How Do You Calculate Lead Time Cost?
Lead time is the time between when a business receives a customer’s order and when the product is actually delivered. Lead time can be divided into two sets of activities: value-added activities and non-value added activities. The former are things that the customer actually pays for; the latter are periphery and support activities that add to the product’s price without increasing its value. In a nutshell, the higher the cost of non-value added activities, the higher the cost of the lead time, as this is time that could be spent adding value. Write down every single process that your company undertakes from the taking of the order to the delivery of the product. Separate value-added processes from your list. If you are a freelance writer who receives an order on Monday and delivers the work on Friday, your value-added time is the time you spent researching, writing and editing that project. Remove everything else as a non-value added process. If the project above spent two days waitin
