What is Lead Time for Manufacturers
What is Lead Time
Lead time is a critical aspect of any manufacturing process. It refers to the time taken from the point an order is placed to the time the finished goods are delivered to the customer. In industry terms, it is the time taken from the start of production to the delivery of the finished product.
Lead time is a crucial component of supply chain management as shortening it can help manufacturers deliver products to their customers in a timely and cost-effective manner. This aspect cements the importance of efficient inventory management, supply chain planning, and order processing. Lead times can be variable and depend on various factors such as the complexity of the production process, the availability of raw materials, the type and volume of the products ordered, and the vendor lead times among others.
Scheduling, forecasting, and inventory control are some of the critical elements that help manufacturers calculate the amount of time required for delivery. Suppliers play a critical role in managing lead times since it dictates the time required to receive raw materials, components, and equipment.
In today’s fast-paced environment, shorter lead times are becoming increasingly important for manufacturers. Shorter lead times help meet changing customer demand, reduce excess inventory, and enable just-in-time JIT manufacturing processes that help reduce costs, increase quality, and reduce waste. Manufacturing lead time is one of several key performance indicators used by businesses when evaluating supply chain performance, and it is used as a metric to assess the production process, inventory optimization, and supplier performance.
To calculate the average lead time, one can measure the time from the moment an order is placed to when a finished good is delivered. It is essential to factor in the average duration of each production stage i. e. raw materials processing, manufacturing, and transportation. This step will help determine the production lead time for a particular product.
During the production process, it is important to keep track of the cycle time or the total duration of the production process. The cycle time helps to calculate the lead time, and it is an essential tool for identifying the inefficiencies in the production process. Several methodologies like Kanban system and Lean manufacturing, Six Sigma, and Vendor Managed Inventory VMI are being used by manufacturers to reduce lead times, optimize supply chains and improve logistics management for more significant benefits.
Proper inventory management software and project management software can help optimize and streamline the manufacturing process. Shortening lead times is essential for manufacturers to reduce excess inventory and meet changing customer demand. Calculating and reducing lead times can improve customer satisfaction, promote reliability, and strengthen the supply chain. Proper management of lead time can help manufacturers stay competitive and meet the market requirements while reducing the backlog, turnaround time, and increasing efficiency.
Definition Lead Time
What is the definition of lead time? Well, according to Investopedia, lead time refers to the duration required for completing a particular process. These processes include manufacturing a product, delivering goods and services, or a combination of all these essential procedures. And Wikipedia defines it as the latency from the start and end of the manufacturing process. The Collins Dictionary describes lead time as the time gap between the idea or design of the product till its completion and delivery. Lastly, Cambridge Dictionary defines lead time as the difference of time between the designing of the protect and its production to final receipt.
Businesses endowed with reduced lead time tend to have reduced finished inventory on hand, more effective processes with less costs, and, in turn, more satisfied consumers. Lead time can take a numerous different meanings based on the context.
- Customer lead time is the duration required for fulfilling the customers’ order. Factory or production lead time is the duration taken by a manufacturer to finish an order after being accepted by the merchant.
- The material lead time is the duration required to receive materials from the supplier once the initial order is processed.
- Finally, there is cumulative lead time which is the duration required for manufacturing a product from the beginning to end including obtaining the raw materials for assembling of allied products.
Therefore, manufacturing lead time involves sourcing as well as preparing the raw items, manufacturing it into finished products and finally dispatching them to the designated address. There are several stages that a finished product needs to undergo from the initial idea and having a clear notion about the lead time enables you to deliver everything within the stipulated time.
Which Lead Times Are Important in Manufacturing?
If you are wondering what is lead time, then it’s important to know that the lead time is crucial for all the stakeholders. That’s because it oversees that the orders are rightly placed on time as well as fulfilled properly.
Based on the processes which are involved, the lead time is typically standardized through the industry. However, there are certain instances where the lead time can be reduced or even extended. So it’s important to understand what goes into deciding the lead time and it can aid in placing orders or quoting jobs. In this regard, some factors are critical in deciding the lead time.
1. Raw Material and Parts
In the first place, the most important thing is availability of material and parts. Even though most manufacturers prefer keeping some stock in hand, sometimes, it needs to be part component or obtained from particular sources.This itself brings the factor of lead time that can greatly vary depending on the availability.
2. Machine and Operator Setup
The queues of production are typically decided much ahead of time allowing enough space for the lead time to alter. As a result, all the jobs can be completed smoothly without making room for bottlenecks.
3. Special Jobs
Some manufacturers also offer liberty to expedite for moving specific jobs in the front line. But this invariably brings the issue of added cost and can be an issue for other consumers when not rightly managed.
4. Secondary Part Processing
After the manufacturing process is complete, some parts have to be taken for secondary processing such as finishing, smoothening, or heat treatment. Each of these will also have their respective lead time and should also be factored in when determining the gross lead time of the entire project.
How is Lead Time Used by Manufacturing?
As you become aware of how lead time is determined in a business and what goes into it, the next consideration is how it is used in manufacturing. This will help you ascertain various ways to reduce this span while having the finished products manufactured faster. While it is not possible in every case, there are surely some means of streamlining the process so that the lead time remains to the minimum.
For example, depending on numerous vendors for single aspects can be challenging when there is a race against time. Rather, a tried and tested means of reducing lead time is having a single window to oversee all aspects of the manufacturing process. This means sourcing of the material, its fabrication, other secondary processes and packaging. When limited numbers of parties are involved in the process of manufacturing, a business can reduce the chances of unexpected delays. This can be a game changer in restricting the lead time in production. In the second place, the manufacturing unit should thoroughly evaluate its capacity.
When operators and machines are free, it’s easier to pitch them into the production process without any delay. On the other hand, when there is a backlog of production through the machines, it may take days or even weeks together to bring new orders to the frontline. It is also useful to have order forecasts in hand to allow planning.
Many companies also produce extra parts as they expect forthcoming orders while others stock on specific products that can be released when necessary. Last but not the least, customized features are also important while sticking to the industry standards.
