How to Think about Planned Lead Times

Abstract

A fundamental construct of most planning systems is the planned lead time. A planned lead time is a control parameter that refers to the planned amount of time for a production, transportation or replenishment activity. The intent of this article is to provide a brief, critical examination of planned lead times. We first discuss why planned lead times are used and why they are important. We then discuss the trade-offs to be considered in setting the planned lead times. We follow this with a review of the research literature on how to specify the planned lead times. Finally, we offer a simple model to provide some insight on how the planned lead time for an activity depends on the stochastic variability of the resource requirements for the activity, and on the flexibility and utilization of the resource associated with the activity.

Keywords: production planning, planned lead times

JEL Classification: M11, C65