Purchase Order Lead Time

AAA

DEFINITION of 'Purchase Order Lead Time '

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 'Purchase Order Lead Time '

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.

RELATED TERMS
  1. Buyer's Option

    In commercial contracts, an agreement between a vendor and a ...
  2. Purchasing System

    A method used by businesses to buy products and/or services. ...
  3. Mass Production

    The manufacturing of large quantities of standardized products, ...
  4. Production Gap

    An economic analytical term denoting the degree of relative deviation ...
  5. Activity-Based Management - ABM

    A procedure that originated in the 1980s for analyzing the processes ...
  6. Idle Time

    Unproductive time on the part of employees or machines as a result ...
Related Articles
  1. Economic Indicators That Do-It-Yourself ...
    Investing Basics

    Economic Indicators That Do-It-Yourself ...

  2. Payback Period
    Investing

    Payback Period

  3. What is the average salary for an accountant?
    Personal Finance

    What is the average salary for an accountant?

  4. How much will it cost to hire an accountant ...
    Taxes

    How much will it cost to hire an accountant ...

comments powered by Disqus
Hot Definitions
  1. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  2. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  3. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  4. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  5. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
  6. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
Trading Center