Manufacturing lead time is a concept well-known to all businesses. We know the importance of delivering the product on time, and customers remember the brands that deliver products rapidly. Suppose it takes too long for the order to arrive(two weeks or more), then customers will go for some other sellers. It is vital for the brands to prioritize order fulfilment quickly. Faster delivery of products to the customers will build trust and ensure reliability with the consumers. That’s why it is essential to calculate manufacturing lead time. It refers to the time it takes to schedule production of a product, till it is completed. This blog lets us learn more about manufacturing lead time and its importance.
What is Lead time in Manufacturing?
Manufacturing lead time is crucial for the business as it will help drive consumer trust and happiness. So, what is lead time? Lead time in manufacturing is the time it takes to manufacture a product or finish a service. It is the duration beginning from scheduling the manufacturing process to the point where the product is ready for delivery.
There are many factors impacting lead time which include:
- Intricacy of the product or service.
- Raw materials availability.
- Involved manufacturing steps.
- Based on labour and machinery availability.
- Volume of the order.
Finally, the lead time is the duration when the stock orders are prepared based on the customer’s demands. If the lead time is sufficient, the manufacturer can be ready with the raw materials for the manufacturing of the next batch of stocks before it runs out.
For example, in the event of depleting inventory, you may initiate an order for additional items. The duration required to manage and replenish the stock is termed the manufacturing lead time.
If your manufacturing lead time is long, it will be bad for your business and a good chance for your competitors. However, keep in mind that customers prefer to get their orders sooner. So, keep your manufacturing lead time at a reasonable minimum.
Factors of Manufacturing Lead Time
Businesses can harness manufacturing lead time. To reduce the lead time, the company should make some adjustments in practices, personnel or tools, to minimise or increase the lead times. Listed below are some of the factors which lead to longer lead time:
- The inefficient layout or location of the processing plant.
- If the company offers substandard electricity or utility services.
- If the company finds it difficult to identify its skilled workers.
- The company faces difficulties in adhering to its warehouse schedule for delivering finished goods.
- Governmental legislation poses a challenge for the company, causing delays or exerting influence on the manufacturing process.
- The production process experiences slowdowns due to the necessity for routine maintenance or equipment failures.
- The company anticipates the arrival of specialized or unique components essential for product creation.
- Product adjustments are necessary for the company in response to issues related to low quality.
Importance of Manufacturing Lead Time
The production lead time is a crucial element in international transportation and trade. Let us go through some of the benefits of manufacturing lead time.
→Gain competitive Advantage
For any business, manufacturing lead time helps the company to stay competitive in the market. If you decrease the lead time, then your business will have the ability to deliver the products rapidly to the customers which will aid in achieving competitive advantage. As a result, your profits will increase and your business will grow.
→Improves Profit Margin
If you want to boost the turnover of your business, then monitoring lead time is essential. The most significant factor to look for is to make your customer happy. At the right time without any delay, deliver the goods. This will attract additional sales which will increase the revenue of your business.
→Customer Satisfaction
Customers always prefer immediate delivery as soon as they place an order. They always choose the companies which deliver their order quickly. Hence, the amount of time for the production process has to be analysed. If your business can deliver the product soon, it helps in building stronger ties with the customers.
→Consistency in the production process
If you want to maintain business consistency, lead times must be properly planned. When lead times are organised, deadlines can be met smoothly. Hence, if there are any sudden or unforeseen market transitions, proper management of lead time can be beneficial.
Also Read : What is Manufacturing Cycle Time?
What are the different Types of Lead Time in Manufacturing?
Lead time is the time it takes to complete the production production process till it is shipped for delivery. Enumerated below are five types of lead times:
1. Customer Lead Time
This type of lead time calculates the moment the customer places an order till the product is delivered. It involves order processing, delivery and pick up. This is determined by the preferences of the customer and the terms outlined in the contract.
2. Material Lead Time
The material lead time represents the amount of time it takes beginning from the order placement with the supplier till the product is delivered to the customer. In simpler terms, it is the time it takes for the order received by the supplier till the finished product is delivered to the customer.
3. Production Lead Time
This type of lead time refers to the amount of time it takes to manufacture the products when all the materials are readily available.
