What is Lead Time in eCommerce?
Lead Time, in the realm of eCommerce, is the amount of time taken by a company to fulfill an order from the moment it is placed by the customer.
Lead Time in eCommerce: Technical Definition
ClickPost defines Lead Time as the total time spent by an eCommerce seller for the fulfillment of an order, calculated from the moment the customer places an order on the website or application of the seller till the time the customer receives the item.
What are the components of Lead Time?
There are 6 main components of Lead Time.
1. Pre-processing Period
This period comprises the time taken by the enterprise to receive an order, comprehend it, and generate a purchase order for the product that is requested by the customer.
2. Processing Period
This period comprises the time taken by the enterprise to manufacture, assemble, or procure the product that is requested by the customer.
3. Stand By Period
This period comprises any time taken between production, assembly, or procurement cycles.
4. Inspection Period
This period comprises the time taken by the enterprise to inspect the type, quality, and other requisites of products that are requested by the customer.
5. Storage Period
This period comprises any time spent while the product is stored at a warehouse facility before it is dispatched for further distribution or last-mile delivery.
6. Transit Period
This period comprises the time taken by the enterprise to move the product to warehouses, distribution centers, hubs, delivery agents, and during the last mile to the end consumer.
What are the types of Lead Time?
Primarily, there are 3 categories of Lead Time.
Consumer Lead Time, also known as Total Lead Time, is the total time taken by an eCommerce company to fulfill an order after it is received by the customer.
Material Lead Time is the time taken by the supplier to provide the raw materials, components, or finished goods after a purchase order has been placed by the enterprise.
Production Lead Time is the time taken by the manufacturing facility to produce an item after a request to produce the product has been placed by the enterprise.
How is Lead Time calculated?
The simplest method to calculate lead for an eCommerce order is as follows:
Lead Time = Date Delivery of Product - Date of Order Request of Product
Why is Lead Time important in eCommerce?
Lead Time is a critical metric for companies to maintain operational efficiency. Lead Time allows companies to assess their capacity and make strategic business decisions. Further, it helps companies determine timelines, make accurate forecasts, and consequently improve customer satisfaction.
Is Lead Time the same as transit time?
Lead Time comprises time spent in multiple stages of the order fulfillment process. Since transit is a part of the fulfillment process, it is a subset of Lead Time. Lead Time includes the time taken for fulfillment of orders from the moment a customer places a request to the moment the request is satisfied. Whereas, transit time is the total amount of time spent during the movement of the product from its origin to its destination.