Purchase Order Lead Time

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DEFINITION

The number of days from when a company buys the production inputs it needs to when those items arrive at the manufacturing plant. Purchase order lead time can have a significant impact on a company's bottom line. It is a key component of delivery cycle time, along with the time it takes to make the product and the time it takes to deliver the product.

INVESTOPEDIA EXPLAINS

Companies must consider purchase order lead time when planning a manufacturing run because if production inputs are not ordered far enough in advance, manufacturing will be delayed, costing the company money in lost sales, customer dissatisfaction, increased costs for expedited shipping of final products and so on. Reducing lead times in sales processing and purchase ordering can help a company can improve its operations as part of a cost-reduction program.


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