What Is Lead Time?

Lead time is the amount of time that passes from the start of a
process until its conclusion. Companies review lead time
in manufacturing, supply chain management, and project
management during pre-processing, processing, and post-processing
stages. By comparing results against established benchmarks, they
can determine where inefficiencies exist.
Reducing lead time can streamline operations and improve
productivity, increasing output and revenue. By contrast, longer lead
times negatively affect sales and manufacturing processes.
KEY TAKEAWAYS
 Lead time measures how long it takes to complete a process
from beginning to end.
 In manufacturing, lead time often represents the time it takes
to create a product and deliver it to a consumer.
 Lead time is calculated by adding any combination of the
number of days to procure materials, manufacture goods, and
deliver finished products.
 Factors that can impact lead time include lack of raw materials,
breakdown of transportation, labor shortages, natural
disasters, and human errors.
 In some cases, companies can improve lead times by
implementing automated stock replenishment and just-in-time
(JIT) strategies.
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Understanding Lead Time
Production processes and inventory management can affect lead
time. In regards to production, building all elements of a finished
product onsite may take longer than completing some items offsite.
Transportation issues can delay delivery of necessary parts, halting or
slowing production and reducing output and return on
investment (ROI).
Using locally sourced parts and labor can shorten lead time and
speed production, and offsite sub-assemblies can save additional
time. Reducing production time allows companies to increase
production during periods of high demand. Quicker production can
increase sales, customer satisfaction, and the company’s bottom line.
Efficient inventory management is necessary to maintain production
schedules and meet consumer demand. Stockouts occur when
inventory, or stock, is unavailable preventing the fulfillment of a
customer's order or product assembly. Production stops if an
organization underestimates the amount of stock needed or fails to
place a replenishment order and suppliers cannot replenish materials
immediately. This can be costly for a company's bottom line.
One solution is to use a vendor-managed inventory (VMI) program,
which provides automated stock replenishment. These programs
often come from an off-site supplier, using just-in-time (JIT)
inventory management for ordering and delivering components
based on usage.
A great example of lead time is the time needed to process a
passport. If you're planning on traveling internationally, prepare to
get your passport renewed months in advance of your trip; the
government estimates the lead time for routine passport processing
as 8 to 11 weeks.1
How to Calculate Lead Time
Lead time can be broken in several different components: the pre-
processing, the processing, and the post-processing. These may be
defined or stated differently, but the general formula to calculate
lead time is:
Lead Time = Pre-Processing Time + Processing Time + Post-Processing
Time
For a manufacturing company, the pre-processing time is the
procurement stage where raw materials are sourced and delivered
to its manufacturing headquarters or processing plant. The
processing time is the manufacturing stage. The post-processing time
is the stage of processing the order and delivering the final good to
the customer.
Lead Time for Manufacturing Company = Procurement Time (for
raw materials) + Manufacturing Time + Shipping Time
For a retail company, there is no manufacturing time as the retail
firm does not manufacture its own good. In addition, the
procurement time is different as instead of procuring raw materials,
it sources final products to then sell directly to customers.
Lead Time for Retail Company = Procurement Time (for final
products) + Shipping Time
Lead Time and Supply Chain
The lead time varies among supply chain sources, causing difficulty in
predicting when to expect the delivery of items and coordinating
production. Frequently the result is excess inventory, which places a
strain on a company’s budget.
Lead time scheduling allows for the receipt of necessary components
to arrive together, and reduces shipping and receiving costs. Some
lead time delays cannot be anticipated. Shipping obstructions due
to raw material shortages, natural disasters, human error, and other
uncontrollable issues will affect lead time. For critical parts, a
company may employ a backup supplier to maintain production.
Working with a supplier who keeps inventory on hand while
continuously monitoring a company’s usage helps alleviate the issues
resulting from unanticipated events.
Stockpiling necessary parts may be cost-prohibitive, but reducing the
number of surplus parts also helps place a ceiling on production
costs. One solution is for companies to use kitting services to
organize their inventory. With kitting services, inventory items are
grouped based on their specific use in the project. Workers save time
choosing from smaller lots of parts, keeping production more
organized and efficient.

Using offsite assembly in overseas markets instead of shipping

completed goods can help companies save money on tariffs.
The Importance of Short Lead Time
Short lead time is important as it impacts the financial, emotional,
and operational aspects of a company and its relationship with its
customer. Several specific examples of the importance of short lead
time include:
 Shorter lead time may lead to happier customers. At its core,
lead time is the concept of getting a good to the customer the
fastest. Once a customer places an order, they most often do
not want to wait unnecessarily long periods of time. When lead
time is short, customers get their product faster and will likely
have greater customer satisfaction in their buying experience.
 Shorter lead time may lead to less obsolescence. Goods with
long lead times run the risk of obsolescence by the time they
are manufactured. When a product has a short turnaround
window, the company runs a smaller risk of the good no longer
being in demand by the time it is finished.
  Shorter lead time may lead to less labor costs. If a company
prioritizes reviewing its internal manufacturing process, it may
cut out inefficiencies and eliminate unnecessary labor hours.
This results in reduced costs and more efficient utilization of
workers.
 Shorter lead time may lead to more orders. If the market
realizes one company has a shorter lead time, that company
may end up with more orders especially if demand for its
product is imminent. All else being equal, when two companies
have a similar product, the market may be more likely to go
with the company that can furnish the good faster.
 Shorter lead time may lead to more efficient capital
deployment. When cash is tied up in raw materials, it must
wait to be processed into a finished good and sold before it
gets converted back to cash. The longer this process, the longer
the company is without capital it could be using to expand
operations or strategically grow.
How to Reduce Lead Time
Though an entire manufacturing and distribution process may be
complex with many stages, companies can take steps to reduce lead
time and shorten the number of days for each process. Consider the
following ways to reduce lead time:
 Eliminate Unnecessary Processes. The easiest way to trim lead
time is to eliminate steps or procedures that are not needed to
facilitate a sale. This may mean sacrificing multiple reviews
of quality control or assessing the efficiency of the
manufacturing process.
 Monitor Transportation Methods. Not all transportation
methods are created equally, and some may simply be better
options. This relationship is also not static; what may be ideal
 this month must change due to extenuating circumstances due
to labor shortages, natural disasters, or government legislation.
A company should always monitor what shipment methods it
and its suppliers are using and see if there are preferable
methods available.
 Incentivize Better Service. Whether it is incentivizing external
parties like suppliers or internal parties like employees, lead
time may be reduced by setting targets/expectations and
awarding those who meet those expectations. Though resulting
in an additional cost to a company, the potential increase in
sales quantity may outweigh the incentive or bonus
payouts needed to move product faster.
 Procure Differently. Some suppliers act more promptly than
others; some suppliers may also be local and require shorter
shipping expectations. When attempting to decrease lead time,
a company should assess its current suppliers and see where
there are efficiencies to be had.
 Carry Higher Inventory. On one hand, carrying more inventory
results in higher storage, security, and insurance costs and has
a greater risk of theft or obsolescence. Alternatively, having
inventory on hand allows a company to not need to wait for
shipments to arrive.
 Reorder More Often. If you don't want to carry more
inventory, consider placing more frequent material orders. This
may result in materials already being in transit before you
realized you'd need them. Though you run the risk of ending up
too much inventory on hand, the alternative is to preemptively
plan excess inventory levels.
 Promote Internal Learning. The internal manufacturing process
is only as efficient as the laborers who know the process. By
prioritizing cross-training and learning opportunities,
 companies may end up with stronger labor numbers with staff
more knowledgeable and proficient about the process.
Types of Lead Time
There are three primary types of lead time; each must be considered
in conjunction with each other to set overall expectations of a
manufacturing process. Therefore, these three primary types often
flow into a fourth type of aggregated lead time.
Customer Lead Time
The customer lead time is the amount of time between when a
customer places an order and when the customer receives the
product. This includes the time between when a customer places an
online order and the company receives the order confirmation. Then,
it includes the entire manufacturing process, shipping process, and
delivery process.
Material Lead Time
The material lead time is the amount of time between when a
company becomes aware of a need for raw materials and when the
materials are physically obtained. Companies are often alerted
by inventory management systems when orders are processed. This
lead time may be influenced by information systems that notify
management when current inventory levels are low. It may also be
impacted by ordering, shipping, delivery, and fulfillment by suppliers.
Production Lead Time
Once materials have been received, the production lead time kicks
off. This is the amount of time between when a company has all
necessary resources on hand to manufacture a product and when it
completes the manufacturing process. Unlike other lead times, this
entire lead time should be internally manageable and depends on
internal factors such as waste, labor, equipment
efficiency, PPE availability, and machinery downtime.
Cumulative Lead Time
Lead times above may be aggregated to create a fourth lead time,
and companies may track different cumulative lead times. For
example, a company may be interested in the internal lead time (i.e.
when raw materials are sourced to when the final product is
manufactured).

Though it may seem bureaucratic, breaking lead time into the

categories above helps a company identify the strong and weak
points along the sale process.
Factors That Affect Lead Time
Analyzing the lead time formula for a manufacturing company, the
factors that affect lead time can be broken into three categories: the
procurement factors, the manufacturing factors, and the shipping
factors.
Procurement Lead Time Factors
Procurement lead time factors all relate to the sourcing of raw
materials for production. Well-established companies with strong
relationships with suppliers may be less impacted by these factors;
still, when relying to external companies, there is always the risk that
lead time falters due to an external failure to deliver. Procurement
lead time factors that increase lead time include:
 The company is not yet aware what raw materials they need.
 The company is slow to submit a purchase request.
 The company does not have a select supplier for a specific raw
material.
 The company wishes to negotiate the price or term or the
purchase.
  The company has an elaborate inspection process for delivered
goods.
Manufacturing Lead Time Factors
Manufacturing lead time factors are relatively all controllable for a
company. This internal-only stage of the sale process means a
company may change processes, personnel, or equipment to
improve or worsen lead time. As opposed to the other two lead time
factors, a company should have almost full discretion over the
manufacturing lead time factors. These factors that result in longer
lead times include:
 The layout or location of the processing plant(s) is inefficient.
 The company has inadequate power or utility service.
 The company struggles to have sufficient and proficient
laborers.
 The company is unable to efficiently transfer finished goods to
its warehouse for distribution.
 The company faces government regulation impeding or slowing
the manufacturing process.
 Equipment failure or required periodic maintenance slow the
production process.
 The company awaits specialized or custom parts needed to
manufacture a good.
 The company must rework products due to lack of quality.
Shipping Lead Time Factors
When the finished product is sent to a customer, many factors are
out of the hands of the company. Though the company can control
how fast an item gets off the production line and onto a delivery
vessel, a company is often at the whim of whatever delivery method
they choose. These factors include:
 The company selecting a slower, more cost effective method of
delivery.
 Natural conditions or weather impede the delivery process.
 The company fails to collect accurate remittance information
and must inefficiently redirect shipment.
 The company mishandles the shipment and must prepare a
more secure, safe delivery.
 External factors such as disrupted supply chain management
cause broad transportation issues.
Example of Lead Time
Imagine a large festival that takes place during the first week of
August every year that attracts 100,000 people on average and
typically sells 15,000 festival T-shirts. The vendor that supplies the T-
shirts needs one business day to complete the shirt design, one
business day to have it proofed and make any necessary fixes, one
business day to print the shirts, and two business days to ship the
items.
The lead time in this example would be five business days. In other
words, the festival organizers need to place their order with the T-
shirt supplier at least five business days before the opening of the
festival in order to get the shirts on time.
Of course, that lead time can be shortened in some extreme
situations if the buyer is willing to pay a premium. If T-shirt sales on
the first day of the festival exceed expectations, festival organizers
may decide to order additional shirts on the second day with the
hope that they can be delivered by the third day.
Since the shirts have already been designed and approved, that
means five days of lead time can be reduced to three. To meet that
shortened lead time, the vendor would need to print the additional
shirts as quickly as possible in order to ship them overnight for
delivery the following morning.
Additional factors can affect lead time in this example. If festival
organizers want a certain percentage of the T-shirts to be fuchsia and
the vendor does not regularly keep fuchsia T-shirts in stock, that can
increase the lead time because the vendor will need to order shirts in
that color.
What Are the Types of Lead Time?
The main types of lead time are customer lead time, material lead
time, factory, or production lead time, and cumulative lead time. The
first three types of lead time are summed to arrive at the fourth type
of lead time.
What Are the Main Components of Lead Time?
The main factors that make up lead time are preprocessing,
processing, waiting, storage, transportation, and inspection. The
factors are often compiled into the three main stages of an order:
the before (pre-processing), the during (processing), and the after
(shipping).
What Is Lead Time in Shipping?
Lead time in shipping is the period of time between when an order is
first received and when it reaches the customer. It includes the
processing of the order and then the time spent delivering a
package.
The Bottom Line
Lead time describes the amount of time it takes to complete a
specific process. In business, lead time is often used to describe the
amount of time it takes to process an order, manufacture a product,
delivery a good, or a combination of these processes. Companies
with shorter lead time may have less finished inventory on hand,
more efficient processes that may cost less, and generally happier
customers.

