LEAD TIME

Includes different types of lead times, cycle time Vs lead time,

strategies to reduce lead time and impact of lead time
reduction on business
 DEFINITION
What is Lead Time?

Lead time is the time elapsed between when the customer has ordered and time
when the customer has received the material
OR
Lead Time is the amount of time between process initiation and completion. For our
customers Lead Time is the time between a confirmed customer order and its
scheduled pick up or delivery based on our terms and conditions. This varies based
on the customer and the product.

 Important point to remember

There are multiple definition of lead time and will be explained later in this
article
 TYPE OF LEAD TIME
There are several different types of Lead Time, but there are four primary types of
Lead Time for our purposes in a manufacturing or assembly environment.

Material Production or
Procurement Lead Manufacturing Lead Delivery Lead Time
Time Time

Customer Lead Time

Order Product
𝐶𝑢𝑠𝑡𝑜𝑚𝑒𝑟 𝐿𝑒𝑎𝑑 𝑇𝑖𝑚𝑒
Confirmation Delivery to
= 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑃𝑟𝑜𝑐𝑢𝑟𝑒𝑚𝑒𝑛𝑡 𝐿𝑒𝑎𝑑 𝑇𝑖𝑚𝑒 Customer
by Customer
+ 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑜𝑟 𝑀𝑎𝑛𝑢𝑓𝑎𝑐𝑡𝑢𝑟𝑖𝑛𝑔 𝐿𝑒𝑎𝑑 𝑇𝑖𝑚𝑒
+ 𝐷𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝐿𝑒𝑎𝑑 𝑇𝑖𝑚𝑒
 LEAD TIME EXPLAINED
1. Customer Lead Time – It is the amount of time taken between order
confirmation and order fulfilment. This is essentially outcome of the other 3 lead
time.
2. Material Lead Time – the amount of time it takes to place an order with a
supplier and receive material against it, from confirmed order (to your supplier)
to having it on hand at your premises.
• If all the material required for producing the part required by customer is
available at your premise & is free to use for this customer i.e. not
committed for other product/ customer then this lead time is zero.
• If it is not available in your premises, then its duration will depend upon
whether your supplier is having ready “FG” at his end or he also has to
manufacture. In case of latter, material lead time will definitely be high.
 LEAD TIME EXPLAINED
3. Factory/Production/ Manufacturing Lead Time – It is the amount of time it
takes to build/ produce/ manufacture required quantity using all the resources.
• This depends upon orders in queue and the inventory levels on the shop
floor
• This is essentially throughput time i.e. time required to produce this part
through all processes and put it into FG
4. Delivery Lead time – It is the amount of time it takes to ship the material.
• This depends upon customer requirement and terms and condition
mutually agreed upon at the time of award of business. If it is Ex factory,
then it is the time required for any packing (in FG) if any. If it is at customer
site, then all the transportation time required (by decided mode, road/ ship/
air) will be added to delivery lead time
 LEAD TIME Vs CYCLE TIME
What is the difference between Production Lead Time and Cycle Time?
Cycle Time is the amount of time it takes to complete a cycle of action. Completion
of a specific task from start to finish. More specifically it is the measured time that
explains how often a part is completed by a particular process.
Factory/Production Lead Time is the amount of time it takes to build and ship a
product if all the materials are available. This includes all the manufacturing, sub-
assembly, and assembly processes that impact the ability to process material into a
product.
#1 #2
Assuming No queue, no WIP and single Assuming No queue, no WIP and 100 Piece
Piece is to be made are to be made
Process 1 Process 2 Process3 Process 1 Process 2 Process3
CT-20 Sec CT-30 Sec CT-50 Sec CT-20 Sec CT-30 Sec CT-50 Sec

Through put time/ Lead time Through put time = 20+30+50 = 100 Sec/ Pc
= 20+30+50 = 100 Sec/ Pc Lead Time = 100 X 100 = 10000 Sec for 100
Pieces ~ 2.78 Hours
 IMPORTANCE OF LEAD TIME
Why is Lead Time important?
Lead Time is an important factor for customer satisfaction. Typically
customers want goods or service as fast as possible with minimal effort.
For manufacturing and assembly the concept of Lead Time is married to and has a
direct relationship with the amount of inventory that exists at different points in the
overall supply chain.
If Customer Lead Time is less than: Material Lead Times, Production Lead Times, or
Delivery Lead Times it will result in the holding of inventory within the supply chain
at some or all points. Variation and inconsistency will often compound this issue – it
will cause the holding of stock or inventory to mitigate risks in the supply chain
 HOW TO REDUCE LEAD TIME
How to reduce Lead time?
Different Strategy to put in place in order to bring overall lead time down. This
varies with product, processes and each customers

