When you have a warehouse full of inventory piled in front of you, it can seem overwhelming. Every inventory manager and business owner looks after their inventory stock slightly differently. Yet, neither of these people would shy away from optimising their inventory stock and how it flows out of the warehouse.
There are many ways to optimise your resources and workflow to get the most value out of your inventory stock. One of the first places to start is by understanding the difference between cycle time and lead time. These two processes are fundamental in creating an optimised environment that has your warehouse functioning at its highest capacity.
When you’re producing a product, cycle time measures when the operation begins and carries through to when it finishes. It measures the ‘in progress’ stage of an item in production. Cycle time is classified when somebody is actually working on the product.
On the other hand, lead time measures the time when a request is started and it stops when a product is delivered. It is the period between a new assignment coming onto a task list and when that task is ticked off the list in the system.
Example of cycle time vs lead time
Let’s say you manufacture electronics. A customer uses your B2B eCommerce platform to place an order for a box of cameras on 10 June; the order comes through the eCommerce platform instantly. Work on the camera began on 15 June and the order is delivered to the customer on 18 June.
This means that the lead time was eight days and the cycle time was four days. Lead time takes into account how much time went by, but doesn’t account for how much effort when into getting the camera ready to go. Your company might have a lead time of a week, even if it only takes an employee four hours to get a product ready to go. It depends on how many other orders they have. If you have six products you need to get out the door, you’ll need 24 hours in total to get that ready. This makes the eight day lead time more realistic if you have other orders in front of you.
While cycle time focuses on the effort that goes in, it also shows time that it takes to get a product out the door. If you can find a way to reduce cycle time from four hours to three hours, then you can get six products out the door in 18 hours instead of 24 hours. This can align with continuous improvements efforts in your warehouse and can keep things moving swiftly out the door.
By measuring the cycle and lead time in your production and warehouse facilities, you’ll be able to make your operations more efficient. You can pick out what is slowing you down and find ways to enhance the speed around the cycle time or lead time to make it move at a better pace for your business.
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.