6 TYPES OF SUPPLY CHAIN MODELS EXPLAINED

 Companies use different models to organize and manage their
supply chains.
 Selecting the model that best suits a company’s business
process can help control costs and reduce risk.
 Each model has pros and cons, making it crucial to choose the
right one.
May 10, 2022 | Supply Chain Strategy Blogs
Establishing and running a global supply chain is a complex activity,
and using the wrong supply chain model can expose an enterprise to
risks and disruptions, increasing costs and potentially damaging the
brand. Selecting the right model for your business requirements is
thus a critical task.
Here are six types of supply chain models that can drive supply chain
management for a business:
1. Continuous Flow
This is one of the most traditional models on the list. The continuous
flow model is the best choice for industries and businesses that
operate with stability. Stability is essential for this model because it is
required on both ends, i.e. at the manufacturer and the buyer.
This model is well-suited for businesses that produce a uniform set of
goods and can expect a stable level of demand from the market. As
the name suggests, goods are in continuous flow in this model, and it
is based on the stability of supply and demand in the market. The
systems in this type of supply chain management method are aligned
so that a continuous flow of goods can be ensured.
2. Fast chain
The fast chain model is one of the new names in supply chain
strategies. It is suitable for businesses that have product lines with
short life cycles. For instance, a fashion designer might have a
specific line of designs in a season. The business needs to take the
fashion line to the market to maximize returns, as it is usually based
on current trends. As supply chain efficiency can increase a
business’s competitive edge, this model is usually considered the
best among the several types of supply chain integration.
3. Efficient Chain
The efficient chain model has been crafted for hyper-competitive
industries. Under this model, the end goal is to maximize efficiency.
Following the efficient chain model, the organization is expected to
create proper production forecasts so that it can prepare machinery
and raw materials accordingly.
The biggest drawback of this model is that a disruption in the
production or sales cycle can create a lot of ripple effects across the
supply chain network.
For instance, challenges like labor shortages or raw material
shortages could cause long delays, and the organization may have to
bear additional costs due to the delay in supply.
4. Agile
The agile model is well-suited for businesses dealing with specialty
items where products may require extra care in the supply chain.
This model is usually fine-tuned for the product that it is being used
for. The agile model is known for the expertise it requires to
transport the goods from point A to point B and not so much for the
automation or technology involved.
Supply chain companies that follow the agile model can charge a
premium price for their services. Compared to the efficient chain
model that thrives on high volumes, the agile model is only profitable
till a threshold of volume is met. After that, it may prove costly to
follow this model.
5. Custom-configured
The custom-configured model needs custom setups in the assembly
and production stages. It is a mix of agile and continuous flow
methods where the product that is being manufactured may require
some extra customization, but it needs to operate on an end-to-end
basis. It is usually used for prototype design and manufacturing of
small batches. The custom-configured model requires additional
investment from the company as compared to more traditional
models.
6. Flexible
The flexible model can handle high demand during peak season and
quickly adjust to a lean period with low demand. To run a flexible
model efficiently, a business requires the right supply chain
management software and the right people with the knowledge base
to operate a flexible model with high efficiency.
These are the top six different supply chain models for enterprises,
and they all come with their own pros and cons. It is essential for
businesses to identify a suitable model for their supply chains that
will meet their specific needs while helping them to avoid any
additional costs.
Having the right supply chain model in place is as important as
having the right people, processes and technology to manage the
supply chain. It enables an enterprise to improve efficiency and can
help it build resilience to disruptions and mitigate exposure to
various risks. With the right model, companies can turn their supply
chains into a competitive advantage.

Definition of Agile Supply Chain Management

At its most basic level, an agile supply chain is one that emphasizes
flexibility.
Agile supply chain management (SCM) is a supply chain wide
reorganization around a new set of principles that emphasise the
need for new structures, value chain configurations, communications
and information systems and a whole new mindset when it comes to
how a supply chain should operate.
This new supply chain management paradigm allows an
organisation’s supply chain to operate without fixed configurations
and static structures.
The obvious benefit of this is that it makes the supply chain less
vulnerable to sudden changes, much like a flexible foundation makes
a building less vulnerable to earthquakes.
However, in day to day operations, an agile supply chain has the
flexibility to be centred around the rapidly changing customer
demand.
The ability to react to sudden fluctuations in customer demand
allows companies to reach the market first, be innovative, and to act
as a market leader while their competitors struggle to realign more
rigid supply chains.
Where Did Agile Originate?
The concept of agile methodology originated in the software
development industry in response to the fact that too many software
development projects were overrunning their deadlines.
In 2001, a group of software developers, known as the Agile Alliance,
created and published the Manifesto for Agile Software
Development.
The idea of a management paradigm that emphasised flexibility and
allowed teams to adapt to required changes faster quickly spread to
other industries.
Agile Supply Chain vs Lean Supply Chain
There is a fair amount of crossover between lean and agile supply
chain management, but there are a few main differences between
the two.
 An agile supply chain focuses on flexibility and the ability to
handle changes in demand and sudden crises.
 A lean supply chain focuses on maximising savings by
continuous improvement coupled with minimal redundancies.
As you can see, there is no reason why both ideas can’t be applied to
the same supply chain.
The flexibility and applicability offered by agile methodologies often
acts as an enabler for the constant improvements and low
redundancies needed in a lean supply chain.
For example, a manufacturer might keep large amounts of raw
materials on hand to prevent the line down cost of them running
out.
This would make them more agile, but less lean, as it would increase
inventory carrying costs.
By using the greater visibility enabled by an agile supply chain, the
same manufacturer would be able to more accurately predict both
demand and delivery time frames, removing the need for the
redundant materials and making them both agile and lean.
Why Does Your Organisation Need an Agile Supply Chain?
The huge supply chain disruptions caused by the Covid-19 pandemic
highlighted the fact that most supply chains are incredibly static.
As manufacturing centres in Asia closed down and shipping ground
to a halt, most company’s supply chains went into freefall as they
struggled to near-shore or desperately tried to onboard new
suppliers.
Even outside of sudden global pandemics, the way that customers
are influencing supply chain logistics is changing.
Companies like Amazon have grown exponentially based on their
ability to provide unparalleled customer choice and rapid response
delivery.
In turn, customers have come to expect companies to fulfil their
demands, rather than simply making do with what has already been
brought to market.
An agile supply chain allows companies to be both internally and
externally flexible.
Internally, businesses are able to transform their supply chain when
the need arises.
Externally, they are able to rapidly deliver on customer demand and
take full advantage of short profit windows, giving them a significant
competitive advantage.
Agile Supply Chain Strategies
The modern agile supply chain is based around four major
component strategies, virtual integration, process alignment, shared
chain responsibility, and market sensitivity.
Process Alignment
Process Alignment means building functional technical partnerships
with all stakeholders within the agile supply chain.
Rather than a race to the bottom for the lowest price, which
generally puts vendors in a combative relationship with their
suppliers, an agile supply chain looks to add value that isn’t simply
cost-based by aligning all stakeholders in a singular direction. For
example, manufacturing companies use Jiga’s software to connect
suppliers, procurement, and engineering during the part
procurement process to keep them aligned and get more visibility.
Companies use a variety of S2P platforms like Coupa and
procurement technologies to keep everyone connected.
One example of this might be co-managed inventory or vendor-
managed inventory, in which both vendor and supplier are
responsible for inventory management.
Another example might be collaborative product design and
development, in which design departments collaborate with
suppliers at all levels of product development to ensure that the end
product is as easy to manufacture as possible.
The exact nature of the process alignment depends on the
organization. However, the overriding principle is that supply chains
are far more efficient, agile, and resilient when all stakeholders are
pulling in the same direction.
Virtual Integration
As with all agile processes, the free flow of information and open and
clear communication is vital.
Virtual integration allows information to move quickly amongst
relevant departments, regardless of the physical distance between
them.
As the demand from the market or end consumers increases, that
demand information is collected, analyzed, and transmitted through
collaborative planning that includes all departments within the
organization who have the capacity to fulfill that demand.
Virtual integration across a supply chain also allows for faster
exchanges of information between all key stakeholders.
This rapid flow of information creates end-to-end visibility
throughout the supply chain, helping to identify capacity issues or
potential bottlenecks.
In effect, virtual integration allows an organization’s supply chain to
react rapidly to changing demands while quickly identifying and
removing problems.
Shared Chain Responsibility
Shared chain responsibility feeds into the same idea as process
alignment, but at a conceptual, rather than technical level.
Static supply chains are normally siloed affairs, with information and
responsibility divided into individual tranches and assessed by
discrete sets of KPIs.
The downsides of this are obvious. It reduces overall visibility and
turns every bottleneck and problem into a search for the one section
of the supply chain that is to ‘blame’.
In an agile supply chain, the greater visibility and coordination
afforded by process alignment allows all stakeholders in the supply
chain to share the overall responsibility for the successful operation
of that supply chain.
Operational efficiency is not judged by internal KPIs, but by metrics
that measure each link in the supply chain’s contribution to the
entirety of the process.
Where process alignment creates the technical infrastructure
required for all parts of the supply chain to pull in the same direct,
shared chain responsibility creates a culture of shared effort and
group achievement and accountability.
Market Sensitivity
As we’ve already mentioned, one of the primary benefits of agile
SCM is the ability to quickly react to changes in market conditions
and customer demand.
In traditional supply chains, the majority of forecasting is based on
previous sales data, making them inherently backward-looking.
In order to take full advantage of the benefits of an agile supply
chain, organizations also need to focus on data collection and
analysis, which allows them the insight to predict future demand and
market trends.
Data gathered from real-time point of sale systems allows companies
to adopt demand-driven decision-making.
A combination of market sensitivity and an agile supply chain allows
companies to understand how customer demand is changing and
quickly adapt their supply chain to take advantage of that.
Application of Agility in Different Supply Chain Areas
Generally, supply chains can be rendered down into five areas in
which agile methodologies can be easily applied. These areas are
forecasting, production and scheduling, manufacturing,
warehousing, and distribution.

