Managing Strategic Lead Times
Compiled by Rulzion Rattray
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Time Based Competition
• Price and quality important, but
increasingly cost of time is crucial element
in choice:
– Shortening life cycles
– Customers drive for reduced inventory
– Volatile markets making reliance on forecasts
dangerous
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Life Cycle and Lead Time
Market
Sales
Obsolescent
Stock
Late Entrant
Time
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Drive to Reduced Inventories
• The drive towards Just in time delivery has
had a major impact .
– Responsiveness can only be achieved through
time compression in supply chain.
• Volatile Markets & Forecasts:
– History tell; us that no matter how sophisticated
the forecasting technique it will be wrong
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The Concept of Lead Time
• The time it takes for customers to receive
their purchases.
• The order to delivery cycle
• Customers are increasingly sensitive to
time.
• Shortening delivery time a major potential
source of competitive advantage
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The order to delivery cycle
• Order Cycle Time:
– Time taken from order to delivery Short lead
time major source of competitive advantage.
Customer
places
order
Order entry Order
processing
Order
Assembly
Transport
Order
received
• Each step consumes time
– If order not met from stock but manufactured
lead times will be extended.
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Cash to Cash Cycle
• Time taken to convert order in to cash.
• The longer the pipeline form the source of
materials to the final user the less
responsive to changes in demand the system
will be.
• Ensuring timely response to volatile
demand will require a fundamentally new
approach.
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Logistics Pipeline Management
• The process whereby manufacturing and
procurement lead time are linked to the
market.
• Key managing the supply Chain as a single
entity.
• Common fallacy long lead times give
security. The opposite is true!
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Lead Time Gap
• Problem of most organisations is time taken
to procure, make and deliver is longer than
the customer will wait.
Procurement
Manufacturing
Delivery
Logistics lead time
Customer order cycle
Lead Time
Gap
Order fulfilment
• If logistics lead time = customers required order
cycle. Forecast & inventory not required!
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Reducing Logistics Lead Time
• The visibility of the logistics process must be
increased.
• Fundamental questioning of why we do things the
way we do.
• Optimising Production Technology (OPT1):
– All activities can be categorised as bottleneck (slowest
activity in the chain)or non bottle necks.
– Throughput of whole system is determined by
bottlenecks.
– Bottlenecks often associated with information flow
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Improving Visibility of Demand
• Key requirement of getting earlier warning
about customer’s requirements.
• Real demand may happen a lot earlier than
demand penetrating the system.
• How:
– Improving information flow so manufacturing gets
to hear about changes in the market earlier.
– Postponement of commitment of product to its final
form
– Earlier notification of customer intentions get
customers to order more frequently
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•
References
1Goldratt, E.M., (1990), “Theory of Constraints”, North River
Press.
• Christopher, M. & Braithwaite, A., (1989), “Managing
Strategic Lead Times”, Logistics Information Management,
December.
• T V Ramaswamy, “Lead time-centred materials management”
http://www.industrialproductsfind.com/content/archive/General/Logistics/lg150120026.jsp, accessed
19-02-2002.
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