Total Lead Time: Holistic Improvement Scenarios

 06/09/2019
By Dr. Alin Posteucă

1. Introduction

The continuous synchronization of the basic flow of the companies and the profitability of this flow is and will remain an eternal challenge of the manufacturing company to ensure the eternal prosperity in a global market. Even if different approaches are used to achieve lead time reduction, these approaches still have difficulty in the effectiveness, and even more, the efficiency of the processes.

So, the globalization of markets requires continuous development of business holistic scenarios to ensure acceptable flexibility to satisfy customers. Continuous improvement of supply chain supposes continuous improvement of (1) materials and products lead time and flow and (2) material stocks and finished products day stocks.

2. The Model of Total Lead Time

The continuous synchronization of the total lead time (delivery lead time, days of storage of finished products, production lead time, days of storage of raw materials, supply lead time) with takt time is a major concern of the production planning of any production/ manufacturing company. All the components of the total lead time must be carefully planned, the effectiveness and the efficiency of the processes must be feasibly improved, and there must be a holistic approach (see Figure 1). Fulfilling the two basic principles of the continuous improvement philosophy, respectively the continuous flow and the one piece flow requires the creation of a synchronized system to use all resources and processes within manufacturing companies and further on to customers and suppliers, or until the customers of the production company’s customers, or until the suppliers of the production company’s suppliers.

In order to meet delivery promises to customers in terms of delivery times, and of quality level and especially of costs reflected in the price, it is necessary to continuously know and control the structure of total lead time.

Based on the previous figure, to collect data and analyse the total lead time the following measurements are needed:

a) Supply Lead  Time  (SLT)  or  raw  material  and  components  lead  time (days):

SLT = SILT + SPLT + STLT  (1)

Where: SLT = Supply Lead Time (days); SILT = Suppliers Informational Lead Time (days); SPLT = Suppliers Production Lead Time (days); STLT = Suppliers Transport Lead Time (days).

Note: it is necessary to know the maximum, minimum and average SLT value for each type of supplier (including types of transport suppliers), considering the time of year, seasonality, the size of orders, the type of product, the mix of ordered products etc.

b) Stock of raw materials – SD 1 (days)

Note: It is necessary to know the equivalent number of production days provided by the current stock level of raw materials and materials (including the level for the buffer stock and safety stock).

c) Production Lead Time (PLT) or factory lead time (days):

PLT = IPLT + MPLT (2)

Where: PLT = Production Lead Time (days); PILT = Informational Production Lead Time (days); MLT = Material Production Lead Time (days)

Note: it is necessary to know the maximum, minimum and average PLT value for each type of product family.

d) Stock of finished products – SD 2 (days)

Note: It is necessary to know the equivalent number of delivery days provided by the current stock level of finished products (including for the buffer stock and safety stock).

e) Delivery Lead Time (DLT) or product delivery lead time (days)

DLT = IDLT + TDLT (3)

Where: DLT = Delivery Lead Time (days); IDLT = Informational Delivery Lead Time (days); TDLT = Transport Delivery Lead Time (days)

Note: it is necessary to know the maximum, minimum and average DLT value for each type of clients and transport suppliers.

f) Total Lead Time (TLT) (days):

TLT = SLT  + PLT  + DLT (4)

3. Holistic Scenarios to Reduce Total Lead Time

For  manufacturing  companies,  the  continuous  synchronization  of  production processes  to external  customers  (takt  time  by  types  of  customers;  product families) and the stabilization and reduction of production lead time require a holistic approach of total lead time and not just a punctual reduction of SLT, SD1, PLT, SD2 and DLT.

