Lead time and cycle time are widely used terms in the world of lean manufacturing processes. However, people are often confused when trying to understand the difference between the two and their significance to lean operations.
Lead times are an external process that start when a request is made for a product or service and finishes when the completed request or order is delivered to the client. Cycle times in comparison are an internal activity and begin from the time when an operational task starts to the point of time when that operation ends.
Understanding lead time and inventory cycle times are important for production managers and lean manufacturing practitioners to help improve efficiency and optimise operations.
Customer demands on your organisation present in the form of work requests and lead time signifies the speed by which that request is filled and delivered to the customer. It is characterised by the time expended between an order receipt and delivery therefore, lead times are external because they are visible to your customers.
Lead time is the period between the appearance of a new task on your worksheet to its final departure from the system. A new work request generally requires a review and discussion before going into the execution process and will naturally incur some delay before a member of the team has the capacity to start working on it.
Lead times represent the time taken from the receipt of an order request until the time that order is delivered to the client. For example, a customer orders a product on 1 August and the product is delivered on 5 August, the lead time for the order is five days.
Inventory cycle time refers to the time taken between the start of a production process and when the process ends. It is the time taken or output time to produce a unit of inventory stock.
Using the example above, a customer has placed an order and experiences a lead time of five days between order and delivery. Although the order was instantly received by the company on 1 August, production work did not begin until 3 August, the cycle time, therefore, is the two days taken to produce and deliver the inventory stock required to fulfil the order.
Reducing cycle times can by default reduce lead times so cutting your cycle time should be the most important aspect of any lean manufacturing or continuous improvement project.
Lead time is generally counted in days and when viewed in the context of inventory control, and different causes can impact lead times including supply delays and reorder delays.
In many instances inventory stock cannot be immediately replenished by a supplier. This may be due to scheduling constraints or by distance and logistical considerations. To guarantee that the necessary stock is on-hand to meet production needs, managers need to anticipate how much inventory will be consumed between current activities and the next supply of replenishment stock.
A reordering delay can occur when supplier lead times are incorrectly calculated. For example, if a shipment takes 4 days to be delivered from a supplier, but reordering is only undertaken weekly, the inventory reordered must factor in both the reordering delay plus the 4 days of supply delay.
By automating reordering processes, you can reduce errors in lead time calculations and in turn, improve cycle times and inventory control. Equally, by regularly monitoring workflows using the appropriate analytic tools you can adjust workflows where necessary to improve team efficiency and lean manufacturing processes.
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.