How the System Calculates Lead Time

The Update Demand Forecast program updates each product's lead time, based on lead time parameters set at the system, buy line, or product level. Lead time is the number of days it takes for you to prepare and process the purchase order, the vendor to ship the material, and your warehouse to receive the material.

Lead time parameters include the following:

• Lead Factor - Defines the maximum number of processed purchase orders in the forecast period.

• Minimum Lead Samples - Identifies the minimum number of processed purchase orders in the forecast period.

• Default Lead Time Days - Defines the default lead time set at the buy line and system level.

Note: The system only checks the transfer order cycle when determining lead time on child branches in a central warehouse.

The system uses a Lead Time Variable in many calculations, such as the safety stock:

1. If LT < 1, then LTSD = 0

2. If LT 1 to 15, then LTSD =  (LT + 7) * HRSC

3. If LT 16 to 60, then LTSD = ((LT/2) + 15) * HRSC

4. If LT 61 or higher, then LTSD = ((LT/4) + 30) *HRSC

Note: LT = Lead Time, LTDS = Lead Time Safety Days, HRSC = Hits Related Safety Coefficient

In addition to the lead time variable, the system uses the following steps when calculating the lead time:

1. Checks for an override and determines which lead time to use.

2. Determines the range of purchase orders to use for calculating the lead time.

3. Derives the median lead time from the purchase orders.

Determining Which Lead Time to Use

In order to calculate lead time, the system checks for overrides. Overrides can also be set at the system, buy line, or product level. For example, your vendor calls you to tell you they are snowed in and it will take an additional three days to get the items to you. You can use the override settings to change the lead time for those items.

The system makes several checks to determine the lead time:

• The system first checks for a lead time override at the buy line level or the product level.

• You can set a manual override in the Lead Days field in Forecast Parameters Maintenance, or in the Ovrd LT Days column in Override Lead Time Maintenance. Setting a value in one field or column causes the same value to display in the other field or column.

• The Lead Fctr field in Forecast Parameters Maintenance controls how the system calculates the lead time for the product.

 Determining the Range of Purchase Orders to Use

If there are no overrides at the product or buy line level, the system checks for a minimum and maximum number of purchase orders to sample for the lead time.

Because recent data is more accurate for estimating lead times, the system checks the lead time derived from recent purchase orders in the forecast period for the product. The system checks a range of purchase orders to derive an accurate median lead time value using the minimum samples up to the lead factor. If there are insufficient purchase orders within the forecast period, the program resorts to a default lead time. For more information, see How Standard and Median Forecasting Works and Entering Forecast Period Parameters to determine your forecast periods.

The system makes several checks to determine which range to use:

1. Determine the minimum number of purchase orders in the forecast period to use in calculating a product's lead time. If the Minimum Lead Factor field in the Product Forecast Parameters window is set to null, then the system checks:

Otherwise, the system uses the value of Minimum Lead Factor as the minimum number of purchase orders to use for calculating lead time.

2. Determine the maximum number of purchase orders in the forecast period to use in calculating a product's lead time. If the Lead Factor field in the Product Forecast Parameters window is not 0, then the system checks:

Otherwise, use the value of Lead Factor in the Product Forecast Parameters window as the maximum number of purchase orders to use for calculating lead time.

Deriving Median Lead Time from Purchase Orders

The system then calculates a final lead time based on the determined range of purchase orders. After determining the minimum and maximum samples of purchase orders to check, the system calculates the median lead time for the product.

1. Compare the number of purchase orders in the forecast period with the minimum lead samples and lead factor parameters to be used for the product:

Note: The values selected for the lead factor and minimum lead samples can be determined at two different levels. For example, the lead factor can be determined at the product level and the minimum lead samples can be determined at the buy line or system level.

2. Calculate and record the lead time of the selected purchase orders:

Purchase Order Lead Time = Purchase Order Create Date - Purchase Order Receive Date

3. Select the median lead time.

This value is the calculated lead time entered in the Lead Days field in Product Forecast Parameters.

See Also:

Entering Lead Time Parameters

Lead Time Overview

Overriding Product Lead Times