2.2 Lead time management

Lead time is not a static data point; it is a dynamic variable that defines the horizon of your physical supply chain. Treating Lead Time (LT) as a “set and forget” field in your ERP’s Item Master can lead to significant schedule disruptions. If the semiconductor market shifts from a 12-week to a 50-week lead time and your internal data is not updated, the MRP engine will trigger buy signals far too late to secure the necessary inventory.

The anatomy of total lead time

The MRP engine calculates the necessary “Order Start Date” by subtracting the Total Lead Time from your “Need Date.” It is important to define Total Lead Time (LTtotal) accurately as the sum of three distinct segments.

LTtotal = LTsupplier + LTtransit + LTinternal

1. Supplier LT (Production Capability): The time from formal Order Receipt (Vendor ACK) to the moment the goods are ready at the factory door (Ex-Works).
   • Source: Vendor Quotations or live market feeds.
2. Transit LT (Physical Logistics): The reality of maritime or air transit from the Supplier to your Receiving Dock.
   • The Reality: Premium Air is typically 3–5 days; Ocean Freight can be 30–45+ days.
   • The Guideline: Use slightly conservative transit times (e.g. historical averages) to absorb occasional port congestion or delays.
3. Internal LT (Dock-to-Stock): The time required from the physical arrival at your dock until the inventory is logically available in the ERP for production.
   • Includes: Unpacking, count verification, QA/Incoming Inspection (IQC), and ERP entry.
   • The Standard: Typically 2–3 Days. Factor in more time if extended testing (like destructive counterfeit checks) is required.

Dynamic update logic

Lead times naturally expand and contract based on global factory capacity and raw material availability. The ERP master data must reflect current market realities.

Signal 1: the quote refresh

• The Trigger: Receiving a new quote or formal PO acknowledgement (ACK).
• The Action: Update the ERP System LT if the quoted Lead Time differs significantly from the current system value.
• The Action Threshold: If the lead time increases drastically (e.g. > 20%), alert Engineering/Planning to evaluate alternative sources or adjust schedules.

Signal 2: evaluated actuals (supplier performance)

• The Trigger: Periodic Supplier Performance Reviews (e.g. Quarterly).
• The Logic: Compare the Average actual delivery time against your System lead time.
• The Adjustment: If a vendor consistently delivers later than promised, adjust the System LT to reflect their actual performance, prompting the MRP engine to order earlier.

Signal 3: global market allocation

• The Trigger: Verified industry alerts regarding specific commodity shortages.
• The Action: Proactively update lead times across affected commodity groups to reflect the new market reality (e.g. updating all automotive MLCCs to an extended lead time).

The mathematical buffer strategy

Avoid padding lead times arbitrarily out of caution, as artificial padding creates “System Nervousness” and drives excess inventory. Use calculated time buffers based on quantifiable risk.

• Standard COTS Parts: Buffer = 0. Rely on calculated Safety Stock to handle variance.
• Custom/Sole Source Silicon: Consider a minimal buffer (e.g. +2 Weeks) to account for unpredictable fab yield variations.
• Ocean Freight: Consider a small buffer (e.g. +1 Week) to cover potential port congestion.

Pro-Tip: Ensure your Internal LT is greater than zero days. Even with rapid cross-docking, physical routing and system updates take a finite amount of time. Entering ‘0’ can result in Production expecting the parts the exact minute they arrive at the building.

Managing unknown lead times

If a Lead Time is currently unknown, avoid entering a generic placeholder like “1 week” or “Standard.”

A Suggested Governance Approach:

1. The Indicator: Temporarily set the LT field to an extreme maximum value (e.g. 999 Days).
2. The Effect: This will cause the MRP system to generate an immediate exception message.
3. The Result: The system exception forces a Planner or Buyer to manually investigate, contact the vendor, and secure an accurate date. Entering a low “fake” number allows the system to remain silent until the shortage becomes a reality.

Lead time governance (data maintenance)

Review system parameters periodically to ensure data accuracy.

Suggested Review: LT Variance Analysis

• Frequency: Monthly or Quarterly.
• Owner: Master Scheduler or Commodity Manager.

Compare the System LT against the Actual Performance LT across major commodity classes. If the mathematical variance is high, investigate whether the vendor is underperforming or if the system data requires a permanent update.

Final Checkout: Lead time management

Control Point	Engineering Requirement	Target Goal
TLT Definition	Total Lead Time includes appropriate Dock-to-Stock.	Maintained (e.g. > 2 days)
Market Sync	Commodity LT data is reviewed regularly.	Defined Cadence
Vendor Reality	System LT reflects measured actual performance.	Updated periodically
The Unknowns	Unknown delivery dates are flagged in system.	E.g. 999 Days for review
Allocation	Market shortage data drives mass ERP updates.	Executed proactively