Lead time is the amount of time from the point at which you determine the need to order to the point at which the inventory is on hand and available for use. It should include vendor or manufacturing lead time, time to initiate the purchase order or work order including approval steps, time to notify the vendor, and the time to process through receiving and any inspection operations. Lead Time Demand . Forecasted demand during the lead time period. For example if your forecasted demand is 3 units per day and your lead time is 12 days your lead time demand would be 36 units.
Consistent forecasts are also an essential part of the safety stock calculation.
If you don't use a formal forecast, you can use average demand instead. Forecast Period . The period of time over which a forecast is based. The forecast period used in the safety stock calculation may differ from your formal forecast periods. For example you may have a formal forecast period of 4 weeks while the forecast period you use for the safety stock calculation may be one week.