Customer Lead Time

As described in slide 3, it is actually a resultant of all the 3 lead times i.e. Material
procurement lead time, production/ manufacturing lead time and dispatch lead
time.
Material
Manufacturing Lead
Strategy Procurement Lead Delivery Lead Time
Time
Time
Keep customer products in FG and
replenish it when it reaches a 0 0 
certain level
Keep all the RM for all the
customer parts
0  
 HOW TO REDUCE LEAD TIME
Procurement Lead Time
For reducing procurement lead time, following strategies can be useful
1. Use a Domestic Supplier – This will drastically cut the time required for supply
of parts especially if you do not keep any inventory of RM for that product/
customer
2. Increase Order Frequency – Yes, it actually works. Remember, your supplier too
has manufacturing lead time besides his own material procurement lead time.
So placing smaller and frequent orders cut down your lead time
3. Provide Accurate Sales Forecasts – This helps your supplier to actual plan his
supplies on realistic, data based approach
4. Convert to Standard Components or offshelf components – Rather than
having a design change and getting it manufactured, it is always better to use
 HOW TO REDUCE LEAD TIME
Procurement Lead Time
standard, off the shelf components. This not only reduces the lead time but also
lowers the manufacturing cost as well as inventory carrying cost.
5. Vendor Managed Inventory – Like you are keeping some FG inventory for your
customer, you can also get into agreement with your supplier to keep some
inventory for you.
6. Consolidate and train Suppliers – By consolidating Suppliers and awarding
business to them will help in the sense that they will have substantial volume
from you and you will be on their priority list thereby reducing lead times.
7. Communicate - Staying in touch with your supplier throughout the production
process helps ensure that expectations are being met and that any issues along
the way can be addressed promptly. Providing key performance indicators will
also help motivate your supplier to achieve the levels of service you expect
 HOW TO REDUCE LEAD TIME
Manufacturing/ Production Lead Time
For reducing manufacturing lead time, following strategies can be useful
1. Waste elimination/ reduction – Use lean or any other methodology to remove
all kinds of waste. Once waste is removed, only value will be flowing through the
value stream which will have shorter manufacturing or production lead time.
2. Reliable Machinery - For a shorter manufacturing lead time, stable operations
is a basic necessity. TPM can be one of the method for having a reliable
machinery along with preventive / predictive maintenance.
3. Skilled and Stable manpower – This is another very critical component for a
stable operations. All Policies should be operator friendly and there should be
emphasis on increasing skill level along with working on attrition rate.
4. Loss reduction – One of the most important thing in reduction of lead time is
 HOW TO REDUCE LEAD TIME
Manufacturing/ Production Lead Time
Loss analysis and action on that. SMED can be used to reduce changeover loss.
Andon can not only be used for quick communication in case of a breakdown
but also serves to build quality at source. Similarly TPM can result into lower
breakdown.
5. Smaller Lot Sizes – This will ensure material is dispatched to customer faster.
This has been adopted by many organizations like Car OEM’s etc
6. Vertical Integration - the ability to source, manufacture and assemble
internally. This will reduce the need to procure from suppliers thus eliminating
procurement lead time
7. WIP Reduction – Focus on line balancing so that WIP between stations can be
eliminated and single piece flow can be achieved.
 HOW TO REDUCE LEAD TIME
Delivery Lead Time
For reducing Delivery lead time, following strategies can be useful
1. Milk Run – Milk run is a concept where multiple parts/ products from same/
different suppliers are clubbed in a single trip and shipped to customer. This
helps suppliers to send shorter lots rather than waiting for complete vehicle load
and thus increasing delivery lead time
2. Relocate near to customer – Although this is not every time feasible, but
mostly organizations supplying to OEM’s retort to this method. Less distance
means less time required for delivery.
3. Elimination of secondary packing – If the need for secondary packing is
eliminated, the product is ready to be shipped as soon as it is out from
production line
 IMPACT OF LEAD TIME REDUCTION

Reduced Lead Times does have very positive impact on businesses. It can be used
as a competitive strategy to win over the competition. Some of the benefits include
1. Quicker turnaround resulting into Higher customer satisfaction
2. reduced inventory
3. Reduced operational cost
4. Improved cash flow.
5. Reduced risk of product obsolesce.