Lead time is the amount of time it takes from the moment a customer places an order to the moment the product is out for a delivery. This includes any time taken to manufacture materials for the finished product or the time it takes to receive the materials.
All activities, wasteful or not, add up to the lead time. Consequently, it's beneficial to reduce waste to shorten lead times by implementing Lean strategies. When the lead time for a product is short, the company that makes it can hold fewer finished goods to fulfill orders, effectively reducing the waste of excess inventory.
Consider this example:
If Company X receives an order from Customer Y for Product Z every 3 days, but lead time for that product is 5 days, the company will need to have extra inventory on hand to fill those orders. If the lead time is shortened to 3 days, however, the company no longer needs to hold that extra inventory to meet customer demand because production can keep pace with customer orders.