Lead time demand: the units you will sell while the order is in transit

Lead time demand is the number of units a SKU will sell during the gap between the moment you place a purchase order and the moment the goods are available to sell. It is a forecast of the hole in your shelf, not a count of what is on it.

The formula

Lead time demand = average daily sales x lead time in days

Two inputs, and you own both of them. Average daily sales comes out of your own order history over a chosen window, commonly the last 7, 14 or 30 days. Lead time comes from your supplier: the days between you sending the order and the stock being sellable, including production, freight, customs and the hours it takes your team to receive it in.

The number answers one question a stock level cannot: how much cover do I need before the next delivery. Forty units on hand sounds comfortable. If you sell six a day and your supplier takes 21 days, your lead time demand is 126 units, and those forty units are already too late.

Lead time demand is an average fed by an average, so it is only as honest as the two inputs.

• The window flatters you or scares you. A 7-day window reacts fast and overreacts to one busy weekend. A 30-day window is steady and can miss a new trend. Pick the window that matches how your demand actually moves, then leave it alone long enough to trust it.
• Lead time is rarely the number on the quote. Suppliers quote production, not the shipping delay, the customs hold or the three days a pallet sits in goods-in. Use the lead time you have actually lived through, not the optimistic one.
• An average covers nothing extra. By definition, demand lands above lead time demand roughly half the time. That gap is what safety stock is for.
• Short history reads as low demand. A SKU you launched last week has very few sales days behind it, so its average daily sales, and therefore its lead time demand, will read lower than reality.

Watched honestly, lead time demand is the figure that tells you when a reorder window is closing, well before the shelf looks empty. Merchants who get it right order earlier and run fewer last-minute air freights.

• Reorder point. Lead time demand plus safety stock. The stock level at which you place the order. Lead time demand is the larger half of that sum for most SKUs.
• Safety stock. The buffer you hold on top of lead time demand to absorb a demand spike or a late shipment.
• Sales velocity. Average units sold per day over a chosen window. The first input to lead time demand.
• Lead time. The days between placing an order and the stock being sellable. The second input, and the one your store data cannot know. You have to supply it.
• Days of inventory remaining. Current stock divided by sales velocity. Compare it to your lead time: when days remaining drops below lead time, you are already going to run out before the order lands.
• Suggested order quantity. How much to buy once you have decided to order, which depends on your order cycle and minimums rather than on lead time demand alone.