Forecasting
As we’ve mentioned, the vast majority of companies focus on using
information taken from previous cycles to make decisions on future
production and to improve their inventory ordering and shipping
schedules.
However, this assumes that similar patterns will be the only market
drivers in the future. Basing supply chain action only on past data
prevents companies from being truly agile and market reactive.
While planning is an important part of supply chain management,
leveraging point of sale data allows companies to put in place an
equal amount of demand-driven planning.
The combination of demand-driven planning and insights drawn
from previous cycles allows companies to both forecast obvious
spikes in demand while still remaining flexible, and well-informed,
enough to adapt to changing customer needs.
Production and Scheduling
Synchronizing your production and scheduling with your demand-
driven sales figures is vital to avoiding overstocking and out stocking.
Nearly 50% of small businesses still silo production and planning in
different platforms or simply use different Excel spreadsheets.
This siloed approach conflicts with the virtual integration needed to
operate an agile supply chain.
Instead, production and scheduling need to be connected, and
driven by sales figures, in order to be truly optimized.
By connecting these three points, organizations can improve both
their response time and their inventory control.
Manufacturing and Procurement
Firstly, it’s important to implement effective procurement processes
and collaborate efficiently with your suppliers, making it easy for
them to work with you. This, in turn, will improve your relationships
with suppliers and contribute to increased visibility and better agility.
If you have more visibility, you can react on time.
Many of our customers had the bad habit of using spreadsheets and
emails to collaborate with suppliers. This was painful because it used
to hurt their supplier relationships and limit visibility.
An agile supply chain also includes the ability to quickly and
efficiently onboard new manufacturers to avoid delays or to take
advantage of new demand-driven opportunities.
The ability to quickly select new manufacturing partners makes agile
supply chains far more resistant, as it allows them to absorb sudden
changes in demand or capacity.
Using the current pandemic as an example, the organizations that
survived the economic and logistical fallout of the pandemic were
those who were able to transition away from traditional overseas
manufacturing operations and near-shore new manufacturing
parameters with a quick and simple onboarding process.
Warehousing
Static warehousing and inventory management can lead to serious
operational costs without generating any significant returns.
Because of seasonal changes and cyclical sales cycles, inventory can
simply sit in warehouses doing nothing for large parts of the year,
just so that it’s in place for a certain period of time.
Agile supply chain management can help to combat this problem by
simply allowing companies to take on local manufacturing and
logistics partners who can provide the goods and services in
response to demand.
Rather than warehousing, for instance, easter eggs, for a full year. An
agile supply chain allows you to simply have the product
manufactured in the local area just before demand predictable
spikes, leading to significant savings on warehousing costs.
Distribution
Rather than shouldering every aspect of the supply chain, incepting
agile methodologies allows companies to source new and innovative
solutions to traditional problems.
One example of this might be using third-party logistics (3PL) services
as a cost effective alternative to managing logistical efforts such as
transportation and distribution.
The 3PL logistics market has become increasingly specialized and
competitive in recent years.
This means that, wherever your company has a logistical pain point,
there is normally a specialized 3PL company that can take care of it
for you.
Since the market is so competitive, there are often multiple 3PL
suppliers offering cost-effective solutions, allowing companies the
flexibility that is so important to maintaining an agile supply chain.
Benefits of an Agile Supply Chain
There are a huge range of benefits to an agile supply chain, including:
 Increased flexibility and demand-driven planning allow
companies with an agile supply chain to react to changing
customer demand. This gives businesses the ability to take
 advantage of short profit windows and bring products to
market faster than their competitors.
 This same increased flexibility allows agile supply chains to be
more responsive and resilient to sudden changes. Where the
loss of a major manufacturing partner or a significant logistical
bottleneck would cause significant delays in a static supply
chain, an agile supply chain is able to quickly adapt to and
overcome these issues.

 The virtual integration needed to operate an agile supply chain

gives greater visibility over the entire supply chain, allowing
organizations to anticipate and remove pain points before they
can become an issue.
 The greater visibility and shared chain responsibility allow all
shareholders in the supply chain to make continuous efficiency
improvements and, where required, outsource parts of the
supply chain to cost effective 3PL suppliers, resulting in reduced
costs.

Product Life Cycle Explained: Stage and Examples

3 minute and 40 second read time
By CAROL M. KOPP

Updated August 09, 2022

Reviewed by
AMY DRURY
Fact checked by
ARIEL COURAGE
Investopedia / Xiaojie Liu
What Is the Product Life Cycle?
The term product life cycle refers to the length of time a product is
introduced to consumers into the market until it's removed from the
shelves. This concept is used by management and by marketing
professionals as a factor in deciding when it is appropriate to
increase advertising, reduce prices, expand to new markets, or
redesign packaging. The process of strategizing ways to continuously
support and maintain a product is called product life cycle
management.
KEY TAKEAWAYS
 A product life cycle is the amount of time a product goes from
being introduced into the market until it's taken off the shelves.
 There are four stages in a product's life cycle—introduction,
growth, maturity, and decline.
 A company often incurs higher marketing costs when
introducing a product to the market but experiences higher
sales as product adoption grows.
 Sales stabilize and peak when the product's adoption matures,
though competition and obsolescence may cause its decline.
 The concept of product life cycle helps inform business
decision-making, from pricing and promotion to expansion or
cost-cutting.
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1:49
Product Life Cycle
How the Product Life Cycle Works
Products, like people, have life cycles. The life cycle of a product is
broken into four stages—introduction, growth, maturity, and decline.
A product begins with an idea, and within the confines of modern
business, it isn't likely to go further until it undergoes research and
development (R&D) and is found to be feasible and potentially
profitable. At that point, the product is produced, marketed, and
rolled out. Some product life cycle models include product
development as a stage, though at this point, the product has not yet
been brought introduced to customers.
As mentioned above, there are four generally accepted stages in the
life cycle of a product—introduction, growth, maturity, and decline.
Introduction Stage
The introduction phase is the first time customers are introduced to
the new product. A company must generally includes a substantial
investment in advertising and a marketing campaign focused on
making consumers aware of the product and its benefits, especially if
it broadly unknown what the good will do.
During the introduction stage, there is often little to no competition
for a product as other competitors may be getting a first look at rival
products. However, companies still often experience negative
financial results at this stage as sales tend to be lower, promotional
pricing may be low to drive customer engagement, and the sales
strategy is still being evaluated.
Growth Stage
If the product is successful, it then moves to the growth stage. This is
characterized by growing demand, an increase in production, and
expansion in its availability. The amount of time spent in the
introduction phase before a company's product experiences strong
growth will vary from between industries and products.
During the growth phase, the product becomes more popular and
recognizable. A company may still choose to invest heavily in
advertising if the product faces heavy competition. However,
marketing campaigns will likely be geared towards differentiating
their product from others as opposed to introducing their goods to
the market. A company may also refine their product by improving
functionality based on customer feedback.
Financially, the growth period of the product life cycle results in
increased sales and higher revenue. As competition begins to offer
rival products, competition increases, potentially forcing the
company to decrease prices and experience lower margins.
Maturity Stage
The maturity stage of the product life cycle is the most profitable
stage, while the costs of producing and marketing decline. With the
market saturated with the product, competition now higher than at
other stages, and profit margins starting to shrink, some analysts
refer to the maturity stage as when sales volume is "maxed out".
Depending on the good, a company may begin deciding how to
innovate their product or introduce new ways to capture a larger
market presence. This includes getting more feedback from
customers, their demographics, and their needs.
During the maturity stage, competition is now the highest. Rival
companies have had enough time to introduce competing and
improved products, and competition for customers is usually highest.
Sales levels stabilize, and a company strives to have their product
exist in this maturity stage for as long as possible.

