Lead Time Variability Costs More Than Long Lead Times

Sourcing decisions are usually made on unit price and quoted lead time. Both are averages, and averages hide the property that actually drives your inventory: how much the delivery date moves around.

Two suppliers, same average

Supplier A delivers in 42 days, every time, give or take a day. Supplier B averages 21 days but ranges from 7 to 56. B looks twice as fast on the quote and will lose you money, because your safety stock has to cover the worst case, not the average one.

In the standard safety stock calculation, lead-time variance is multiplied by the square of average demand. That squared term is why variability dominates: halving the variance of your lead time typically does more for stock levels than shaving a week off the mean.

You plan around the average and you pay for the variance.

Measure delivered, not promised

Almost nobody has clean lead-time data, because the number in the item master is the one the supplier quoted years ago. The data you need is already in your own receipts.

• Order date to goods-receipt date, per line, for the last two years.

• Report the mean, the standard deviation, and the 95th percentile.

• Split by season and by mode — air and sea are different suppliers.

• Exclude your own late purchase orders, or you will blame the supplier for internal delay.

Take the conversation to the supplier

A supplier shown their own delivery distribution will usually engage, because it is more specific than a complaint about being late. Often the variance has a cause they can name — a shared production line, a single qualified carrier, a customs broker who batches paperwork weekly. Some of those are cheap to fix once identified.

Buy consistency explicitly

Write the terms around the distribution rather than the average. A commitment to deliver inside a stated window, with a shared forecast in return, is worth a small price premium if it lets you carry materially less stock. Quantify the trade before you negotiate: the carrying cost you would save is your budget for the premium.

Then dual-source the tail

For items where variability is irreducible — long ocean legs, single-source components, allocation markets — the answer is structural rather than contractual. A qualified second source, even at a worse price and a lower share of volume, converts a stockout into a more expensive purchase. That is almost always the better outcome, and it is the one your safety stock cannot buy at any level.