Surprising reasons why lead time determination is so important

27 May 2019

Written by René Hol

Lead times and lead time reliability are a recurring topic in every manufacturing company. Before being able to discuss lead time in a professional way, we need to say something about business types in manufacturing. This blog takes the reader by the hand in the fascinating cascade of business types, supply chain concepts and lead time determination principles. With a central place for the customer.

Manufacturing industries includes a wide variety of business types with respect to the role of the customer in the supply chain. Understanding the role of the customer is one of the most prominent aspects to design and implement a competitive supply chain concept and supporting IT systems. When discussing customer’s influence on the supply chain we should distinguish two fields: on the product specification and on the penetration depth of the customer order into the supply chain.

With respect to the first field, we mean the issue does the customer have influence on the specification of the product he orders. Four main types can be defined:

  1. Standard, catalogue product – the customer buys a predefined, standardized product.
  2. Configure to order – the customer can combine pre-defined options and features to generate his desired product. This type is currently quite popular related to ‘mass customization’ initiatives.
  3. Engineer to order – the customer can request specific changes in the design of the product. There is a 80% ready product available which will be modified and finished on customers specs.
  4. Design to order – based on the technology basis of the company a customer specific product is designed and engineered.

The second field is about the visibility of the customer order in the supply chain. Often here the concept of customer order decoupling point (CODP) surfaces. Three main types can be defined:

  1. Make to stock – the customer order doesn’t have presence in the supply chain. The customers buys final goods from stock. The supply chain is mainly driven by inventory management rules and master production schedules.
  2. Assemble to order – the assembly process is driven by the customer order. Parts and subassemblies are produced driven by master production schedule.
  3. Make to order and Purchase to order – here the customer order has a deep penetration into the supply chain. Only of even no raw materials and basic parts are put on stock.

The more the customer influences the product specifications and the supply chain, the more complex is lead time determination. The following figure shows that.

Complexity lead time determination

Several companies easily talk about or make choices with respect to their typology or desired type of business model derived from strategy. However implementing a type of business means that you have to implement a supply chain concept. This concept is the set of planning and scheduling rules which leads to reliable lead times. The way the lead time is determined is a core element of the supply chain concept.

The lead time determination rules are a case of ‘the proof of the pudding in the eating’. If the supply chain concept is correct, it can be implemented effectively and strong IT support will be available. So lead time determination is not just about lead determination. It also has the mostly unknown and surprising character of testing if you are doing things right in your supply chain. This test or proof has two dimensions. First, the procedure to determine the lead time should be simple and unambiguous. This means that you should not need plenty of spreadsheets and meetings to submit a lead time.  And second, it should lead to reliable lead times: something we can easily measure.

Now we now ‘why’ lead time determination is important. In our next blog we discuss principles and techniques of lead time determination – the ‘how’ dimension.

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