What Is Lead Time? The Hidden Number That Controls Your Cash Flow

Lead time is the days between placing an order with your supplier and having that inventory ready to sell. Order on Monday, receive in 14 days? That's your lead time. Simple concept, massive impact.

Most e-commerce sellers treat lead time as a fixed number they can't control. Wrong. The difference between 30-day and 14-day lead time can mean €50,000 less inventory investment for the same sales level. Let me show you why.

The Real Cost of Long Lead Times

Every extra day of lead time forces you to carry more safety stock. The math is brutal but simple.

With 30-day lead time selling 10 units daily, you need 300 units in your pipeline minimum. With 14-day lead time, you need 140 units. That's 160 fewer units of working capital tied up. At €50 per unit, that's €8,000 freed up—per SKU.

But it gets worse. Longer lead time means more uncertainty. More can go wrong in 30 days than in 14. Demand spikes, supplier delays, quality issues—each risk requires buffer stock. Rule of thumb: safety stock requirements grow with the square root of lead time. Double your lead time? Your safety stock needs increase by 40%.

The Three Types of Lead Time You Must Track

Supplier lead time: Days from placing order to receiving goods. What your supplier promises versus what they actually deliver are two different numbers. Track reality, not promises.

Processing lead time: Days from receiving goods to having them ready for sale. Includes quality check, labeling, putting away. Most sellers forget this exists and wonder why they're always behind.

Total lead time: Supplier + Processing + Buffer. This is the number that matters for planning. If supplier takes 14 days, processing takes 2 days, and you add 2 days buffer for delays, your real lead time is 18 days.

How Lead Time Drives Every Decision

Your reorder point formula: (Daily Sales × Lead Time) + Safety Stock

Sell 10 units daily with 30-day lead time? You reorder at 300 units plus safety stock, maybe 400 units total. Same sales with 14-day lead time? Reorder at 140 plus safety stock, maybe 200 total. Half the inventory investment for identical availability.

Lead time determines your cash conversion cycle. With 30-day lead time plus 30-day payment terms, your cash is locked for 60+ days. With 14-day lead time and smart payment timing, you might receive and sell inventory before paying for it. That's the difference between needing a credit line and funding growth from cash flow.

Strategies to Slash Lead Time

Pay for air freight on fast movers: Sounds expensive, but isn't. If air freight cuts lead time from 30 to 7 days on a product turning 12x yearly, the reduced inventory investment often covers the freight premium. Plus you react faster to demand changes.

Split orders: Instead of one monthly ocean shipment, do weekly air shipments for A-items. Yes, unit shipping cost rises. But inventory investment plummets and stockout risk vanishes.

Local suppliers for top sellers: That 20% higher unit cost from a local supplier might save 30% in inventory investment through shorter lead time. Do the math—it's often worth it.

Supplier inventory programs: Some suppliers hold stock for you, shipping daily or weekly. You pay more per unit but slash lead time to days instead of weeks. Perfect for steady sellers.

The Amazon FBA Lead Time Trap

FBA receiving time is lead time most sellers ignore. You ship inventory to Amazon, but it's not available for sale immediately. Current reality: 7-14 days for receiving, sometimes longer during peak season.

This hidden lead time kills sellers. You see "10 units at FBA" and think you're covered for 10 days of sales. But you need to ship new inventory now to avoid stockout in 14 days. Miss this timing? Hello, stockout penalties and ranking drops.

Smart sellers track FBA receiving time by warehouse and season. They know FC-ABC takes 7 days in January but 14 days in November. They adjust reorder points accordingly, shipping earlier during slow receiving periods.

Lead Time Variability: The Silent Killer

Your supplier says "14 days." But checking historical data shows: 10 days (20% of time), 14 days (50% of time), 18 days (20% of time), 25 days (10% of time).

That variability requires buffer. You can't plan for 14 days when 30% of orders arrive late. You plan for 18 days and carry safety stock for the 25-day scenarios. Suddenly your "14-day" lead time requires 20+ days of inventory investment.

The fix? Track supplier performance religiously. Score suppliers not just on price but on lead time consistency. A supplier 5% more expensive but with rock-solid 14-day delivery beats a cheaper supplier with 14-30 day variability every time.

How Stockpilot Masters Lead Time

Stockpilot tracks actual lead time, not promises. The system learns your supplier's real performance—that "14-day" supplier who actually averages 17 days with 4-day standard deviation. It adjusts safety stock automatically.

Multi-location intelligence means understanding different lead times per channel. FBA needs 14-day lead buffer, your warehouse needs 7 days, bol.com LVB needs 10 days. The system calculates channel-specific reorder points based on actual lead times, not assumptions.

Seasonal adjustments happen automatically. Stockpilot knows your Chinese supplier's lead time jumps from 20 to 35 days around Chinese New Year. It triggers earlier orders automatically, preventing the annual stockout crisis.

The Bottom Line

Lead time is the leverage point most sellers ignore. Cutting lead time from 30 to 15 days can reduce inventory investment by 40% while improving availability. That's not optimization—that's transformation.

Stop accepting supplier lead times as fixed. Every day you shave off lead time drops straight to your bottom line through reduced working capital needs. In e-commerce, the fastest supply chain wins, not the cheapest.

The businesses crushing it understand this: short lead time beats low unit cost for anything selling more than 6x yearly. They'll pay 10% more to get inventory 50% faster. Because velocity is everything.