Lead times refer to the time taken between the initiation of a manufacturing process and its completion. Types of lead times differ based on the product or customer but for the purpose of manufacturing or assembly, the primary four lead times are:
- Customer lead time
- Material lead time
- Production or manufacturing lead time
- Cumulative lead time
In short, lead times are the period between the appearance of a new operational task on your worksheet to the final departure of that task from your system.
Factors affecting lead time
Reducing lead times is a way for manufacturers to improve productivity, increase the output of finished goods and to streamline operations. Manufacturers need to understand the factors affecting lead time in order to their optimise processes. Here are five common factors affecting lead times:
Stockouts are disastrous for manufacturers because it is impossible to produce goods if you don’t have the necessary parts and inventory stock to complete production. This not only leads to longer lead times and dissatisfied customers, but it causes bottlenecks and lost time that costs the business money. At worst, it can lead to lost sales and lost customers if they choose to go elsewhere for their inventory stock.
Automating your inventory processes and implementing Just in Time (JIT) inventory control will help to avoid stockouts by managing the procurement and delivery of manufacturing components based on usage.
2. Lead time variability
Lead times can vary from supplier to supplier making it hard to predict when all required inventory stock items will be delivered. This, in turn, makes it difficult to coordinate production. An effective way to eliminate this issue is by consolidating your suppliers to ensure everything required for production arrives at the same time. This can reduce shipping costs and make production scheduling much easier.
3. Shipping delays
Perhaps the most unpredictable and difficult issue to control, factors that affect shipping, include shortages of raw material, natural disasters and human error. It is possible however to reduce the risk of shipping delays by sourcing suppliers close to your business or by working with a supplier who keeps inventory stock on hand while continually monitoring usage. Additionally, the fewer incoming shipments you have, the lower the risk of order fulfilment delays.
4. Unnecessary processes
If you are building every component of a finished assembly, it takes longer to complete each order which lowers output and return on investment. Process optimisation can be achieved by outsourcing subassembly tasks to save on production hours. Products will take less time to complete, reduce lead time and can result in more satisfied customers and greater profitability.
5. Inefficient inventory control
If your inventory control is out of control, lead times can be adversely affected. Improving inventory control ensures that you know exactly what and exactly how much inventory stock is on hand to guarantee all necessary components are available for manufacturing runs. Efficient inventory control will reduce inventory investment, minimise handling costs and improve production processes.
Factors affecting lead time in manufacturing
Reducing lead times can mean a reduction in inventory stock and better cashflow for the business. In many instances, a shorter lead time means less risk and improved inventory control through better management of inventory stock.
Lead times are dynamic and in addition to the above five factors affecting lead times external factors can also impact when manufacturing parts are receipted into your warehouse. For example, when you place orders with your suppliers and you don’t have a JIT arrangement or a standing order of the same inventory stock in the same quantities, a considerable portion of lead time can be taken up with how busy that supplier is and the number of orders ahead of yours.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.