Operational Excellence
What is Lead Time is always a question that gets a lot of attention because it helps a lot when starting Lean. When deploying Lean, businesses often think about increasing productivity, increasing quality or reducing costs. But Lean’s biggest benefit doesn’t come from these, but Lean’s biggest benefit is the reduction in Lead Time. Let’s find out Lead Time in the following article.
Lead Time is the time from the beginning to the completion of a process.
For example: Order fulfillment time of an e-commerce website is the time from when the customer confirms the order online and the time when the customer receives the goods.
Lead Time is the time to complete a product delivery process.
The shorter the Lead Time, the more flexible the company is and the faster it responds to business change. As usual, the reduction of Lead Time response time increases customer satisfaction. At the same time, increase the number of orders, especially for seasonal products and services.
For example, when Nike ID (allowing customers to design their own shoes) reduced Lead Time from 3 weeks to 1 week, sales increased more than 3 times. I helped Nike ID reduce Lead Time production to 2 and a half days (the remaining 4 and a half days are transshipped from Vietnam and distributed to customers in US). Therefore, more than anyone else, I believe how short Lead Time brings great value to the business.
The shorter the Lead Time is, the shorter the capital turnover is, for example, for a product with a 10% profit margin, but Lead Time for 3 months, which means that for 3 months, a profit of 10%. If Lead Time is shortened to only 1 month, the profit margin is also 10% but capital is rotated 3 times, or 3 times profit.
Lead Time is also directly related to the amount of raw materials, finished product inventories, and unfinished manufactured goods. Lead Time reduced from 3 months to 1 month means the average inventory decreased to 1/3, equivalent to the amount of working capital for inventories also decreased to 1/3. I will explain in more depth why in the lower part of the actual Lead Time calculation.
These are the reasons to reduce Lead Time as a top goal when doing lean – Manufacturing. Lean factories are much more profitable and competitive than Lean traditional factories with much shorter Lead Time, not to mention other benefits such as increased productivity, increase quality, reduce costs …
After answering the question of what Lead Time is and its role, let’s come to the next point of measurement. Lead Time in production is the total time required to produce an item, from the time of receipt of the purchase order (Purchase Order) until the entire order is shipped out of the finished product warehouse.
The first step is to measure the Lead Time of each stage. After that, we add them up and get Lead Time overall. Lead Time for each stage is measured by the total inventory before and during that stage divided by the consumption (Consumption rate). Or you take the amount of inventory by the Cycle Time.
For example, inventory before that stage is 2,000 products and consumption is 500 products per hour, Lead Time will equal 4 hours. Why use this calculation? Because based on the principle of first in, first out. That is if there are 2,000 products A is waiting to produce, then product B will have to wait 4 hours after the end of A and then turn B.
Value Stream Map or Value Chain Diagrams are a visual representation of an overall picture of a factory. And it also shows the Lead Time of each stage and the overall Lead Time very clearly.
Detailed value chain diagrams help you better understand what Lead Time is and how it works
In the above value chain diagram, Assembly 1 stage has an unfinished production (Work In Process) in the previous equivalent to 2.6 days and the actual time of the stage is only 61 seconds. This is also the reality that is happening in all factories when the processing time is shorter than waiting.
Lead Time per stage = (Cycle Time x Amount of stock in each stage)
Overall Lead Time = Sum of all stages Lead Time
Cycle Time is the actual stage time, measured by the actual time clock needed to produce each product at that stage.
Takt Time or Production Rhythm is a time when a factory needs to produce a product to meet customer needs.
During over 14 years of Lean Coach and Lean manufacturing in factories, people often confuse the three types of lead time, cycle time and takt time. The simplest way to distinguish these three types of time is as follows: You stand at the end of the stage / line, the time between products made out of that stage / line is Cycle Time. You subtract the inventory time from the finished product, which leads to the Lead Time of that product. And Takt Time is based on the needs of the customer (or based on the production plan, and this plan is also based on customer needs) and will never be confused again.
Shortening Lead Time is a core goal of lean implementation. Because shortening Lead Time gives businesses huge benefits:
How to use Lead Time in production?
In the era of globalization, it has passed the time when big fish swallow small fish, which has changed into the era of fast fish to swallow slow fish. Many times smaller companies can still compete fairly with giants. So how fast or slow is measured?
That’s Lead Time from concept to product launch, from receipt of order to delivery to end-user. When market demand changes, businesses adapt and change to avoid sad stories like Kodak cameras or Nokia phones.
How to Reduce Lead Time in Lean Product Development? A typical example is the 18-month old development cycle of an electronic product, while SamSung applied Lean to lean product development to launch a series of new products every 6 months. This helps them dominate the market before competitors can back up.
Lead Time is a very important concept in business, because it is directly related to the competitiveness of businesses in the fierce market. It involves capital turnover, the amount of working capital in raw materials and inventories, the speed and flexibility to adapt to market changes. Any size business needs to be agile and flexible. This is entirely possible with the lean method, a simple, effective and far-reaching approach.
To get the most out of lean practices in your business, you should understand the philosophy, thinking and lean methods at opexvn.com/en, or work with an experienced consultant. practical experience. Thanks to this, you will better understand what Lead Time is and avoid getting into the footsteps of using Lean as a toolkit, losing the opportunity to have a perfect operating system to save billions of money for business.
OPEX Consulting – Operational Excellence Your Business.
