How to Calculate and Reduce Lead Times
As manufacturers embrace digital technology and control, consumers are doing the same. Whether that consumer is the product user or the wholesaler, digital technology and IoT have changed the expectations they put onto the manufacturer.
Customers expect products to be simple and easy to order, as well as fast to deliver. Expectations are higher than ever and if manufacturers want to compete, they’ll need to continue meeting customerand exceeding what their customers are asking for.
One metric used to understand a company’s ability to meet customer demand and drive customer happiness is Lead Time. Lead time is used by manufacturers to benchmark efficiency and identify areas for process improvement to reduce the time required to deliver finished parts or goods to customers.
Let’s take a closer look at lead time and discuss how managers can focus on getting finished product into customer hands faster than ever before.
What is Lead Time?
Lead time is the total time from when a customer places an order until it’s delivered.
Lead time includes the administrative, management, procurement, inventory, and logistics functions.
This provides an overall measure of how efficient an operation is at taking and fulfilling orders.
Don’t get confused with cycle time and takt time! What’s the difference between Takt Time, Cycle Time, and Lead Time?
How Do You Calculate Lead time?
The calculation for lead time is simple: the date of delivery minus the date when the order was placed.
LT = OD – OR
LT = Lead Time
OD = Order Delivered
OR = Order Received
Lead time is usually expressed in days, providing a rational format for the manufacturer and customer to understand during communication. On the other hand, cycle time is generally expressed in seconds, minutes, or hours.
How Do You Reduce Lead Time?
Lead times are quoted by the vendors producing materials for manufacturers. Manufacturers, in turn, quote lead times to their customers for finished goods or parts.
Lead times can allow manufacturers to improve their processes, optimize logistics, and streamline scheduling and forecasting. By reducing total lead time, manufacturers can better meet customer expectations and develop a key competitive advantage.
Here are a few ways to reduce lead time:
Improve Management and Inventory Control
Stockouts occur when materials or parts are unavailable for required orders. This shortage can lead to a ripple effect where other production must be moved, pulled forward, or delayed as the manufacturer rushes to deal with the problem.
The best way to reduce stockouts is by automating the inventory process. Manual inventory management in the age of IoT and digital technology is highly inefficient. By automating the inventory process, inventory is optimized to meet order demand.
But stockouts are only part of the problem. Human error in manual inventory transactions reduces visibility on the production floor. These errors may impact production, cause unnecessary expediting, and affect WIP needed for production.
Inventory management software is an excellent first step in the optimization process needed to reduce stockouts and drive inventory optimization. Linking this software with a machine data platform allows for an accurate perpetual inventory management system tied to other real-time monitoring to ensure that production always has what is needed and knows when replenishment will occur.
Audit and Manage Vendor Relations
It’s not uncommon for manufacturers to utilize several vendors for the same material, which may be considered interchangeable or backup. But in today’s business environment, disruption is the norm. Auditing and combining vendors is one way to reduce variable lead times due to vendor performance.
Going one step further, if cost-effective, there is an opportunity to in-source work that has historically been outsourced to other companies.
Eliminate Unnecessary Processes
Manufacturing is a complex process. With multiple variables such as OEM, machine type, operator training, product type, and more, processes are more intricate than ever. But many companies still contain a high degree of manual management and process intervention.
While reducing lead times in the above examples can be accomplished through automating tasks and processes, there is no better way to reduce manufacturing lead time than by eliminating unnecessary processes that are slowing down the time it takes to produce and supply finished products to customers.
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This article was written by Eric Fogg, Co-Founder and COO at MachineMetrics.