Shipping can take days or weeks, depending on the locations of the factory and the customer, and the type of shipping method chosen. Manufacturing lead time estimates can be hampered by the time products spend waiting for shipment, as well as other delays resulting from under staffing or excess orders that cause backups at various stages in the process.
Manufacturers maintain records on previous orders so that when a new order comes in, they can make a reasonable manufacturing lead time estimate. Computer software used for the administration of orders often calculates the lead time when an order is placed. Companies may provide some wiggle room, providing a window instead of a solid estimate for a delivery date. If an order exceeds the quoted lead time, the company may have a policy of providing compensation, such as free shipping or a discounted price to the customer. Companies want to avoid having to do this, and thus are meticulous about estimating manufacturing lead time as accurately as possible.