Reducing Lead Time

This article covers reducing lead-time, also known as becoming a time-based competitor.

The concept of the Supply Chain is a useful metaphor. Your business is just one link in the chain between your customer and your suppliers. Your company's ability to supply the best quality, desired features, and best delivery at the best price determines your competitive position. Reducing lead-time also frees up cash, increases capacity and enables you to be a more responsive supplier to your customers

Lead-time, for the purposes of this article, will be defined as the time from when a customer places an order until they accept the product from the supplier.

In the grocery business, lead-time, as defined above, is instantaneous; a shopper selects from the inventory on the shelf and places it in the basket. If we look one step back in the supply chain to the wholesaler, the grocery probably placed an order for the item one to three days before. If the item was fresh produce, the store probably ordered that morn­ing. A three to six hour lead-time was needed. Continuing with fresh produce, we can go another step back in the supply chain. The farmer had to plant the seeds, nurture the crop, harvest it and ship it. This processing lead-time may take from six to ten weeks or longer depending on the variables of nature. In the above example, lead-time expands significantly as the production moves further away from the consumer. The farmer, unlike the manufacturer of a product, has no real way to reduce the time nature takes for organic produce to ripen.

A manufacturer, on the other hand, has almost unlimited tradeoffs in the process used to produce their products. Let's take a Total Quality Control (TQM) view of the typical process. To do this we will use an Ishikawa or fishbone chart to identify some of the contributing factors that can impact lead-time for a typical product.

Picture the fish's backbone has ribs that identify the major issues and each major issue can have branches going into more detail. After the chart is created, usually by a multi-functional team, investigation can begin on how to control or eliminate these factors to reduce lead-time. The ribs would include these areas: Order Entry, Engineering, Scheduling, Purchasing, Materials, Production, Quality, Shipping, Accounts Receivable; all of the factors that contribute to long lead-time at a high level.

Another approach is to list all of the activities involved and the time to perform them. The list would begin with the customer placing the order and end with the customer being able to use the product. (Note that it does not end with the shipment or delivery of the product, since the customer cannot use defective or damaged products.)

Now that the list is completed (aka Value-Stream Map) a value-analysis is per­formed to determine what activities the customer is willing to pay for. After reducing or eliminating those items the customer does not want to pay for, effort is expended on reducing the time to perform the remaining tasks. Redesign of the product is often the end result of this process. It can eliminate waste in manufacturing process time as well as material waste. The Bill of Material at some manufacturers may include all inputs and outputs used in the manufacture of the product. This could include the amount of electricity, heat or other products used in the transformation process. It could also include all the items that were formerly considered waste, such as the scrap metal not used in the final product. It could also include the amount of by-products generated such as the pounds of CO2 generated.

"Less than 5 percent of the total time required to manufac­ture and deliver a product to a customer is spent on the actual process. The remaining 95 percent is non-value added time. This wasted time represents a gaping window of opportunity for the time-based competitor." Time-Based Competition by Joseph D. Blackburn

A third alternative to evaluate your lead-time is benchmarking. Benchmarking is the process of comparing your organization to that of your competitors, or best in class, in different areas. For example, your company takes two weeks to process an order from the customer to the factory. Your best competitor takes one week. The best time in your industry is one day. By comparing, or benchmarking key business areas you can begin to determine where to focus the most effort to reduce lead-time.

Some examples of the above techniques and the impact they have on a company's competitive advantage.

So far we have discussed lead-time and how it can be reduced using three different techniques. Yet with some thought it could be said that the techniques presented: Fishbone charts, Value Stream Mapping, and Benchmarking are different aspects of the same World Class Philosophy. Total Quality Management or TQM is an all encompassing method of viewing processes. According to TQM, everything in business can be described as a process. And every process should have a feedback loop to improve its performance. A feedback loop, in engineering terms, means there is an input (measurable), process (measurable), output (measurable), and a control loop from the output back to the input and process to adjust the parameters to insure the product meets the customer's requirements/specifications.

The Deming wheel of Plan, Do, Check, and Act can naturally be applied to problems with hard data, i.e. those that can be measured. The first issue to recognize that there is a problem. In this case, we are looking at lead-time. The benchmarking pro­cess compares our business to others in our industry, and in other industries, to isolate best practices and performance standards. After the standard of performance is established, we can determine our relative situation. If we decide that lead time is a problem, more tools can be brought to bear on it. The Fish bone chart is one way to organize data gathering that focuses on isolating a problem. Once identified, other tools, such as Process Capability and Statistical Process Control can be applied.

Benchmarking is performed as a matter of course by World Class competitors. It may not always be called by that name, but businesses are always comparing performance data. The telecommunications ISO9001:2000 variant TL-9000 requires submission to a common benchmarking database for providers and suppliers alike. It may be as simple a measure as sales per employee or how many line items can be picked in a warehouse per day. How to measure yourself against the best. Francis Tucker, et al in HBR APICS Readings for CIRM Reprints

Benchmarking Process Steps:

Identify what is to be benchmarked
Identify comparative companies
Determine data collection method and collect data
Determine current performance "gap"
Project future performance levels
Communicate benchmark findings and gain acceptance
Establish functional goals
Develop action plan
Implement specific actions and monitor progress
Recalibrate benchmarks
From Benchmarking: The Search for Industry Best Practices That Lead to Superior Performance by ASQ, Quality Press.

Alcoa has benchmarked areas such as administrative, manufacturing, and service functions. The process allows them to identify new ideas and possibilities. Several excellent articles on benchmarking can be found in Quality Progress Magazine. The above information on benchmark­ing is from the article "The Benchmarking Bandwagon" by Karen Bemoswski 1/91.

We have now established the areas for improvement. Next we can apply several tools to isolate specific problem areas.

"First comes discovering there is