Lead Time

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.
1. 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).
2. 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.
3. Factory/Production Lead Time – the amount of time it takes to build and ship a product if all the
materials are available.
4. Cumulative Lead Time – the total amount of time it would take from confirmed order to delivery
of 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 material into a product.
Why is Lead Time important?
 Lead Time is an important factor for customer satisfaction. Typically customers want goods or
service 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.
Inventory is one of the 7 wastes commonly recognized by Lean theory.
 Inventory requires people to move it, space to hold it, counting, transporting, maintaining etc.
 Inventory can hide waste and significant business opportunities: supplier issues, quality issues,
housekeeping and organization issues, scheduling issues, forecasting issues, machine downtime,
line imbalances, setup and changeover issues etc.
 Inventory is risk and exposure. If customers don’t buy it, it will become a write off or obsolete. If
there is a quality issue the business could be holding onto scrap.
 Inventory held at vendors is also exposure. Quite often inventory held at vendors has a clause
that the purchasing business will have to buy the material (up to a certain amount). If a vendor
has large batches of inventory made during long production runs, any quality issues would be
magnified. For this reason being able to get more material quickly can be a challenge. It also can
result in higher prices for the business buying material, if the supplier cannot get their costs
under control.
 Inventory ties up business cash. Inventory costs money and when you spend money on
inventory the business' cash is now used on the buying and holding the inventory vs. having cash
on hand for other purposes (the business' cash is like its checking account).
 How do you reduce Lead Time?
 Hold stock, ideally the right stock.
 Vertical integration – the ability to source, manufacture and assemble internally. Suppliers can
be vertically integrated or our business could become more vertically integrated.
 Reduce Cycle Times, thus reducing Production Lead Times. For example, a focus on setup
reductions and Quick Changeover (QCO); Line Balance Activities etc.
 Have good equipment and employee availability. Solid Total Productive Maintenance
(Preventative Maintenance, Autonomous Maintenance etc.). Robust quality systems in place.
Proper staffing levels.
 Reduce supplier Lead Times. Focus on long lead time components – source local; supplier
business improvements etc.
 Suppliers/vendors hold stock e.g., stocking agreements.
 Vendor Owned Inventory (VOI); Vendor Managed Inventory (VMI); Consignment Inventory etc.
 Change shipping methods – faster, more frequent shipments.
 Have accurate forecasting, planning and scheduling.
 Good supplier performance and quality. Stable strategic suppliers. A focus on supplier
development can be beneficial to help with this.
 Reduce product and component variation and obsolete low runners.
What is the impact?
 Reduced Lead Times can mean reduced inventory and more cash on hand for the businesses. In
several aspects it means less risk, exposure and management of materials.
 One main exception would be a reduction in Customer Lead Time. If Customer Lead Time
reduces it can mean winning more business and at the same time holding higher stocking levels;
especially if there is a variance between the Customer Lead Time and the Cumulative Lead Time
(or the Production or Material Lead time specifically).
Although not all inclusive I hope this quick overview provides some useful insight on the importance of
Lead Time.