A new product needs to be explained, while a mature product needs

to be differentiated.
Decline Stage
As the product takes on increased competition as other companies
emulate its success, the product may lose market share and begin its
decline. Product sales begin to decline due to market saturation and
alternative products, and the company may choose to not pursue
additional marketing efforts as customers may already have
determined themselves loyal to the company's products or not.
Should a product be entirely retired, the company will stop
generating support for the good and entirely phase out marketing
endeavors. Alternatively, the company may decide to revamp the
product or introduce it with a next generation, completely
overhauled item. If the upgrade is substantial enough, the company
may choose to re-enter the product life cycle by introducing the new
version to the market.
The stage of a product's life cycle impacts the way in which it is
marketed to consumers. A new product needs to be explained, while
a mature product needs to be differentiated from its competitors.
Advantages of the Product Life Cycle
The product life cycle better allows marketers and business
developers to better understand how each product or brand sits with
a company's portfolio. This enables the company to internally shift
resources to specific products based on those products positioning
within the product life cycle.
For example, a company may decide to reallocate market staff time
to products entering the introduction or growth stages. Alternative,
it may need to invest more cost of labor in engineers or customer
service technicians as the product matures.
The product life cycle naturally tends to have a positive impact on
economic growth as it promotes innovation and discourages
supporting outdated products. As products move through the life
cycle stages, companies that use the product life cycle can realize the
need to make their products more effective, safer, efficient, faster,
cheaper, or conform better to client needs.
Limitations of the Product Life Cycle
Unfortunately, the product life cycle doesn't pertain to every
industry, and it doesn't pertain consistently across all products.
Consider popular beverage lines whose primary products have been
in the maturity stage for decades, while spin-off or variations of
these drinks from the same company fail.
The product life cycle may be artificial in industries with legal
or trademark restrictions. Consider the new patent term of 20 years
from which the application for the patent was filed in the United
States.1 Though a drug may be just entering their growth stage, it
may be adversely impacted by competition when its patent ends
regardless of which stage it is in.
Another unfortunate side effect of the product life cycle is
prospective planned obsolescence. When a product enters the
maturity stage, a company may be tempted to begin planning its
replacement. This may be the case even if the existing product still
holds many benefits for customers and still has a long shelf life. For
producers who tend to introduce new products every few years, this
may lead to product waste and inefficient use of product
development resources.
Notification messages such as Microsoft's alert that Windows 8.1 will
be sunset January 2023 is an example of decline.2 Due to
obsolescence of the operating system, Microsoft is choosing to no
longer support the product and instead focus resources on newer
technologies.
Product Life Cycle vs. BCG Matrix
A similar analytical tool to determine the market positioning of a
product is the Boston Consulting Group (BCG) Matrix. This four-
square table defines products based on their market growth and
market share:
 "Stars" are products with high market growth and high market
share.
 "Cash cows" are products with low market growth and high
market share.
  "Question marks" are products with high market growth and
low market share.
 "Dogs" are products with low market growth and low market
share.
Although there is no direct relationship between the matrix and the
product life cycle concept, both analyze a product's market growth
and saturation. However, the BCG Matrix does not traditionally
communicate the direction in which a product will move. For
example, a product that has entered the maturity stage of the
product life cycle will likely experience decline next; the BCG Matrix
does not communicate this product flow in their visual depiction.
Special Considerations
Companies that have a good handle on all four stages can
increase profitability and maximize their returns. Those that aren't
able to may experience an increase in their marketing and
production costs, ultimately leading to the limited shelf life for their
product(s).
Back in 1965, Theodore Levitt, a marketing professor, wrote in the
Harvard Business Review that the innovator is the one with the most
to lose because so many truly new products fail at the first phase of
their life cycle—the introductory stage. The failure comes only after
the investment of substantial money and time into research,
development, and production. This fact prevents many companies
from even trying anything really new. Instead, he said, they wait for
someone else to succeed and then clone the success.3
To cite an established and still-thriving industry, television program
distribution has related products in all stages of the product life
cycle. OLED TVs are in the mature phase, programming-on-demand is
in the growth stage, DVDs are in decline, and the videocassette is
extinct.
Many of the most successful products on earth are suspended in the
mature stage for as long as possible, undergoing minor updates and
redesigns to keep them differentiated. Examples
include Apple computers and iPhones, Ford's best-selling trucks, and
Starbucks' coffee—all of which undergo minor changes accompanied
by marketing efforts—are designed to keep them feeling unique and
special in the eyes of consumers.
Examples of Product Life Cycles
Many brands that were American icons have dwindled and died.
Better management of product life cycles might have saved some of
them, or perhaps their time had just come.
Oldsmobile
Oldsmobile began producing cars in 1897. After merging with
General Motors in 1908, the company used the first V-8 engine in
1916. By 1935, the one millionth Oldsmobile had been built. In 1984,
Oldsmobile sales peaked, selling more cars in this year than any
other year. By 2000, General Motors announced it would phase out
the automobile and on April 29th, 2004, the last Oldsmobile was
built.4
Woolworth Co.
In 1905, Frank Winfield Woolworth incorporated F.W. Woolworth
Co., a general merchandise retail store. By 1929, Woolworth had
about 2,250 outlet stores across the United States and Britain,
Decades later, due to increased competition from other discount
retailors, Woolworth closed the last of its variety stores in the United
States in 1997 to increasingly focus on sporting goods.5
Coca-Cola
On April 23, 1985, Coca-Cola announced a new formula for its
popular beverage, referred to as "new Coke". Coca-Cola's market
share lead had been decreasing over the past 15 years, and the
company decided to launch a new recipe in hopes of reinvigorating
product interest. After its launch, Coca-Cola's phone line began
receiving 1,500 calls per day, many of which were to complain about
the change. Protest groups recruited 100,000 individuals to support
their cause of bringing "old" Coke back.6
79 days after its launch, the full product life cycle was complete.
Though "new Coke" didn't experience much growth or maturity, its
introduction to the market was met with heavy protest. Less than
three months after it announced its new recipe, Coca-Cola
announced it would revert its product back to the original recipe.
What Are the Stages of the Product Life Cycle?
The product life cycle is defined as five distinct stages: product
development, market introduction, growth, maturity, and decline.
The amount of time spent in each stage will vary from product to
product, and different companies have different strategic
approaches about transitioning from one phase to the next.
What Are Product Life Cycle Strategies?
Depending on the stage a product is in, a company may adopt
different strategies along the product life cycle. For example, a
company is more likely to incur heavy marketing and R&D costs in
the introduction stage. As the product becomes more mature,
companies may then turn to improving product quality, entering new
segments, or increasing distribution channels. Companies also
strategically approach divesting from product lines including the sale
of divisions or discontinuation of goods.
What Is Product Life Cycle Management?
Product life cycle management is the act of overseeing a product's
performance over the course of its life. Throughout the different
stages of product life cycle, a company enacts strategies and changes
based on how the market is receiving a good.
Why Is Product Life Cycle Important?
Product life cycle is important because it informs management of
how its product is performing and what strategic approaches it may
take. By being informed of which stage its product(s) are in, a
company can change how it spends resources, what products to
push, how to allocate staff time, and what innovations they want to
research next.
What Factors Impact a Product's Life Cycle?
There's countless factors that impact how a product performs and
where it lies within the product life cycle. In general, the product life
cycle is heavily impacted by market adoption, ease of competitive
entry, rate of industry innovation, and changes to consumer
preferences. If it is easier for competitors to enter markets,
consumers change their mind frequently on the goods they
consume, or the market becomes quickly saturated, products are
more likely to have shorter lives throughout a product life cycle.
The Bottom Line
Broadly speaking, almost every product sold undergoes the product
life cycle. This cycle of market introduction, growth, maturity, and
decline may vary from product to product or industry to industry.
However, this cycle informs a company of how to best utilize its
resources, what the future outlook of their product is, and how to
strategically plan for bringing new products to market.

What Is a Bottleneck?
A bottleneck is a point of congestion in a production system (such as
an assembly line or a computer network) that stops or severely slows
the system. The inefficiencies brought about by the bottleneck often
create delays and higher production costs.
The term “bottleneck” refers to the typical shape of a bottle and the
fact that the bottle’s neck is the narrowest point, which is the most
likely place for congestion to occur, slowing down the flow of liquid
from the bottle.
There are two main types of bottlenecks: short-term and long-term.
A short-term bottleneck is temporary and typically caused by
temporary conditions such as employees on vacation or on sick
leave. Long-term bottlenecks are baked into the production process
and include such things as inefficient machinery.1
Bottlenecking, the process that creates bottlenecks, can have a
significant impact on the flow of manufacturing and can sharply
increase the time and expense of production. Companies are more at
risk for bottlenecks when they start the production process for a new
product. This is because there may be flaws in the process that the
company must identify and correct; this situation requires more
scrutiny and fine-tuning. Operations management is concerned with
controlling the production process, identifying potential bottlenecks
before they occur, and finding efficient solutions.
KEY TAKEAWAYS
 A bottleneck is a point of congestion in a production system
that stops or severely slows the system.
 Short-term bottlenecks are temporary and usually caused by
employees on vacation or sick leave.
 Long-term bottlenecks are built into the manufacturing
protocol and often related to inefficient equipment or
processes.
  Bottlenecking, the process that creates bottlenecks, can have a
significant impact on the flow of manufacturing and can sharply
increase the time and expense of production.
 Bottlenecks have a negative effect on practical production
capacity, keeping it further below theoretical (perfect) capacity
than normal.
 Eliminating bottlenecks is key to increasing production
efficiency.
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1:13
Bottleneck
Understanding a Bottleneck
As an example, assume that a furniture manufacturer moves wood,
metal, and other raw materials into production, then incurs labor
and machine costs to produce and assemble furniture. When
production is complete, the finished goods are stored in inventory.
The inventory cost is often transferred to the cost of goods sold
(COGS) when the furniture is sold to a customer.
If there is a bottleneck at the beginning of production, the furniture
maker cannot move enough raw materials into the process, which
means that machines sit idle and salaried workers don’t work
productively, creating a situation of underutilization of resources.
This increases the cost of production, presents a potentially
large opportunity cost, and may mean that completed goods do not
ship to customers on time.
Traffic congestion on roads and highways is often caused by
bottlenecks that restrict vehicle flow. This can be due to poor
planning, roadwork, or an accident that closes one or more lanes.
Bottlenecks and Production Capacity
A bottleneck affects the level of production capacity that a firm can
achieve each month. Theoretical capacity assumes that a company
can produce at maximum capacity at all times. This concept assumes
no machine breakdowns, bathroom breaks, or employee vacations.
Because theoretical capacity is not realistic, most businesses use
practical capacity to manage production. This level of capacity
assumes downtime for machine repairs and employee time off.
Practical capacity provides a range for which different processes can
operate efficiently without breaking down. Go above the optimum
range, and the risk increases for a bottleneck due to a breakdown of
one or more processes.
If a company finds that its production capacity is inadequate to meet
its production goals, it has several options. Company management
could decide to lower their production goals to bring them in line
with their production capacity. Or, they could work to find solutions
that simultaneously prevent bottlenecks and increase production.
Companies often use capacity requirements planning (CRP) tools and
methods to determine and meet production goals.
Bottlenecks and Production Variances
A variance in the production process is the difference between
budgeted and actual results. Managers analyze variances to make
changes, including changes to remove bottlenecks. If actual labor
costs are much higher than budgeted amounts, the manager may
determine that a bottleneck is delaying production and wasting labor
hours. If management can remove the bottleneck, labor costs can be
reduced.2
A bottleneck can also cause a material variance if materials are
exposed to spoilage or possible damage as they sit on the factory
floor waiting to be used in production. Bottlenecks may be resolved
by increasing capacity utilization, finding new suppliers, automating
labor processes, and creating better forecasts for consumer demand.
Real-World Example of a Bottleneck
Bottlenecks may also arise when demand spikes unexpectedly and
exceeds the production capacity of a firm’s factories or suppliers. For
instance, when Tesla Inc. (TSLA) first began production of its all-
electric vehicles, demand was high for the vehicles, and some
analysts were concerned that production would be slowed due to
problems in the production line. In fact, Tesla has experienced
ongoing production bottlenecks due to the need to manufacture the
custom battery packs that supply their vehicles with power.
Tesla founder Elon Musk has said the company’s ability to expand its
product lineup depends squarely on its ability to produce a large
number of batteries.3 To make that happen, in a joint venture with
Panasonic, Tesla opened a massive Gigafactory near Reno, Nev., in
2016, which makes the company’s lithium ion batteries and electric
vehicle subassemblies. By mid-2018, the company claimed that its
factory was already the highest-volume battery plant in the world in
terms of gigawatt-hours (GWh).3 To make a dent in the waiting list
for back-ordered vehicles, Tesla says it will need to continue to invest
in and build more Gigafactories worldwide.
Why is it called a bottleneck?
A bottleneck occurs when there is not enough capacity to meet the
demand or throughput for a product or service. It is called a
bottleneck since the neck of a bottle narrows and tapers, restricting
the amount of liquid that can flow out of a bottle at once.
What is a bottleneck in manufacturing?
A bottleneck occurs in manufacturing when there is a stage (or
stages) in the process that slows down the overall production of a
good. For instance, initial steps may rapidly assemble key parts, but a
crucial next step that welds the parts together may not be able to
keep pace with the earlier stages. As a result, a backlog occurs and
efficiency is reduced. The bottleneck should be solved by expanding
that process, investing in better technology to speed up that process,
or hiring more workers to help with that process.
What is a bottleneck in the services industry?
Many services are carried out by human beings who have a natural
limit on how fast or efficiently they can work. For instance, a barber
may only be able to cut the hair of three individuals per hour. If more
people want a haircut, they will have to wait, and this can cause a
backlog. Ways to reduce a bottleneck are to hire additional barbers,
or to increase the efficiency of the barber using technology or skills
training (so that they can accommodate four customers per hour).
The Bottom Line
A bottleneck is a point of congestion in a production system that
slows or stops progress. Short-term bottlenecks are temporary and
often caused by a labor shortage. Long-term bottlenecks are more
incorporated into the system itself and characterized by inefficient
machinery or processes.
Since bottlenecking is counterproductive and leads to a reduction in
production efficiency, eliminating bottlenecks is key to increasing
profitability. The best way to eliminate bottlenecks is to increase
system capacity by restructuring the process or investing in people
and machinery.

