Lead Time a Competitive Edge

The unveiling of Amazon’s creative idea of using drones to provide faster lead times continues to create many comments by the media. It also prompted other organizations to make announcements that they to were thinking of using the technology.

Many of the top companies state lead time as part of their strategy within their annual reports. For example General Electric stated "In the future, we aspire to reduce the cycle times for complex systems and lower cost". This shows how important delivery times are becoming, it is indicative of what organizations are hearing from their customers.

Organizations able to develop a competitive edge quickly rise to the top of their markets. It is not only market value add, it is also a market coveting position, providing the ability to maintain growth momentum, attract the best talent, establish financial health, and facilitate investment in innovation.

Developing technology and quality desired by the market is one form of competitive edge to seek. Todays competitive edge is in the ability to provide services significantly ahead of your competitors. World class service is generally the most pivotal component of customer loyalty.

Service comes mainly in two forms, a) product support which includes; customer service, knowledge, repair, update transfers, and adaptation of needs, and b) delivery or lead time which is defined as; from the time the order is received to the time the customer receives it. The latter is where many organizations are looking for creative solutions to provide fast and reliable deliveries.

Organizations know the challenge, to establish customer loyalty, their service will have to be almost twice as fast as their competitors.

It should also be cited that an organization can artificially provide fast (but not faster) lead times by maintaining an inventory of finished products. This business approach meets the needs of some customers but adds inventory carrying costs and opportunity costs. It is not a competitive edge by any means. For organizations that are “job shops” or make to order this is not an alternative. The direction for most types of organizations must be to shorten lead times.

Reducing lead times has many factors to consider. Factors like variability, utilization, Work In Process (WIP), batch size, availability, effective throughput, setup time, and batch arrival rate.

Even though there are many lead time factors the improvement process is not that difficult if supported by the leaders. There are two main steps, 1) gathering the required process data, 2) Determining where to focus improvement resources.

First Step: Required Data

Value Stream Mapping (VSM) – The purpose of this first step is to quantify the factors and define the scope of lead time. Application of the lean tool Value Stream Mapping will provide you with much needed information for each and every process step of the scoped value stream. You must collect accurate data for the lead time factors (mentioned above) for each process step. I think you will find that most of the lead time factors are not currently measured, do not try to estimate! Plan the starting date of the VSM by determining how long it will take to get the data for these lead time factors. Then get the diverse team together to establish the map, current and future state.

Generate a Value Stream Pipeline Map – This is a graph of the daily unit output, for each process step, for a period of one month. Remember non-value added steps like Final Inspection must be included as a step. I find non-value added steps can sometimes be the bottleneck. The purpose of this step is to provide a visual of where the bottleneck might be, where there is variability, and where there are underutilized resources. Again, the organization might not have this data readily available so consider the time and source of obtaining this information. Hint: Planning or scheduling usually maintains this data in separate spreadsheets.

Value Stream Input and Output – Use a line graph to plot the daily unit volume introduced into the system and a second line of daily unit volume exiting into Finished Goods, again one month of data required. The purpose of this step is to understand the stability of the production system. If the daily input is, on average, higher than the daily output then WIP and queue times will increase.

Second Step: Where to focus improvement resources (guided by data)

The data obtained from these three sources (above) will determine where to focus your improvement resources. I will now list the lead time factors and some sources of their causes and possible solutions:

Cycle Time - For any process this is a key metric. We determine throughput and hence capacity. The Ideal Cycle Time is the value add time. Reducing cycle time at the bottleneck will reduce Lead Time. Many of the factors listed below are the symptoms of the cycle time being higher than the Ideal Cycle Time.

Variability – If a process step or the value stream system data indicates unacceptable output variation (from pipeline map) the next step is then to drill down to determine the sources of variation. Is it quality, downtime, lack of standard work, or material variation? The variation can also come from decisions made by management such as batch size, differences in processing time due part number scheduling, amount of scheduled time, and customer demand fluctuations.

Utilization – This information is determined during the Value Stream Mapping session. Utilization is described as units per time interval divided by process capacity (determined by the bottleneck). Utilization must not exceed 80% or WIP and as a consequence lead time will increase because the probability of this work station being idle at higher utilization is significantly lower. To manage this, the value stream must be designed for pull rather than push. The process step sends a signal for more work when it has the capacity available, eventually reducing queue time to zero.

Work In Process – Little’s Law implies the more WIP within the system the longer the lead time. This is obvious because of processing time needed and also considering queue time. In order to reduce WIP we must reduce the sources of variation, WIP is only there as a safety factor (buffer) for unexpected downtime, poor quality, lack of standard work, etc. Through programs like CONWIP, TPM, supplier partnerships to tighten material specifications, TWI-JI for establishing standard work, visual management of WIP, and a team effort with sales to establish a more balanced loading the many benefits from lower WIP can be realized.

Batch size reduction – Waiting time is increased with larger batch sizes, either in the time a part spends waiting for its turn to be processed, or in the time a part spends waiting for the remaining parts in the batch to be processed so the batch can be moved. Improvement of setup times is the first step towards batch size reduction. The benefit of smaller batch sizes to lead time is in the reduction of queue times before and after a workstation. A larger batch size ties up the capacity for a much longer time, increasing WIP.

Availability – The ratio of the total time a functional process is capable of being used during a scheduled time interval. Improvement will increase throughput which provides direct improvement of lead time. Improvement efforts use the lean tool of Total Productive Maintenance (TPM) to prevent downtime causes.

Effective Throughput – is the inverse of cycle time. Besides improvement through availability, throughput can be improved by removing non-value added steps at the bottleneck or through line balancing.

Setup times – Through improvement in setup times capacity is automatically increased. Smaller batches are also made possible. Improvements come from the lean tool of SMED. The SMED process starts with videotaping the process to determine which of the four setup reduction wastes can be improved, External, Internal, Adjustment, and Replacement. People must realize setup reduction is a not a onetime improvement effort and benefits continue as setup time reduction continues.

Arrival rates – The arrival rate of scheduled work to a certain work station cannot be faster than the effective throughput of the workstation. If it is, WIP will increase, batch queue time will increase, and utilization increases, all factors contributing to increases in lead time. To manage so that arrival times are effective and not hindering lead time a pull system must be in place. Controlling of order releases must be applied through monitoring of the system output, the input of orders cannot exceed the capability of the system.

Before completing this article, I must mention the lean tool of manufacturing cells which positively influences almost all of the lead time factors. With the value stream flow designed with manufacturing cells; sources of variability become understandable and therefore easier to reduce, utilization is improved because one of the fundamentals of a cell design is to incorporate pull systems, WIP becomes visible and levels out of design specifications become obvious, batch sizes are almost immediately reduced through scheduling of similar products to the same cell, and it becomes obvious to the cell operators to immediately transfer products to the next step eliminating batch queues.

To summarize the main tools for lead time improvement; Cycle Time reduction at the bottleneck, Line balancing, manufacturing cells, TPM, pull system design, visual management, SMED, and not mentioned but 5S provides many efficiency benefits for all of the tools mentioned here.

As you can see lead time reduction comes about through key improvements of the many value stream components. Having a single focus strategy of lead time reduction will provide the clarity and momentum for system improvements of inputs like quality, scheduling, maintenance, process design, materials, and teamwork.

Lead time reduction through focused improvement efforts of the lead time factors will be noticed by your customers which, of course, is a competitive edge.

"If you don’t have a competitive advantage, don’t compete.” - Jack Welch

Call Lean Teams USA to start your Lead Time reduction program and enjoy a competitive edge.