Chuck LEAN Business Consultant
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Lead Time is the amount of time between process initiation and completion. For our customers, Lead Time is the time between a confirmed customer order and its scheduled pick up or delivery based on our terms and conditions. This varies based on the customer and the product.
There are several different types of Lead Time, but there are four primary types of Lead Time for our purposes in a manufacturing or assembly environment.
- Customer Lead Time – the amount of time taken between order confirmation and order fulfillment (either pick up or delivery depending on the agreement with the customer).
- Material Lead Time – the amount of time it takes to place an order with a supplier and receive it, from confirmed order to having it on hand.
- Factory/Production Lead Time – the amount of time it takes to build and ship a product if all the materials are available.
- Cumulative Lead Time – the total amount of time it would take from confirmed order to delivery of the product if you had to order all the materials (if none were on hand). It is the summation of material lead time and factory lead time.
What is the difference between Factory/Production Lead Time and Cycle Time?
- Cycle Time is the amount of time it takes to complete a cycle of action. Completion of a specific task from start to finish. More specifically it is the measured time that explains how often a part is completed by a particular process.
- Factory/Production Lead Time is the amount of time it takes to build and ship a product if all the materials are available. This includes all the manufacturing, sub-assembly, and assembly processes that impact the ability to process the material into production.
- Lead Time is an important factor for customer satisfaction. Typically customers want goods or services as fast as possible with minimal effort.
- For manufacturing and assembly, the concept of Lead Time is married to and has a direct relationship with the amount of inventory that exists at different points in the overall supply chain.
- If Customer Lead Time is less than Material Lead Times, Production Lead Times, or Cumulative Lead Times it will result in the holding of inventory within the supply chain at some or all points. Variation and inconsistency will often compound this issue – it will cause the holding of stock or inventory to mitigate risks in the supply chain.
If you don't acknowledge lead times your shipments will be late affecting your assembly line.
Lead time refers to the time taken – or allowed for – between the start and completion of an operation or project. The term is commonly used in [removed] management, project management, and manufacturing fields.
Longer lead times often result in inefficiencies and wastage of resources, and companies should review their processing times against benchmarks to identify ways of improving their lead times. Reducing the lead time improves overall productivity, resulting in higher [removed] and profits.
How lead time affects Inventory
Companies that hold [removed] for use in production often face cases of stockouts when the stock in hand gets exhausted without new stock coming in. Stockouts often inconvenience customers who must wait for orders to be filled, while increasing costs for the company since it may be forced to stop the production process. The reason for the higher costs during stockouts is that employees and production machines will sit idle for a time, while the company continues incurring utility costs such as electricity, water, and gas, and overhead costs.
Failure to replenish stock is mostly caused by lead time delays, which varies among suppliers. Some common causes of lead time delays include natural disasters, human error, raw material shortages, inefficient [removed] , and other factors.
Companies can reduce stockouts by using a vendor-management inventory program that automates the stock ordering process. The program stores supplier information for specific components, making it easy to order specific components when they are nearing completion. Automatic ordering reduces lead time by making inventory requests early enough to avoid stockouts, hence reducing shipping time and costs. For the most critical components, the company can maintain a database of backup suppliers who can supply inventory when the main supplier is unavailable or out of stock.
Components of lead time
1. Preprocessing time: This is also referred to as the planning time, and it includes the time taken to receive a request for replenishment, understand it and create a purchase order (when buying an item), or create a job in the case of a manufacturing firm.
2. Processing time: The processing time is the time taken after receiving a purchase order to procure or produce the item.
3. Waiting time: The time that’s taken between procuring necessary items to the time when the production process commences.
4. Storage time: Storage time is the amount of time that items stay in the warehouse or factory awaiting delivery.
5. Transportation time: The time that the produced item takes to move from the warehouse/factory to the customer.
6. Inspection time: The time spent by the customer checking the product to see if it meets the specifications. Also refers to the time required to deal with any non-conformity with the order request.