The Role of Marketing in Supply Chain Management

Posted on December 9, 2019 by Gerri Knilans
Between KPIs, ROIs and CRMs, the acronyms we use in
marketing seem to be endless. One acronym you may not consider
right away in marketing is SCM, or supply chain management. And
yet, SCM’s connection to marketing is more pivotal than first meets
the eye.
What is Supply Chain Management?
A supply chain is the network of those involved with the production
and distribution of a company’s products. Supply chains involve a
multitude of activities, people, entities, information and resources.
They incorporate many steps and processes used to deliver products
or services to the marketplace. Examples include refining raw
materials, manufacturing, transportation, inventory control, finance,
retailing, packaging and marketing.
Supply chain management is the vital process of planning, tracking
and perfecting how goods move throughout the system. Maintaining
strong links within your supply chain impacts business costs and
profitability. As such, everyone involved needs to be well-informed
and understand their role within supply chain operations. This is
where marketing comes in.
How Marketing Affects SCM
Think of marketing and its most central element: communication.
Marketing plays a vital role in keeping the supply chain operating at
peak performance. It takes a strategic perspective and operational
role. Here’s how:
1. Marketing helps stakeholders understand their roles and the
target markets they serve. Marketing communications such as
white papers, press releases, email messaging and newsletters
help inform suppliers and others at all levels about the brand
and products they support as well as how they play a part in
the delivery of the final product and customers’ experience.
This requires marketers to have an understanding of how all
stakeholders fit into the supply chain.
2. Marketing fosters collaboration among all links in the supply
chain. By communicating regularly with your partners just like
you would your customers and prospects, you nurture a culture
of collaboration. Utilize specific messaging and distribution of
information to connect with and integrate suppliers into your
team. Use multiple platforms to keep in touch. Consistent
contact helps maintain better alignment with all internal and
external partners.
 3. Marketing gives partners the marketplace knowledge to align
supply and demand considerations. While it is every
department’s job to stay on top of industry trends and changes,
the marketing department knows how to keep its pulse on the
market. It’s vital to understand your target market’s needs,
interests and challenges in order to address them with your
products or services. Utilize the marketing department’s
awareness to share that expertise throughout the supply chain
and make course correction changes as necessary.
4. Marketing informs customers about the expertise of its supply
chain. Content can be utilized to inform readers, share
expertise, announce news, highlight successes and more. A
marketing team that develops content that showcases the
expertise of its supply chain takes it a step even further.
Whether you feature quotes from executives and other experts
from your suppliers within your articles, or share testimonials
and case studies that showcase their successes, thought
leadership supports SCM.
5. Marketing leverages brand awareness to propel business
efforts. It’s important for supply chain partners to be brand-
aligned in order to understand and represent each other
effectively. Recognizable and successful brands can be
leveraged in your outreach so prospects and customers know
the quality and value of your products or services.
6. Marketing translates data into useful expertise for the supply
chain. Using data, information and analytics, the marketing
team helps stakeholders understand the inner workings of the
company and how the pieces fit together. The marketing team
is ideally suited to identify weak links and recommend “fixes.”
The End Game
While marketing may not be the first thing that comes to mind when
you consider supply chain management, it is important to the
efficiency and effectiveness of business operations and profitability.
Marketing supports supply chain agility and flexibility. Through a
collaborative relationship, marketing provides essential marketplace
information that impacts changes in demand. Additionally, it is
responsible for strengthening the company’s competitive position
and building the internal and external relationships that support
operational efficiency. A culture of communication shared
throughout an organization and its partners fosters collaboration,
maintains a customer-centric focus, keeps stakeholders informed,
ensures budgets are properly distributed and supports departmental
alignment.

Supply Chain Management vs. Operations Management

Career Categories
Getting a product into the hands of a consumer is a complex process,
involving multiple internal and external processes and companies
along the way. Each player involved is overseeing its part in the
process through several types of oversight, including supply chain
management and operations management.
Despite some similarities, these are two distinct roles and processes.
It’s essential for business professionals to understand how
organizations use supply chain management and operations
management to enhance efficiency and value, ultimately boosting
profits.
Here, we assess the differences and commonalities between supply
chain management and operations management and what you
should consider to determine which path is best for you.
What is Supply Chain Management?
Supply chain management includes the collection of materials, the
manufacture of products, and the delivery to the consumer. Supply
chain managers coordinate with key players in the supply chain:
suppliers, logistics teams, and customers, often working globally and
overseeing suppliers, purchasing orders, warehouses, and
forecasting.
One critical facet of supply chain management is risk evaluation and
security. Today, this also means looking at cybersecurity in the
supply chain. Supply chain managers must regularly evaluate
suppliers and their strategies and protocols, forecast demand to
avoid over-supply, improve customer service, and coordinate with
other departments in the business including marketing, finance,
sales, and quality assurance.
Supply chain management is vital to businesses because it can help
reduce costs with better efficiency from suppliers and leaner
inventories, provide better customer services with faster delivery
and react faster to market demands and innovations. It also offers
the assurance of corporate responsibility in every facet of
production.
What is Operations Management?
Operations management focuses on running a business effectively
and efficiently, including maintenance, material planning, and the
analysis of production systems. Operations managers coordinate the
internal business operations, driving not how the product or service
is moved, but how it is developed. This generally requires
professionals to be skilled in building rapport with organizational
stakeholders, current in technology applications, and adept at
analysis.
Operations managers should also be skilled at recent trends within
operations management, including Agile and Lean concepts to help
reduce waste and improve efficiency.
Regardless of industry, operations managers forecast sales, work to
increase responsiveness, ensure customer demands are met and
uphold quality standards.
Why is Supply Chain Management Important in Operations
Management?
Both operations management and supply chain management are
expected to add value to the business, supporting more efficient
processes and ultimately driving better revenue for the company. In
fact, in pursuit of those objectives, the two roles are inextricably
linked together. Supply chain management controls the process for
having the product produced; without it, operations management
wouldn’t have a product to oversee operations for.
Many industries require both supply chain management and
operations management, whether the business is moving services,
products, raw materials, data, or money into the hands of its
customers.
In smaller organizations, it’s also possible for these roles to overlap
or be fulfilled by a single person or department, as the necessary
skillset for both roles is similar, including:
 Organization
 Decision-making
 Goal-setting
 Cross-functional leadership
 Communication
The Difference Between Supply Chain Management and Operations
Management
The major difference between supply chain management and
operations management is that the supply chain is mainly concerned
with what happens outside the company – obtaining materials and
delivering products – while operations management is concerned
with what happens inside the company.
This means the supply chain manager spends time negotiating
contracts and evaluating suppliers, whereas the operations manager
is often planning and overseeing the daily operations and processes.
Supply chain management activities are generally the same across
industries; however, operations management roles and
responsibilities can vary widely depending on the product or service
the business produces.
Supply Chain Management or Operations Management: Which is
Right For You?
Although these roles share many overlapping skills and even
intersect, aspiring professionals should consider whether they would
prefer the external focus supply chain managers adopt or the
internal lens of an operations manager.
If global markets, quality control, transportation and logistics, and
designing value in the supply chain are of greater interest, you may
wish to pursue supply chain management. Alternatively, if you would
prefer to spearhead production, planning, workflow, and staffing,
you may thrive as an operations manager.

What is supply chain management?

Supply chain management is a field that manages how businesses
deliver their products and services to customers. Supply chains are
the process by which businesses deliver what they sell to customers,
including inventory management, warehouse management and
supplier management. Supply chain managers are professionals who
manage this process for their companies.
A supply chain manager might work with a supplier to ensure the
right amount of inventory is delivered at the right time. They may
manage the warehouse staff that accepts the delivery and organizes
where to store it. They also make sure the supplies and inventory in
the warehouse go where they are needed for any business
production needs and then store and ship the final product to
customers.
For instance, a supply chain manager for a company that
manufactures computers might be responsible for coordinating
component deliveries with suppliers, including choosing suppliers
and placing orders, so that their company can make the computers
as needed. Then the manager would also manage the computer
inventory and getting orders shipped to retailers and customers.
Related: Supply Chain Management: What It Is and How It Works
What is operations management?
Operations management is a field that manages the operations of a
business, including how a business's buildings and equipment are
maintained, how manufacturing operations work and ensure
production of products and services is working efficiently to deliver
orders on time. Operations in business terms means anything related
to how the business works, especially regarding how employees use
their time at work.
An operations manager might create more efficient production
processes to increase product output for the company. They might
also manage the business's budget and staffing needs. They might
work with other managers to coordinate strategies for the business
and how to reach the company's goals on a long-term basis. They
may create a schedule for maintenance on manufacturing equipment
to be sure that through proactive maintenance, equipment lasts
longer and has fewer problems.
For instance, an operations manager who works at a company that
manufactures computers might discover that reorganizing the
manufacturing process would make building the computers go faster
and work with their colleagues to implement that change. They
coordinate with the supply chain manager to ensure inventory will
be available and fit within the company budget. They manage the
staffing of the manufacturing area to ensure there are enough
employees building computers to meet customer demands. They
also work with other company managers to create a strategy for the
future of the business.
Related: What Is Operations Management?
Supply chain vs. operations management
The primary difference between supply chain management and
operations management is that the supply chain deals with materials
that are received or sent from external places and operations
management is more involved with the internal processes. Some
companies may have a team for each area, an individual who
handles each area or one person who handles both areas. The two
areas don't usually cover similar duties, but they do interact to
cooperate to ensure customers receive their orders on time, and the
skill set required is fairly similar.
The business processes often pass back and forth between supply
chain and operations management. For instance, an operations
manager may budget for a certain amount of supplies, so the supply
chain manger places the order and works with the supplier, in
addition to receiving the shipment when it arrives. Then the
operations manager oversees the process of those supplies being
made into the product their business sells and the employees and
equipment that are involved. Once the products are manufactured,
they go to the supply chain manager to be sent to customers.

Difference between the operations and supply chain management –

When describing the roles and responsibilities that Operations
Management and Supply Chain Management entail, it can be a little
confusing to differentiate the two areas because there are so many
similarities between both disciplines. Both disciplines are part of a
larger organizational structure and many functions can overlap as
part of normal business processes. Sometimes the people in both
functions can have multiple roles that touch on both areas.
Additionally, the supply chain can also be described as a supply chain
web. This is because the academic model of a supply chain consists
of a primary organization with vendors feeding it, and it feeding
customers. However, in reality an organization will have many
vendors and many customers. Those vendors will interact with
others customers and even those customers will be vendors to the
original customer. Just think of a copy paper supply chain. Pulp
vendors supply pulp to paper manufactures. These manufacturers
make the paper and through its supply chain, the copy paper will be
sold to retail stores. Then the original pulp manufacturer’s office staff
will visit the office supply retail store and buy copy paper for their
own use.
The Operations management discipline consists of the management
of those processes inside the supply chain that increase the
economic value of the supply chain. Operations management takes
resources and uses them to accomplish business goals while taking
into consideration the needs of all stakeholders. The supply chain
encompasses the components that convert raw materials into finish
goods. However, operations management determines the processes
how those raw materials are converted. The biggest difference
between supply chain management and operations management is
the supply chain management is externally focused dealing with
vendors and customers, and operations management is internally
focused concentrating processes inside the company’s walls.

What Is Lean Six Sigma?