Based on the structure of total lead time (see Figure 1), the basic scenarios for customer orders and production planning can be the following:

  • Scenario 1:  the customer places orders for finished products that are already in the finished goods warehouse:

TLT = DLT (5)

  • Scenario 2: the customer places orders for products that are not in the finished goods warehouse, but all necessary raw materials and auxiliary materials are the warehouse of raw materials and materials of the production company:

TLT = DLT + PLT (6)

  • Scenario 3: the customer places orders for products that are not in the finished goods  warehouse and not all necessary raw materials and auxiliary materials are the warehouse of raw materials and materials of the production company:

TLT = DLT  + PLT  + SLT (7)

Even if scenario 1 has the shortest total lead time, in accordance with the pull-type production systems, the best scenario is scenario 3, with the condition that the total lead time is acceptable in terms of money raised, namely maintaining a minimum level of stocks. Scenario 3 can continue with different scenarios. The worst scenario is when our customer places orders for which our supplier does not have the necessary raw material in the warehouse. Each scenario should take into account the minimum, maximum and average lead time level. Depending on the historical volumes and on the planned volumes to be delivered, one will devise individual improvement plans and innovation plans of each type of total lead time, paying particular attention to SLT.

The holistic approach to reducing the total lead time for the three scenarios requires a continuous development of supply chain policy (targets and means) and hence an action plan to continuously improve and innovate both the components of total lead time  (SLT, SD1, PLT, SD2 and DLT), and total lead time itself. From the holistic approach of total lead time, we are presenting a series of actions on innovation  and  continuous  improvement  for SLT,  SD1, PLT,  SD2 and  DLT, impacting over total lead time (or impacting over the whole production system).

So the holistic direction of continuous improvement and innovation of processes for continuous reduction of total lead time could be:

  • for Delivery Lead Time (DLT), in order to increase the level of compliance to customer requirements could be: increasing the understanding of the exact product specifications from clients (from the first request of the client; accurate forecasting of orders); increasing the accuracy of forecasts for supplying to customers; reducing/ eliminating the dispatch control; maximizing the On-Time In- Full (OTIF) for finished products delivery and increasing the load level of trucks in  accordance  with  the  stocks  of  finished  products;  increase accuracy of delivery, synchronization of production lead time with takt time of transport (trucks, etc.) from the factory gate, etc.;
  • for Stock of finished products (SD 2), in order to continuously reduce the stock  of  finished  goods:  respecting  the  hours  standards  for  finished products  in  the  warehouse;  making  the  stock  of  finished  products according to the forecasts of customers’ orders or based on orders; increasing accuracy for buffer stock and safety stock; increasing the score of the 5S audit for warehouse(s) of finished products; increasing the automation when organizing the warehouse(s) of finished products; increasing the forecast accuracy for stocks in scenario 1 (TLT = DLT); keeping stick at the right level of quality etc.;
  • for Production Lead  Time  (PLT),  in  order to  continuously reduce the unplanned production plan changes by increasing the synchronization of production processes on SLT and especially on DLT: increasing the compliance flexibility of production processes to customer requests with a minimum cost; increasing the synchronization between production processes; increasing the accuracy of the stock level next to equipment and of the planning of Work in Process (WIP); eliminating all the breakdowns and reducing the Mean Time To Repair (MTTR) through a rigorous preventive maintenance planning; increasing the identifying of production processes constraints, especially for new products; increasing   the   number   of   simple   design equipment;  increasing  the  number  of  small  batches  and  full implementation of the one-piece flow production principle; better knowing and sizing WIP in accordance with the production mix; reducing the number of operations; reducing the time of transfer between workstations; continuously  improving   and   innovating   the   workplace   organization design; reducing/ eliminating manual transfers between workstations etc.;
  • for Stock of raw materials (SD 1), in order to continuously reduce the stock of raw materials and components by successive standardization of consumption of raw materials and auxiliary materials: increasing the accuracy of current stock level; increasing the accuracy of special stock levels (raw materials, components and spare parts with high risk in case of missing or  with  high  supply  lead  time);  reducing  the  set-up  time or innovating the set-up time (no significant set-up) and the cycle time for equipment in order to continuously reduce the stock level; increasing the score  of  the  5S  audit  for  warehouse(s)  of  finished  products  and components; increasing the automation when organizing the warehouse(s) of finished products and components; increasing the use level of standard parts of products (by successive innovations of product design); increasing the synchronization between the stocks of raw materials and components and SLT; keeping the stock at the right level of quality; increasing the accuracy  for  bill  of  materials  (BOM)  for  every  new  product  to  be produced; increasing the accuracy for re-ordering point systems etc.;
  • for Supply Lead Time (SLT), in order to continuously increase the synchronization level between supply lead time and production takt time: increasing the performance level of the current suppliers management but especially of the new suppliers management; reducing the supply costs; increasing the number of suppliers with an acceptable level of lead time and quality, but with a lower cost level; increasing the number of suppliers with a large production capacity in line with market volume; increasing the number of training actions with suppliers in order to continuously improve SLT; increasing the number of joint actions to improve and/ or innovate processes with suppliers in order to continuously reduce SLT etc.

