How to calculate supplier lead time from purchase orders

Supplier lead time is the number of days between sending a purchase order and having the units on your shelf. Subtract the two dates for each past order, then take the median of those numbers. In our six-order example the average is 15 days and the median is 11. The median is the safer figure to plan with.

What counts as lead time#

The clock starts on the day you send the order. It stops on the day the units are on your shelf, counted and ready to sell.

That is longer than delivery time. Delivery time is the carrier's part only. Lead time also holds the supplier's picking and packing, customs if there is any, and the days a box sits at your door before someone opens it. Units you cannot sell yet are still lead time.

Here is a mistake that is easy to make. Someone types the supplier's quoted lead time, say "7 to 10 days", into a sheet once and never looks at it again. If that quote covers shipping only, the real orders take longer. Every reorder date is then a few days late, and the shelf is empty before the box turns up. The fix is six dates and a subtraction.

One edge case. If a supplier will not start until your deposit lands, start your clock on the deposit date, since that is when theirs starts. Pick one rule and use it for every order from that supplier.

Six orders, six lead times#

Open your last six orders from one supplier. Write down the date you sent each one and the date you received it. Subtract.

Dates across a month end are where people slip. Order 5 runs from Jun 1 to Jul 9. That is 29 days to the end of June plus 9 days into July:

29 + 9 = 38 days

In a spreadsheet, subtract the two date cells and format the answer as a number.

Average and median, with one late delivery#

The average adds the six lead times and divides by six.

9 + 11 + 10 + 12 + 38 + 11 = 91
Average = 91 / 6 = 15.17 days

The median is the middle value once you sort them. With six values there is no single middle, so you take the average of the third and fourth.

Sorted: 9, 10, 11, 11, 12, 38
Median = (11 + 11) / 2 = 11 days

Now take the 38 day order out and run both again.

Average without it = 53 / 5 = 10.6 days
Median without it = 11 days

One late order moved the average from 10.6 to 15.17, a jump of about 4.6 days. The median stayed at 11. That is the whole case for the median.

Look at what the average describes. No order took 15 days. Five took 9 to 12 days and one took 38. The average is a figure that never happened, and it describes one bad shipment, not the supplier.

Here is what it costs. Say the product sells 5 a day. The stock you need to cover a lead time is the lead time times the daily sales. Round the average to 15 days.

Using the average: 15 x 5 = 75 units
Using the median:  11 x 5 = 55 units
75 - 55 = 20 units

If you plan on the average, every reorder point carries 20 extra units, all of them waiting for an event that happened once in six orders.

Partial deliveries and bad dates#

Suppliers split orders. Say you order 100 units. 60 arrive on day 10 and the other 40 on day 25. You now have two lead times, 10 and 25, and you must pick one.

Record both. Then use the one that matches the decision. If you sell the first 60 while you wait, day 10 tells you how fast the supplier ships. If you need the full 100 before you can reorder, day 25 is the number. For reorder timing, use the delivery that brings the quantity you were waiting for.

Bad dates need a rule too. A lead time of zero, or a negative one, means someone typed a date wrong or marked an order sent after it arrived. Fix the date or drop the row. Do not let it into the middle.

How many orders before you trust it#

At least three. Two orders do not have a real middle. Say a supplier took 10 days once and 38 days once.

Median of two = (10 + 38) / 2 = 24 days

No delivery took 24 days. Add a third order of 11 days and the median becomes a real delivery.

Sorted: 10, 11, 38
Median = 11 days

With fewer than three orders, use the supplier's quoted time and label it as an estimate. Once you have three, keep adding. Drop orders older than about a year, because a supplier who slowed down or sped up long ago is not the supplier you are ordering from today.

From lead time to an order-by date#

An order-by date is the last day you can send an order and still have stock when it arrives. You need three numbers: units on hand, units sold per day, and the lead time.

Days of stock = units on hand / units sold per day
Order-by date = today + days of stock - lead time

Add units already on order to units on hand if they are on their way. Now an example. Today is October 1. You hold 90 units and sell 5 a day. The median lead time is 11 days.

Days of stock = 90 / 5 = 18
Stockout date = Oct 1 + 18 days = Oct 19
Order-by date = Oct 1 + (18 - 11) = Oct 1 + 7 days = Oct 8

Send the order by October 8 and the median delivery lands on October 19, the day the shelf empties. Use the average instead and the same item looks like this:

Order-by date = Oct 1 + (18 - 15) = Oct 1 + 3 days = Oct 4

That is four days earlier, which is exactly the gap between 15 and 11. The average makes you order sooner and hold more than the supplier needs.

The date moves whenever sales speed changes, so work it out again each week. If your sales rise and fall by season, the date from last month's sales will be wrong this month.

The risk the median hides#

The median says nothing about the 38 day order. In our example, one order in six took 27 days longer than the median. Suppose it happens to the order you send on October 8.

Arrival = Oct 8 + 38 days = Nov 15
Days without stock = Nov 15 - Oct 19 = 27 days
Units sold in that gap = 27 x 5 = 135 units

To survive a repeat without a stockout, you would carry 135 extra units. Whether that is worth it depends on what a stockout costs you against what 135 units cost to hold. For a cheap item that sells every day, carry the buffer. For a slow, expensive one, accept the risk and watch open orders instead.

So the median gives you the date to plan with. A buffer is a separate decision, and it belongs to the item, not the supplier.

Check open orders against the promised date#

A lead time tells you what is normal. The promised date on an open order tells you when something is not.

Say you sent an order on October 8 and the supplier promised delivery by October 20. Your median says October 19. If nothing has arrived by October 21, the order is one day late, and you know it on October 21 rather than in November when the shelf is bare. That is the day to write to the supplier. Our guide to receiving a purchase order covers the receiving side, since a lead time is only as good as the receive date behind it.

Pick your busiest supplier and write down the last six sent and received dates today. Take the median, then work out the order-by date for your top seller. If you have fewer than three orders, write the quoted lead time down and mark it as a guess until you have the data. For how this feeds the stock level you reorder at, see our reorder point guide.

Frequently asked questions#

Should I use the average or the median lead time?

Use the median. One very late order drags the average up to a figure no delivery ever matched. In our six-order example the average is 15 days, the median is 11, and five of the six orders took 9 to 12 days. Plan with the median, then cover the late orders with a buffer.

How do I handle partial deliveries in lead time?

Record each delivery with its own date and measure each one from the day you sent the order. Say 60 of 100 units arrive on day 10 and the other 40 on day 25. For reorder timing, use the delivery that brings the quantity you were waiting for, which is day 25 if you need the full order.

Should lead time start when I place the order or when I pay?

Start it on the day the supplier's clock starts. For most orders that is the day you send the order. If a supplier will not begin until a deposit arrives, start on the deposit date. Pick one rule and use it for every order from that supplier.

How many orders do I need before I trust a lead time?

At least three. With two orders the median is just their average, so one late delivery moves it by half the delay. With three, the middle value is a delivery that really happened. Fewer than three, use the supplier's quoted time and label it as an estimate.

What is the difference between lead time and delivery time?

Delivery time is the carrier's part, from the day the parcel leaves to the day it arrives. Lead time starts earlier and ends later. It includes the supplier's picking and packing, the carrier, customs, and the days the box sits at your door before anyone receives it.