Lean Six Sigma is a team-focused managerial approach that seeks to
improve performance by eliminating resource waste and defects.
It combines Six Sigma methods and tools with the lean
manufacturing/lean enterprise philosophy. It strives to eliminate the
waste of physical resources, time, effort, and talent while assuring
quality in production and organizational processes.
Simply put, Lean Six Sigma teaches that any use of resources that
doesn't create value for the end customer is considered a waste and
should be eliminated.
KEY TAKEAWAYS
  Lean Six Sigma seeks to improve employee and company
performance by eliminating the waste of resources and
process/product defects.
 It combines the process improvement methods of Six Sigma
and lean enterprise.
 Lean Six Sigma helps to establish a clear path to achieving
improvement objectives.
 The Lean strategy was established by Toyota in the 1940s and
attempts to streamline operational processes, from
manufacturing to transactions.
 Six Sigma originated in the 1980s and seeks to improve output
quality by reducing defects.
History of Lean Six Sigma
Lean Six Sigma is a combination of Lean methodology and Six Sigma
strategy. Lean methodology was established by Japanese automaker
Toyota in the 1940s. Its purpose was to remove non-value-adding
activities from the production process.
Six Sigma was established in the 1980s by an engineer at U.S.
telecommunications company Motorola who was inspired by
Japan's Kaizen model. It was trademarked by the company in 1993.
Its method seeks to identify and reduce defects in the production
process. It also strives to streamline the variability of the production
process.
Lean Six Sigma emerged in the 1990s as large U.S. manufacturers
attempted to compete with Japan's better-made products. The
combination strategy was introduced by Michael George and Robert
Lawrence Jr. in their 2002 book Lean Six Sigma: Combining Six Sigma
with Lean Speed.
Companies can arrange for Lean Six Sigma training and
certification from a wide selection of organizations that specialize in
the approaches of Lean Six Sigma and Six Sigma.
The Lean Six Sigma Concept
The lean concept of management focuses on the reduction and
elimination of eight kinds of waste known as DOWNTIME, an
acronym formed by the words defects, overproduction, waiting, non-
utilized talent, transportation, inventory, motion, and extra-
processing. Lean refers to any method, measure, or tool that helps in
the identification and elimination of waste.
The term Six Sigma refers to tools and techniques that are used to
improve manufacturing processes. The strategy attempts to identify
and eliminate the causes of defects and variations in business and
manufacturing processes.
Six Sigma's DMAIC phases are utilized in Lean Six Sigma. The acronym
stands for define, measure, analyze, improve, and control. It refers to
the data-driven five-step method for improving, optimizing, and
stabilizing business and manufacturing processes.
A Lean Six Sigma approach that combines Lean strategy and Six
Sigma's tools and techniques highlights processes that are prone to
waste, defects, and variation and then reduces them to ensure
improvement in a company's operational processes.
Lean Six Sigma Techniques
The techniques and tools used to accomplish essential goals of the
Lean Six Sigma strategy include:
 Kanban workflow management practices such as work
visualization and limited work in progress that maximize
efficiency and promote continuous improvement.
  Kaizen practices that engage employees and promote a work
environment that emphasizes self-development and ongoing
improvement.
 Value stream mapping to analyze places to eliminate waste and
optimize process steps.
 The 5S tool to ensure that the workplace is efficient,
productive, safe, and successful.
Benefits of Lean Six Sigma
 By increasing the efficiency of important processes, companies
can improve the work experience for employees and the
customer experience for buyers. This can build loyalty inside
and outside of a company.
 Streamlined, simplified processes can increase control and a
company's ability to capitalize on new opportunities quickly.
 They can also lead to more sales and revenue, lower costs, and
more successful business results.
 Involving employees in a group or a company-wide efficiency
effort can improve their skills (e.g., analytical thinking and
project management), improve their growth opportunities, and
boost camaraderie.
 By preventing defects, companies save on the time, money,
and human effort previously required to identify and eliminate
them.
 Ultimately, all components of the business process benefits—
employees, customers, vendors, and the company.
Lean Six Sigma Phases
The DMAIC phases of Lean Six Sigma are Define, Measure, Analyze,
Improve, and Control. They are used to identify and improve existing
process problems with unknown root causes.
Define
Define the problem from a company perspective, stakeholder
perspective, and customer perspective. Figure out the quality
expectations that customers have and the extent of the problem.
Measure
Examine the current process and how it contributes to the problem.
Determine whether the process can meet the previously defined
quality expectations of customers. Match each process step to your
quality criteria. Support your measurements with actual
performance data.
Analyze
Examine all information gathered thus far to finalize the exact nature
of the problem, its scope, and its cause.
Improve
Solve the problem and verify the improvement. Collaborate to
structure a solution that eliminates both the problem and its cause.
Use your data to ensure that the solution fits the issue at hand. Test
the solution and derive performance data to support it.
Control
Monitor improvement and continue to improve where possible.
Finalize acceptable performance criteria. Establish a plan that can
deal with variations that occur, sustain improvements, and prevent a
reoccurrence of the original problem.
Lean Six Sigma Belt Levels
Lean Six Sigma training uses Belts to denote Lean Six Sigma expertise.
The exact specifications for each Belt may differ depending on what
organization provides the certification.
White Belt
A White Belt means an employee understands the meaning and
goals of Lean Six Sigma. They know the terms associated with the
methodology and report any process problems to colleagues with
either Green or Black Belts.
Yellow Belt
A Yellow Belt implies that an employee understands essential Lean
Six Sigma concepts, tools, and techniques. They report process
problems to colleagues with either Green or Black Belts. They also
can be part of project teams and receive Just-In-Time1 (JIT) training.
Green Belt
A Green Belt certifies that an employee has some expertise in Lean
Six Sigma strategy and can launch and manage Lean Six Sigma
projects. They can provide JIT training to others. They focus on the
use of tools and the application of DMAIC and Lean principles.
Black Belt
A Black Belt is an employee with advanced Lean Six Sigma expertise
who reports to Master Black Belts. They can be full-time, cross-
functional project team leaders, as well as a coach or mentor to
Green Belts. They are responsible for putting Lean Six Sigma changes
into place.
Master Black Belt
An employee with a Master Black Belt has extensive Lean Six Sigma
expertise is typically responsible for the Lean Six Sigma initiative.
They can act as coach or mentor and monitor projects. They work
with company leaders to identify efficiency gaps and training needs.
They report to C-Suite executives.
1
Lean Six Sigma Just-In-Time training allows employees to focus
resources on what customers need, when they need it, rather than
building up unnecessary inventory.
Lean Six Sigma vs. Six Sigma
Lean Six Sigma and Six Sigma are two related strategies that can
solve process problems. Both can help companies make noteworthy
improvements in quality, efficiency, and use of time by analyzing the
way their processes function. Both use the DMAIC phases/method.
Both are based on creating a problem-solving workplace culture.
However, Six Sigma is focused on reducing defects and process
variability to improve process output and quality to meet customer
expectations. Lean Six Sigma is focused on reducing or eliminating
the wasteful use of resources and defects to improve workflow and
create more value for customers.
Lean Six Sigma combines aspects of Six Sigma (such as data analysis)
and aspects of the Lean methodology (such as waste-eliminating
tools) to improve process flow, maintain continuous improvement,
and achieve business goals.
What Is the Meaning of Lean Six Sigma?
Lean Six Sigma is a process improvement strategy that seeks to
eliminate inefficiencies in a company's process flow by identifying
the causes of problems and developing solutions to address them.
What Are the 5 Principles of Lean Six Sigma?
Define, measure, analyze, improve and control are the five principles
and phases of Lean Six Sigma. They're the steps practitioners take to
create more efficient processes and a workplace culture that's
focused on continuous improvement.
Why Is Lean Six Sigma Important?
Many consider it important for the measurable and consistent
improvements in operations and business results that companies
achieve using it. It also might be considered important because it
combines the significant process streamlining of the Lean
methodology of the 1940s with the Six Sigma data-driven approach
of the 1980s.
The Bottom Line
Lean Six Sigma is a management approach and method that
endeavors to eliminate any wasteful use of resources plus defects in
production processes so as to improve employee and company
performance.
It draws on the Lean concept of the 1940s established by Japan's
Toyota to reduce waste and the Six Sigma strategy of the 1980s
established by U.S. company Motorola to reduce defects.
By combining these teachings, Lean Six Sigma puts the best of both
to work to streamline efficient operations and financial outcomes for
all kinds of organizations.

A Brief Introduction To Lean, Six Sigma And Lean Six Sigma

If you are starting to learn about the concepts of streamlining a
business process, you are in the right place. We will introduce you to
the methodologies of Lean, Six Sigma, and Lean Six Sigma. People
with no experience in this area can get an idea of what it is all about.
So let's begin:
Section I: Lean Methodology
What is Lean?
Lean is a systematic approach to reduce or eliminate activities that
don't add value to the process. It emphasizes removing wasteful
steps in a process and taking the only value-added steps. The Lean
method ensures high quality and customer satisfaction.
It helps in
 reducing process cycle time,
 improving product or service delivery time,
 reducing or eliminating the chance of defect generation,
 reducing the inventory levels and
 optimizing resources for key improvements among others.
It is a never-ending approach to waste removal, thus promotes a
continuous chain of improvements.
What is “Value”?
Let’s understand what is "Value” in the above definition of Lean:
Depending on the type of business process & industry context, the
customer defines “value”. “Value” is related to the customer’s
perception of the product(s) or service(s), which he or she is willing
to pay for.
A process is a set of activities, which converts inputs into outputs
using resources. In a process, these activities can be classified into
three types. They are:
 Non-Value-added Activity: These activities do not add any
value to the processor products. They form the wasteful steps.
A customer doesn’t pay for the costs associated with these
activities willingly. Rather, if present excessively they result in
customer dissatisfaction.
  Value-added Activity: These activities add value to the process
and are essential. They improve processes for productivity and
quality.
 Enabling value-added Activity: These activities do not add
value to a customer. They are necessary for the continuity of a
process.
In any process, almost 80 – 85% of activities are non-value adding
activities. The aim of the LEAN approach is to identify them in the
process. And use specific lean tools to eliminate or reduce them.
Thus, Lean improves process efficiency.
You may also like: Six Sigma in Service Sector – A Comprehensive
Review
Types of Waste & Waste Removal
Lean concept obtains its genesis from TPS – Toyota Production
system. TPS model typically is well suited for High Volume
Production environment. However, Lean finds its application in any
environment, where process wastes are witnessed. Lean can be
applied to manufacturing as well as service industries. It causes no
doubt that Lean, nowadays, is being adopted by service sectors with
both arms.
Taiichi Ohno, who started his career working with Toyoda Spinning
and rose through the ranks later, believed that the lean approach is a
step-by-step reduction of waste. Stemming from the Toyota
Production System, the 3M model – Muda, Mura, Muri – exposes
inefficient processes that are a hindrance to customer value
generation.
 Muda: Muda refers to any activity that does not add value to
the creation of the product or service for the customer. There
were 7 types of lean wastes identified in manufacturing
processes. Removing them was believed to be the key to value
 delivery to customers. Later on, the 8th lean waste was added -
Underutilization of Skills.

