Purchase Order Lead Time

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.

BREAKING DOWN '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. Lead Time

    The amount of time that elapses between when a process starts ...
  2. Pull-Through Production

    A method used in just-in-time manufacturing processes to order ...
  3. Purchasing System

    A method used by businesses to buy products and/or services. ...
  4. White Label Product

    A product manufactured by one company that is packaged and sold ...
  5. Back Order

    A customer order that has not been fulfilled. A back order generally ...
  6. Product Life Cycle

    The period of time over which an item is developed, brought to ...
Related Articles
  1. Economics

    Understanding Marginal Cost of Production

    Marginal cost of production is an economics term that refers to the change in production costs resulting from producing one more unit.
  2. Fundamental Analysis

    Vital Link: Manufacturing And Economic Recovery

    Manufacturing output is one of the clearest signs that an economy is recovering from a recession.
  3. Economics

    What Does Long Run Mean?

    A long run is a period of time in which all factors of a business’ production and costs are variable.
  4. Economics

    What Are Economies Of Scale?

    Is bigger always better? Read up on the important and often misunderstood concept of economies of scale.
  5. Brokers

    Explaining Market Orders

    A market order is the most common order used to purchase a financial security.
  6. Sectors

    Global Manufacturing: Exploring Revenue Trends and Fundamentals

    Learn about the significant global trends influencing the manufacturing sector, and the effect these trends are having on both emerging and developed countries.
  7. Products and Investments

    How to Create a New Financial Product in 10 Steps

    The 10 steps outlined here are essential to the creation of a new financial product.
  8. Economics

    Understanding the Product Life Cycle

    Product life cycle is the period of time during which a product is conceived and developed, brought to market and eventually removed from the market.
  9. Active Trading Fundamentals

    The Basics Of Trading A Stock

    Taking control of your portfolio means knowing what orders to use when buying or selling stocks.
  10. Economics

    Understanding Marketing

    Marketing includes all of the activities of a company associated with buying and selling a product or service.
RELATED FAQS
  1. What are some ways a company can expand its product line?

    Understand what a product line is and why it's important. Learn about specific ways in which a company can expand its product ... Read Answer >>
  2. What are the main problems with a JIT (just in time) production strategy?

    Learn about the just in time (JIT) production strategy and how the precise coordination and timing it requires can end up ... Read Answer >>
  3. What are the differences between product bundling and product lines?

    Understand the differences between product bundling and product lines. Learn why a company would want to expand its product ... Read Answer >>
  4. What's the difference between a market order and a limit order?

    Buy and sell trades with market orders at the present stock price and execute limit orders if the stock price falls within ... Read Answer >>
  5. How is a product line depth related to a product line?

    Understand what a product line is and why it's important to a company. Learn how product line depth is related to a company's ... Read Answer >>
  6. How is productivity calculated?

    Learn about productivity, what productivity measures and how to compute a company's productivity level by measuring its outputs ... Read Answer >>
Hot Definitions
  1. Physical Capital

    Physical capital is one of the three main factors of production in economic theory. It consists of manmade goods that assist ...
  2. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  3. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  4. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  5. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
Trading Center