Drastically reduced lead times and how get them reliable

11 June 2019

Written by René Hol

Since the revolution in supply chain management thinking and design early 90s, lead times have become a recurring topic for manufacturing industries. Attention is paid to several dimensions of lead times. Most prominent are the due date of lead time – how long does it take between the entry of a new order and the delivery at the place the customer asked for – and lead time reliability – do we fulfill the promised lead time in a trustworthy manner.

Many manufacturing companies face challenges in the market because their average lead times are too long. The pattern of long lead times specifically occurs in businesses with a high dominance of the customer on product specifications and supply chain (see our previous blog with a typology explaining this). Since the 2008 worldwide economic crisis, lead times have increased seriously. This is weird, because you may expect: less work, shorter lead times. But the opposite often happened. Many companies were accepting many unique requirements of customers to gain orders. The consequences are long through put times in engineering, purchasing and manufacturing engineering.

To increase competitiveness, it is crucial for manufacturing companies to reduce lead times sensationally. Don’t think in terms of 25% reduction but set provocative targets. Over 50% reduction is not an exceptional goal. There are a couple instruments companies can use to achieve lead time reduction targets:

  1. Mass customization (for those companies with an own product; subcontractors can focus on strategic program management with key partners/customers). The offering of a configurable product to the customer will eliminate the engineering process in the customer order process.
  2. Shop floor layout and production systems reshuffling. In parts manufacturing, systems based on group technology and flexible manufacturing machines can be assessed. In assembly, through put times can extremely decrease by introducing flow shop principles. Instead of – traditional – dock assembly, companies can investigate the application of single product and serial product flow shops.
  3. Lean manufacturing. This sounds like old school, but there is still a lot to gain. Having a clever look at business processes and how to do things faster and simpler, still shows a lot of low hanging fruit.

All the above measures will have serious consequences for supporting IT systems like ERP and PDM. However, IT itself is not an instrument to reduce lead times. Short throughput times should be part of the manufacturing system infrastructure. A clever manufacturing system offers the opportunity for strong IT support.

Finally, what can we say about lead time reliability? Lead time issuing during the quotation and order acceptance phase is a complex process. This is also discussed in the previous blog. To be able to issue reliable lead times and to keep them, you must know the critical spot in your manufacturing process and supply chain. You can identify the critical spot by assessing the nature of your processes. What kind of nature do we mean?

  • Bottleneck capacity – if lead times are determined by just one or two critical capacities, the issued lead times will be much more reliable. Forget approaches where a planner must call several supervisors to ask when they have time.
  • Purchase items with critical lead times – if the disclosure of the item lead time by the purchaser is a surprise every time, then something is structurally wrong. It is time for a purchase assortment analysis.
  • Flexibility in capacity – how quickly can we adapt our capacities, e.g. with flex workers or shifts.
  • Forecast reliability – if market estimates are key in your supply chain concept, the forecast must be in control. When not, many assessment tools and techniques are in the market to understand forecasting better.
  • Complexity of routing – lead times are much more reliable if there is a correlation between the number of steps in the process and the throughput times. Techniques from workflow management and waiting queue theories teach us a lot.

When you understand where lead time (un)reliability comes from, you can easily make the step to the right IT support. But that conclusion might be shocking. Planning tools in many ERP-systems do not match the nature of the business throughput times. The move to cloud-based ERP solutions should be watched critically. And be careful. Don’t fall back to a fancy electronic planning tool / plan board before organizing short lead times and understanding lead time reliability.

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