Source: Lean Manufacturing Tools

 Mura: Mura refers to inconsistencies in business operations
leading to fluctuations in production. Variation in production or
process leads to sub-optimal utilization of resources. Uneven
workloads, inventory accumulation, and waiting are some
examples. The presence of Mura leads to Muda.
 Muri: Muri takes place when there are too much stress and
strain on people and machines. Overtime data in offices and
over-utilization of machinery in plants are some examples.
When processes are not scheduled to optimize resources, it can
result in dissatisfaction amongst people or downtime for
machines. Although outcomes might be met. Muri also leads to
Muda.
Using the Lean methodology, you can remove the below mentioned
eight types of waste ("DOWNTIME" is the acronym for the eight
wastes). These wastes are further explained below:

Waste Definition of waste

D Defects The efforts involved inspecting for and fixing
errors, mistakes through reworks.
O Overproduction Producing more products or services that the
customer needs or downstream process can use.
WWaiting Idle time created when material, information,
people, or equipment is not ready. It includes
high job set up time in manufacturing. Or
excessively high data processing time in the
service industry.
N Non – Utilized Not adequately leveraging peoples’ skills and
Talent creativity. Employee empowerment can counter
this waste as advocated by Japanese quality
pioneers.
T Transportation Moving products, equipment, material,
information, or people from one place to
another, without any value addition to the final
product or service.
I Inventory Unnecessary/ Unwanted stocking or storage of
information and/ or material (eg WIP, WIQ –
work in the queue)
M Motion Unnecessary movement of people or machines
that takes time and uses energy. It may cause
fatigue to workmen due to unwanted movement
 of a body.
E Extra Processing Process steps that do not add value to the
product or service, including doing work beyond
a customer’s specification.
Table 1: Explanation of Eight Deadly Wastes
You may also like: 8 Fatal Lean wastes: How to Identify them?
The Five Principles of Lean
These Lean principles can be applied to any process to reduce
wastes. They are:

Source: Michigan Technological University

Figure 2: Lean Principles
  Define Value: The customer defines the value of a product or
service. Hence, the first step is to identify customers. Ask
yourself, what does the customer value? Figure out customer’s
expectations from your products or services. Classify the
process activities into Non-Value added, Value-added, and
Enabling value-added.
 Map the Value Stream: The value stream mapping shows the
workflow process steps for a product or service. The value
stream mapping helps to identify & eliminate NVA activities.
This eventually helps you to reduce the process delays and
thereby improves the quality of product/service.
 Create Flow: Create a flow to the customer by ensuring a
continuous flow system in producing products or services. The
flow will optimize the process to maximize process efficiency.
 Establish Pull: establish a pull approach by meeting system
beat time. The beat time is the rate at which a product must be
ready to meet customer demand. JIT (Just in time) is a tool
promoting the Pull system. This ensures the smooth workflow
of the process without any disruptions. It also helps to diminish
inventory levels.
 Seek Continuous Improvement: Finally, you must put
consistent efforts to improve the existing business processes to
cater to ever-changing customer needs. This ensures the
elimination of waste and defects of free products & quality
service to customers.
Introduction to Some Important Lean Tools
 VSM (Value Stream Mapping): As already discussed, VSM helps
to identify process wastes and causes of these wastes.
 Kaizen: It’s a continuous improvement approach focusing on
small – small improvements. It involves the commitment of
 down level people in the organization towards process
improvements, facilitated by subordinates and supported by
management.
 Just in Time: It’s a pull approach to meet customer demands as
& when it flows from a customer.
 SMED (Single minute exchange of dies): It improves equipment
changeover time. It works on the principle of reducing
changeover time to within ten minutes.
 Poke Yoke: It’s a mistake-proofing device used in assembly to
alert operators on defects or failures.
 Jidoka (Autonomation): Also known as intelligent automation.
It stops the assembly or production line if a defect occurs.
 Heijunka: It’s the concept of Line Balancing. The aim is to
evenly distribute the load by balancing production lines.
 Gemba (Go & See): The aim is to go to the actual place of work.
Observe the process and executions in real-time with care.
Record the observations. It’s another way to find process
pitfalls.
 Kanban: It’s a signal system to manage inventory
levels. Kanban boards can be displayed and managed to see the
current inventory level on a real-time basis. It also alerts the
management to bring attention to excessive inventory.
Excessive inventory ties up the working capital and blocks it
from productive usage.
Now let’s understand about management approach of Six Sigma.
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Section II: Six Sigma
What is Six Sigma?
Six Sigma is a data-driven problem-solving methodology. The focus is
on process variations and emphasis is given to customer satisfaction.
Continuous process improvement with low defects is the goal of this
method.
The Goal of Six Sigma:
The aim of Six Sigma is to make a process effective with - 99.99996
% defect-free. This means a six sigma process produces 3.4 defects
per million opportunities or less as a result.
Six Sigma is a structured problem-solving methodology. Problem-
solving in Six Sigma is done using the DMAIC framework. There are
five stages in this framework. They are
- Define
- Measure
- Analyze
- Improve
- Control
Source: Pinterest
Six Sigma Description of Phase
Phase
Define In this stage, project objectives are outlined. A project
charter is an important component of this phase. A
project charter is a blueprint document for a six sigma
project. A typical charter contains the following
information:
 Business case
 Problem statement
 Goal statement
 Project scope
 Resources
 Timelines
 Estimated benefits
This chapter gives an overview of a six sigma project and
is approved by top management to give a go-ahead to the
six sigma project.
Measure Process variables are measured at this stage. Process data
is collected. The baseline is obtained and metrics are
compared with final performance metrics. Process
capability is obtained.
Analyze Root cause analysis is done at this stage. Complex analysis
tools are utilized to identify the root causes of a defect.
Tools like histograms, Pareto charts, fishbone diagrams
are used to identify the root causes. Hypotheses tests are
conducted to verify and validate root causes, Viz
 Regression test, ANOVA test, Chi-square, etc.
Improve Once the final root causes are identified, solutions need
to be formed to improve the process. Steps to identify,
test, and implement the solutions to eliminate root causes
are part of this stage. Simulation studies, Design of
experiments, Prototyping are some of the techniques
used here to improve and maximize process performance.
Control After implementing the solutions, the performance of the
solutions must be recorded. A control system must be in
place to monitor the performance post improvement. And
a response plan is developed to handle solution failure.
Process standardization through Control plans & work
instructions is typically a part of this phase. Control charts
show the process performance. Project benefits are
discussed and verified against the estimated one. The
main purpose of this phase is to ensure holding the gains.
Table 2: Six Sigma Phases and their descriptions
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career & organization?
Section III: Lean Six Sigma
What is Lean Six Sigma?
ASQ (The American Society for Quality) states,
“Lean Six Sigma is a fact-based, data-driven philosophy of
improvement that values defect prevention over defect detection. It
drives customer satisfaction and bottom-line results by reducing
variation, waste, and cycle time while promoting the use of work
standardization and flow, thereby creating a competitive advantage.
It applies anywhere variation and waste exist, and every employee
should be involved.”
Lean Six Sigma combines the strategies of Lean and Six Sigma. Lean
principles help to reduce or eliminate process wastes. Six Sigma
focuses on variation - reduction in the process. Thereby, the
principles of Lean Six Sigma helps to improve the efficiency and
quality of the process.

Source: Circle 6 Consulting

Three Key Elements of Lean Six Sigma
The three key elements comprise of -
 Customers: The moment of truth from a customer standpoint
arrives at the time when they experience your product or
solution. Today’s customers have more access to both
information and choices. They will demand the best at the
lowest and would expect to be supported throughout their
product experience. This calls for an outside-in approach to
business processes, which is the core of Lean Six Sigma.

 Processes: With an outside-in approach comes the need to

define the business process value chain. Customers will pay for
 the product only not for inefficiencies like rework, revisions,
and wastages. Lean Six Sigma helps organizations focus on
consistently producing quality output and improve the value
chain so customers get the best quality within expected
timelines.

 Employees: Peter Drucker once said, ‘Culture eats strategy for

breakfast.’ Unless a well-defined business process
transformation strategy is driven at a grass-roots level, events
might tend towards the status quo. Lean Six Sigma has to be
driven as DNA within the organization so all stakeholders at all
levels speak the same language and practice what is being
preached.

Why is Lean Six Sigma Gaining Importance In Today’s Scenario?

Today’s environment is very dynamic. Lean or six sigma approach in
this dynamic environment cannot bring the full potential to
improvements if applied in isolation. Integration of Lean & Six Sigma
ensures exceptional improvements. In this management approach,
traditionally the lean methodology is used first to remove the waste
in a process. Later, the Six Sigma tools are used to improve process
variations. However, these two methods go hand in hand in today’s
time. The ultimate objective is to improve processes by reducing
variation and eliminating waste. It’s a continuous improvement
process, where Lean methods and Six Sigma approaches, both take
their turn during PDCA. The extent of approaches may differ
depending upon process complexities or improvement sought. The
combination of these two methods helps to develop streamlined
processes with high quality & results. It improves bottom-line profits
and helps meeting business goals.
The integrated Lean Six Sigma management approach is being used
across sectors and industries. It promotes exceptional changes in an
organization's performance. Lean Six Sigma leads to enjoying
competitive advantages in various companies in the world. They can
be product or service-oriented companies. The LSS methodology
improves processes and makes them efficient. The key to success is
management support, employee engagement, and commitment to
improving customer satisfaction.
Lean Six Sigma and Innovation Management
All innovations stem from a need. In today’s day and age, customers
demand newer products and solutions on a daily basis. Comfort,
convenience, and efficiency take prominence over the brand.
In this environment, it is imperative for organizations to continue to
churn out innovative solutions, most times pre-empting the market
needs. Lean Six Sigma methodology becomes a solid basis for
innovation to be driven as a culture within organizations. At the base
is the common motive of delivering quality products and solutions
consistently to customers.
Implementation of the Lean Six Sigma Methodology Within
Enterprises
So, why do organizations of varied size and levels of maturity use the
principles of Lean Six Sigma? For reconnecting to the core goals of a
business enterprise like-
 Customer delight
 Improving the bottom line
 Enhanced products/service quality
 Employee satisfaction
 Cost efficiency
 Managing and adapting to change
 Enhancing organizational agility
  Building a culture of Operational Excellence

Possible Traps That Can Emerge During the Implementation of This

Methodology
‘A fool with a tool is still a fool’ as the age-old adage goes!
Lean Six Sigma offers a methodology and a set of tools that lead to
continuous improvement. In a well-embedded Lean Six Sigma
culture, from the voice of the customer to measuring delivery
success, what gets measured gets improved. In a zest to achieve
quick-fixes and instant outcomes, companies fail to realize the long-
term benefits of the methodology.
Some common traps that most organizations fall into are -
 Focus on theoretical knowledge than application
 Lack of focus on resource optimization than utilization
 Focus on data collection without driving business intelligence
 Use of static and traditional execution approaches to new-age
dynamic ones
 Lack of alignment between organization mission/vision and
individual goals

