In a white paper titled “Making the case for Lean Process Lead-times”, David Oppenheim explores an often unexploited source of lead-time improvement; information processing.

Let’s take a look at two companies that manufacture the same item.  One company produces excellent quality for a reasonable cost and can typically deliver in 15 days.   The other company has similar pricing, the same level of quality but can deliver goods (always on time) in 8 days.  If you were in the market for the item these companies produce, which company would you rather deal with?  It doesn’t take a supply chain guru to say that you would rather buy from the company that can deliver it in 8 days. 

Now let’s turn it around.  Let’s say you could be the company that delivers in 8 days or you could be the company that delivers in 15 days.  Which company would you rather be?  This might be more complex because I haven’t talked about profit margin, market share, and other factors.  But I think I would want to be the company that can deliver in 8 days. Why?  Because that company has a competitive advantage…and it’s not just lead-time. When you can reduce lead-time, some very interesting (and good) things start to happen to your supply chain;

1. To achieve this level of lead-time reduction, you’ve needed to do some serious waste elimination.  This typically means your operations are more efficient.
2. When you reduce lead-time, you need less safety stock.  Safety stock is used to cover demand and supply variation during the lead-time of the part.  If your lead-time were 0 (you could snap your fingers like the Great Gazoo and make inventory appear), you would need no safety stock because you could handle any variation in supply or demand.
3. With less inventory, you need less space to store it, thus reducing capital costs.
4. When you reduce lead-time, you can react faster to changes in demand signals.
5. With reduced lead-time you can promise delivery to your customers with confidence.

As the white paper points out, companies typically focus their lead-time improvement efforts on tackling internal manufacturing lead-times or working with suppliers to improve their lead-times.  This is valuable and companies should continue to challenge waste that leads to longer lead-times wherever it occurs.  However, the white paper explores another key opportunity for improving lead-time. The administrative process.  The time it takes from when a customer originally places the order to when work begins.  This lead-time includes many activities;  order configuration, order entry, scheduling, detailed planning, sourcing, shortage and constraint resolution and finally kitting.  In many cases – especially when manufacturing lead-times have already been reduced – the administrative activities take more time than manufacturing the goods!  This is an area of opportunity for many companies that is often overlooked and can yield huge benefits if addressed.

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Tags: Customer service, Lean manufacturing, Supply chain flexibility
Posted in Lean manufacturing
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