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Production leadtime (or cycle time) is the time from when an order is received at the factory to when it leaves the factory (to go to the warehouse). It is often measured in weeks and indicates the responsiveness of the production process.
While simply holding finished goods stocks allows rapid fulfillment of a customer’s order, it requires financing (money tied up in stock), and long manufacturing leadtimes mean less responsiveness to changes in demand patterns - e.g. if a new competitive product takes market share away. Hence reducing manufacturing leadtime is desirable where possible.
The most obvious method of reducing lead time is to manufacture with small batch sizes. However, small batch sizes mean frequent setups so setup times must be reduced to avoid most of the capacity of the machine being taken up with non- productive setup time, rather than working on product. To get the best trade-off between responsiveness and capacity utilization in a fast-changing market usually requires investments in just-in-time systems and computer integrated machinery.
The other contributors to production lead times is the number and complexity of products being produced by the firm, and the firm's factory capacity.
A rough rule of thumb is that production lead time will increase in proportion to any increases in batch size, number of products produced or product complexity. On the other hand, it will decrease in proportion to any increases in factory capacity.