Similarities and Differences Between Lean and Six Sigma

Lean and Six Sigma both signify a system for continuous
improvement of business processes. While Lean focuses on waste
reduction/elimination, process simplification, value stream mapping,
and reduce rework in the value chain. Six Sigma focuses on setting up
a set of systems and people-aligned processes focussing on
improving consistency of quality outcome to customers.
 Lean helps increase process efficiency by focusing on speed and
cost optimization. Lean ensures the stability of processes.
  Six Sigma focuses on quality improvement by reducing variation
using statistical tools and techniques.
 Six Sigma employs the DMAIC model (Define, Measure,
Analyze, Improve, Control) for existing products/services while
DFSS (Design for Six Sigma) is deployed for new
products/service design.
Lean Six Sigma evolved over the last few decades as a convergence
of both these methodologies was imminent to many organizations.
Lean Six Sigma blends both the methodologies and thereby creates a
pragmatic approach to process improvement within a company. It is
characterized by a multi-pronged approach to problem-solving
thereby fixing value chain blockages and ensuring consistent delivery
of quality products/solutions.
The foremost benefit of a blended Lean Six Sigma approach is that it
aids focus on customer goals and caters to building efficiencies which
is important from an investor standpoint. It also takes away the
misperception of a long-drawn deployment duration across large
businesses as both foci on outcomes that are the highest priority
from a customer standpoint.
Lean Six Sigma Principles
An outside-in approach is key to the success of an LSS deployment
within organizations. Some fundamental principles to enable this are
–
1. Customer Focus: Defining what ‘quality’ and ‘satisfaction’ means
to the customer and aligning the business processes and people to
achieve the customer and business goals should be at the center of
any LSS deployment.
2. Define Roadblocks to Consistent Quality: Many organizations get
excited about doing too many things at the same time without doing
a real assessment of what matters most to the customer and the
business stakeholders. Define your problem well and set priorities in
line with the same. Access to qualitative and quantitative data at this
stage enables a more rational approach at this stage.
3. Eliminate Inefficiencies: Define very clearly what is the customer
not ready to pay for. Demarcate between non-value added and
value-added steps in the business process. Apply a philosophy of
eliminating, simplify, or automate across the organization supported
by consistent measurement of the outcomes. What gets measured,
gets improved.
4. Communicate and Align People: Consistent and seamless
communication and training and handholding of people across the
organization is the key to achieve success with any change, especially
with the deployment of LSS. Encourage people to fall in love with
problems and get excited about solving them. Inculcate a culture of
group problem solving using group-think techniques. Ensure
behavioral sponsorship to the new way across the organization,
especially at leadership and managerial levels.
5. Be Flexible and Adaptable: Change is uncomfortable, to begin
with, and each person in the organization will move on the Change
Curve at a different pace. Be cognizant of this aspect and ensure
organizational structure and management philosophies are aligned
to the new realities. Markets are ever-changing and it is important to
keep an eye on what customers might demand in the future. With
that in mind, keeping the business processes capable of dynamic
shifts and building a culture of adaptability and agility across the
organization becomes imperative for the deployment of LSS as well.
Benefits of Lean Six Sigma
Lean Six Sigma methodology impacts the core of an organization’s
approach to delivering customer outcomes. The benefits of
deploying LSS are multifarious, some noteworthy ones captured
herein.
1. Talent Development: LSS deployment needs every person in the
organization to understand the principles and practical application of
the techniques. This enhances focus on talent development and
embeds learning as a culture within the organization. Growth comes
with improved outcomes and continuous learning/upskilling
becomes a part of the organizational culture.
2. Quality Delivery Enabled Through Efficient Business
Processes: Data-driven decision making, right first time, improved
throughput, and increased transparency are direct benefits of LSS. A
customer-centric focus on quality ensures that customer voices are
continuously heard and product/solution designs plus delivery
mechanism quickly attuned to the new market realities.
3. Scalable Across Different Sectors: Although there used to be a
misperception that Lean Six Sigma is more applicable to
manufacturing and engineering companies. In the last few decades
with the application of these principles within other sectors like BFSI,
IT, and Retail have proven that LSS techniques have cross-industry
application capabilities.
4. Becomes The Basis for Cutting-edge Technology Deployment: LSS
drove continuous improvement initiatives blend with digitization and
deployment of cutting-edge technology. LSS is vital to a successful
Digital Transformation and becomes a subset of the larger Business
Transformation strategy for organizations.
5. Enhances Brand Value: Customers trust organizations that are
able to respond to their challenges in a timely manner and resolve
the same with integrity. LSS sets-up a culture of people and a
sequence of processes and practices that help build upon this
customer success quotient, thereby enhancing brand value further.
Lean Six Sigma Belts
Defined as roles within some organizations, let’s refresh our
understanding of the different Belts within Lean Six Sigma. Belts
signify different levels of certification within the LSS school of
knowledge.
 Master Black Belt (MBB): Expert in Six Sigma methodology and
statistical tools. The MBB provides Six Sigma guidance and
technical leadership for a specific function or department in an
organization. Coaching, mentoring and training Black Belts also
fall within the ambit of the MBB. MBBs are the final authorities
in signing off BB projects.
 Black Belt (BB): Usually whole-time professionals leading Six
Sigma projects. They are experts in the methods and tools
within Lean Six Sigma. Most importantly, responsible for
providing coaching and Six Sigma expertise to Green Belts.

Source: 6 Sigma Certification Online

 Green Belt (GB): Usually alongside a functional or leadership
role. GBs are leaders responsible for driving operational
excellence within their teams or functions. Through the real-
time application of Lean Six Sigma techniques in process
improvement and under the guidance of BBs, they manage Six
Sigma projects from concept to completion. It is a defining
growth and development criteria within most organizations.
 Yellow Belt (YB): A relatively new and evolving term. YBs
demonstrate basic knowledge of Lean Six Sigma. Usually
 support a GB or BB project as a core team member or SME.

How Does Lean Six Sigma Work?

The question is not whether Lean and Six Sigma work. The key point
is what happens when organizations approach transformational
initiatives in isolation to proven process improvement methodologies
like Lean Six Sigma.
The result is a set of automated processes that seem sophisticated
but miss the key aspect of customer orientation and scalability. And
when customers are ignored for cosmetics, results are disastrous.
More organizations who aim to be in business for the long-term
approach continuous improvement through tried and tested Lean
Six Sigma methodologies or variations to the same.
For the ones who choose to grow from a start-up to a unicorn only to
realize they are moving into obscurity due to lack of customer focus,
some of the Lean Six Sigma techniques and LSS professionals could
be the saviors.
Final Takeaway
In a nutshell, Lean methodology aims at waste reduction in process,
while six sigma aims at reduction of process variation. However, both
approaches go hand in hand to realize the full potential for process
improvements. An integrated approach of lean six sigma helps
improving process efficiency, optimizing resources, and increasing
customer satisfaction while improving profits and curtailing cost.
What is Cycle Time?
Cycle time is the time it takes to complete a single manufacturing
operation on one unit, or several at once, from start to finish,
meaning that a product passes through one stage of its production.
You can approach it in two ways:
– By including the steps that support the process like loading and
unloading, called Effective Cycle Time. This approach measures the
cycle from the beginning of a process until the start of the next
process in the workstation.
– By not accounting for anything else but the time a unit is actually
worked on and altered, called Equipment Cycle Time.
Any way you measure it, cycle time is an important KPI that allows
managers to keep a finger on the pulse of the company’s
productivity.
It is a good measure to gauge the duration of different tasks in the
production process, providing manufacturers with insights that
would allow for better scheduling and improvements in efficiency.
A defined CT will also provide factory floor workers with information
on what is expected from them in terms of process times.
Additionally, you should make a distinction between:
– The typical cycle time, which you achieve under normal conditions,
on average;
– The ideal cycle time, which is the theoretical minimal processing
time of one unit.
How to Calculate Cycle Time?
If products are processed one-by-one, cycle time is calculated by
dividing the total amount of goods processed in a workstation by the
duration of the process.
CT (per 1 product) = Process duration/Total amount of goods
processed
That means if you have one single workstation that assembles a
product from start to finish, its CT is the duration of one assembly.
When a CNC machine processes 90 units in an hour, its productivity
is 90 units/h, and therefore its CT is 60 / 90 = 0.67 minutes or 40
seconds per unit.
If you are working with batches, the CT corresponds to the
processing time of the batch:
CT (per batch) = Process duration for a batch of goods
Let’s say you are a small town baker and, in 30 minutes, your oven
bakes a batch of 60 loaves of bread – then your baking operation’s
CT is 30 minutes, which is the time it takes to cook the bread. It is the
same for any quantity between 1 and 60 (you could not bake a loaf
any faster).

The cycle
time of a batch is the same as the duration of the process.
What is Cycle Time Loss?
Cycle time loss is incurred whenever equipment runs slower than it
ideally does, and whenever small stops that do not qualify as
downtime occur in the cycle.
Ideal cycle time, or the theoretical minimal processing time, is the
benchmark used for measuring cycle time loss.
This benchmark is usually specified by the original equipment
manufacturer, but you can also do a survey of cycle times and use
the maximum operating speed achieved as the ideal.
Cycle time loss is the difference between the actual and the ideal CT.
To find it, you need to measure the total run time of the process and
subtract the ideal CT for all the units processed.
Cycle Time Loss = Run Time – (Total Units x Ideal Cycle Time)
How to Reduce Cycle Times?
Cycle times can be reduced by minimizing cycle time loss, i.e. by
eliminating obstructions and other inconsistencies from the
processes.
It can be affected by direct human factors like the aptitude level or
agility of the operator, but it can also be influenced by maintenance
practices, quality requirements, issues with the materials, etc.
Therefore, cycle times can be improved by good employee training,
by using proper maintenance practices, and by bringing up the
quality standards of raw materials – in other words, by improving
aspects directly related to a process.
And by reducing cycle times, you can also reduce throughput times.
Cycle Time vs. Throughput Time
Cycle time and throughput time are closely related and due to this,
they are often confused with one another.
While the former measures the duration of isolated tasks, the latter
sums up all of the time a product spends in the manufacturing
process as a whole.
Broken down, throughput time consists of:
– Processing time
– Inspection time
– Move time
– Queue time
You can speak of cycle time and throughput time as interchangeable
terms only if your whole manufacturing process consists of only one
operation, and that is mostly not the case.
Read more about Throughput Time.
Cycle Time vs. Takt Time
Takt time is the processing rhythm that the shop floor uses at a given
time. It is decided by taking both cycle time and demand into
consideration.
When goods are produced sequentially, takt time is used to indicate
how much time should be spent on one unit to make sure products
are finished on time and that there is a minimal amount of idle time.
For example, if you need to produce 160 units a day and 2 workers
have one 8-hour shift to do the job, then the takt time would be (2 x
8 x 60) / 160 = 6 minutes.

Takt time
helps manufacturers produce goods just in time, with minimal idle
time.
Even if your typical cycle time is actually 3 minutes, i.e. your workers
could process the necessary amount of units to meet demand in half
the time, you may want to slow down the process in order to ensure
that your workers would not rush and that they would have
something to do at all times.
If demand is high, then takt time can be equal to cycle time, but
never shorter; if demand happens to be low, then takt time is greater
than CT.
Cycle Time in a Manufacturing ERP
A manufacturing ERP system allows you to set cycle times for your
operations. It uses that information to accurately schedule
production operations, so you would have a concise overview of your
production calendar.
This means that these cycle times should be realistic, not theoretical.
As such, the meaning of “cycle time” in a manufacturing ERP may be
much looser and more simplistic than what the theory says.
It should be measured, e.g. with a stopwatch on the shop floor – the
clock is started when the first operation activity (or a production
stage comprising of several operations) is started, and stopped at the
end of the last activity.
For a manufacturing ERP, cycle times may even include several
operations, inspection, waiting, and move times, which in theory are
all different concepts. But keep in mind that it is required for
accurate scheduling purposes only, and all such details should not
(and often cannot) be micromanaged in the ERP system.
A bonus is that when shop floor workers report their activities, the
ERP can provide statistics on how the actual cycle times differ from
what is defined in the system.
That will give you the chance to detect trends, identify inefficiencies
and shortcomings related to your production equipment, materials,
or your shop floor workers.
Thanks to its massive data collection and analysis capabilities, a
manufacturing ERP software is a much more efficient way to keep up
with cycle times than spreadsheets or pen-and-paper methods