4. Cumulative Lead Time
This lead time encompasses the amount of time it takes from start to finish in the production process. It involves the time spent on the production processes actively(work in process) and for other resources(waiting for raw materials).
5. Throughput Time
Throughput lead time is used to calculate how quickly and efficiently the resources and goods move through the production process. It is also known as cycle time. This type evaluates the entire production process ensuring that the process is running smoothly and efficiently. With this technique, you can identify bottlenecks and resolve them.
The throughput lead time considers factors such as the process time, inspection time, move time and wait time. Process time is the total time required to create the product. Inspection time is the duration after the manufacturing process where the product is completed and inspected. Move time encompasses the transition duration from production to inspection and the time it remains in the warehouse till the order is placed and packed. The wait time calculates the amount of time a product spends in the warehouse.
How to Calculate Lead Time?
Calculating lead time is not that complex. However, you should know that there are some steps involved in the supply chain and each step’s duration has to be taken into account. Lead time can be calculated with a simple formula. In addition, the following steps must be followed to ensure correct lead time calculation.
⇒Plan Bill of Materials(BOM)
Make a list of all the materials required for the production process. Specify the required amount of each material. In addition, it should also include the equipment, machinery instructions and machinery to make the finished product.
⇒Calculate Administrative Lead Time
You need to calculate the duration it takes for the BOM to arrive from the time the order is placed. When you calculate the timeframe include information such as the supplier’s demands for, processing of, and transportation of raw supplies.
⇒Compute the Inter-operational Time
It is vital to calculate the time it takes for it to move from one work centre to another. An in-depth analysis should be conducted for each specific element, including wait time, post-operation wait time, and queue time. These components must be thoroughly examined, incorporated, and then summed up.
Calculate the Total Lead Time
The production lead time can be calculated by adding up the lead times of all the phases. Together it will be easier to determine the actual lead time of the finished products.
→Lead Time Formula –
The formula for calculating lead time for manufacturers is given below:
Total Lead Time = Manufacturing Time + Procurement Time + Shipping Time
The formula for calculating production lead time for retailers is given below:
Total Lead Time = Procurement Time + Shipping Time
Listed below is an example for calculating the lead time-
1. Define Lead Time: Identify the starting point (e.g., order placement) and endpoint (e.g., product delivery).
2. Supplier Processing Time: Determine the time taken by the supplier to process the order and prepare the product.
3. Production Time: Calculate the time required for manufacturing or assembling the product.
4. Transportation Time: Evaluate the duration for shipping and delivering the product to the customer.
5. Buffer Time: Include any additional time for unforeseen delays or unexpected issues.
6. Final Calculation: Sum up the individual times to arrive at the total lead time.
Tips to Reduce Manufacturing Lead Time
Different companies have distinct ways to reduce manufacturing lead time. Given below are some of the suggestions which you can follow for your business.
⇒Order Materials in Smaller Amounts
Plan to create smaller orders as larger orders take a lot of time to complete. This will be helpful in effectively managing stocks. It is always better to make smaller amounts of products so that sometimes when the demand falls there won’t be any risk of dead stock.
⇒Include Lead Time in your Contract
Mention lead time in your contract when you are working with a supplier or a manufacturer. If you clearly mention the duration, the materials will be delivered on time and there won’t be any delay in the production. Hence, your manufacturing lead time will be reduced.
⇒Find Local Suppliers
The benefit of finding a local supplier is to reduce the time taken for shipping and processing. Overseas suppliers will take a lot of time considering the ongoing supply chain issue. Hence, the benefit is that it will reduce the travel distance and sometimes the supplier may offer discounts such as shipping charge exemption.
⇒Use Software to Monitor Production
Monitoring production with the help of software will help in accurately calculating the lead time. ERP software is the best solution if you want to monitor the production process along with the lead time. In real time you can track the entire production process efficiently.
>Conclusion
Manufacturing lead time is the duration of the entire production process. Analysing lead times will help in reducing it. There are many types of lead time such as customer lead time, cumulative lead time, processing lead time, production lead time, material time and throughput time. Lead time helps the company to stay competitive in the market. It boosts customer satisfaction and raises the bar to increase profits.
