Lead Time Reduction
posted in Productivity Improvement by Shane Bredoff
One of the most critical factors in Operations Success is the ability to be fast. Throughout history, the ability to be faster than the competition has been a huge advantage. Today is no different; speeding up the time to get your product can be the difference between surviving or thriving in the market.
How does reducing lead time help a company? Improving lead time has many benefits across an organization including: cost reduction, risk mitigation, and improved customer service. With an improved lead time, companies can reduce the amount of inventory that they have to carry. This reduces both cost and risk. Additionally, in those instances when a shortage occurs, a shorter lead time gets the product to the customer in the fastest time possible.
Just to illustrate the principle, inventory is equal to the expected demand over the lead time plus the safety stock, which is also dependent on lead time. At the extreme, if the lead time is zero, no inventory is required. Imagine the replicator on Star Trek: zero inventory because the need is met immediately. While most Sales Executives believe these replicators are real, I have yet to find one, so what can be done.
What most people need to understand is that the physical processing time that is needed in most lead times is approximately 11% of the total lead time. Now, if you are sourcing product from China, the transportation time is a definite factor that is probably too expensive to eliminate, but there is still waste that can be easy to remove.
The most obvious waste is the length of the planning cycle. If orders are placed once a month, that time is added to your lead time. Many factories have a production schedule that can be weeks, or even months long. Additionally, the time it takes a factory or your vendors to get the raw materials adds to the lead time. There are ways to reduce both of these time wasters without making major changes in the business.
Look into these areas and you can be the winner of the race to get the business.
Best regards, Shane.