Therefore, to address issues and to develop a consistent master plan for process innovation and continuous improvement over the total lead time, the production companies need to articulate the rhythm and volume of customer demands with the exact location of innovation and improvement projects along the total lead time, in order to determine the types of methods, techniques and tools necessary to innovation and continuous improvement.

For example, if the annual seasonal strategy of a manufacturing company is to have about 25% of deliveries directly from stock of finished products for July-September and the rest of the year 15%, then the process innovations and improvements will be focused especially for DLT and SD 2 by continuous development of holistic improvement scenarios.

So, for each company individually and for each period of each company (taking into account the external state – customers lead time and suppliers lead time; but also the internal state – production lead time) it must be determined and improved holistically and continuously total lead time. However, the goal is to continuously and accurately measure total lead time, no matter how they are today, then to set achievable targets based on feasible means.

As real examples for average days for finished products and for raw material, in the field of automotive, the reductions for 4 consecutive years of the average storage days were as follows (table 1):

Continuing the example of the automotive industry, it can be said that it is expected that the finished products stocks will be about half of those of materials (the time for the other half is production lead time to fulfil the status of Just In Time and Takt Time with all stocks). For example (real examples; table 2):

This is going to be the ongoing concern for the whole company, but especially for top managers, in order not to create unnecessary opportunities for unjustified cost increases (overstock for current stocks, buffer stocks and safety stocks).

4. Conclusion

This article provides a development of the total lead time (SLT, SD 1, PLT, SD 2, DLT, TLT) approach and a description of the different types of total lead time and the holistic   approach   of   three   scenarios   for   innovation   and   continuous improvement of processes in production companies. A first conclusion of my work relates to scenario 1 which, although having the shortest total lead time and being able to help meeting customer need to achieve short time deliveries, needs to be continuously monitored in order not to get in a position to take over storage and unjustified increases of associated costs. A second conclusion relates to the need for development of holistic actions for innovation and continuous improvement in order to continuously increase the level of synchronization between the supply lead time and production takt time. A third conclusion relates to the need to continuously standardize the Work in Process (WIP) to prevent overstocks and thus increasing total lead time.

So, holistic improvement scenarios for total lead time are needed for achieving and sustaining profitability and productivity.

Adapted from: Posteucă, A. & Zapciu, M., 2015., Process innovation: holistic scenarios to reduce total lead time, Academy of Romanian Scientists – Productica.

Dr. Alin Posteucă is the founder and CEO of Exegens®, a global consulting firm specialized in cost competitiveness improvement and operational excellence. It helps customers create and implement profitable strategies and cost improvement programs that ensure a unit cost improvement of at least 6% per year for each of the next 5 years by maximizing the efficiency and effectiveness of operations.

He is the author of Manufacturing Cost Policy Deployment (MCPD) concept, published in three books at Productivity Press – Routledge/ CRC, New York (USA). The latest, ”Manufacturing Cost Policy Deployment (MCPD) Profitability Scenarios: Systematic and Systemic Improvement of Manufacturing Costs” (October 2018) is based on its main belief that the annual and multiannual target profit can be achieved irrespective of the sales volumes, increasing or decreasing. He is also the co-author of the book ”Manufacturing Cost Policy Deployment (MCPD) and Methods Design Concept (MDC): The Path to Competitiveness”, published at Productivity Press New York (USA), 2017, as well as the author of the book ”Manufacturing Cost Policy Deployment (MCPD) Transformation: Uncovering Hidden Reserves of Profitability”, published at Productivity Press din New York (USA), February 2018.

Alin Posteucă has more than 20 years of experience in Cost Improvement consulting and training. He has a PhD degree in Industrial Engineering and a PhD degree in Economics.