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Strategies for Lead Time Compression in Manufacturing Supply Chains
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Organisations in modern world face wide variety of problems and increasing lead time is one such issue. First of all it is important to understand the actual meaning of the lead time in context of an organisation. Lead time is the total time taken by a process from its initiation to its end. In the manufacturing companies, the managers are concerned about supply chain, lead time, and project management in the pre, processing, post-processing. By comparing the outcomes with the established benchmarks they can figure out the point of inefficiencies. In the following report, the lead time compression is detailed out along with the benefits and downside for an organisation. For this purpose, the manufacturing firm that deals with the stainless steel material for construction and other purposes is considered. The report comprises literature review analysing the complex interrelationships among the problems or issues in the business. Some relevant theories are also elucidated and furthermore, some recommendations are also provided for the same.
In every manufacturing industry, both inventory management and production processes can impact the lead time. In context of the overall production, manufacturing all elements of a final products onsite may take more time than that required for a completing some goods offsite. In addition to this, the transportation issues can also cause delay in delivery of essential parts that may result in delay in the productions and poor efficiency. All this would ultimately impact the return on investment and turnover. However, to overcome these delays can be minimised by the organisation if supply chain manager thinks wisely and take necessary decisions. Many researchers have their views on lead time and factors affecting it. Some believes effective inventory management is the key to reduce the lead time. In case of stockouts, the organisation is unable to fulfil the customer demands on time and this resulted in the customer dissatisfaction and organisation might lose the valuable clients. This not only affect their revenue but also their reputation in the market. The competitive position also drops down due to such unfortunate events. Reducing the lead time facilitates the company to increase the production and earn more profits in the same time period. In this research report, the factors affecting the lead time will be discussed and ways to compress the lead time, thereby increasing the net profitability of the organisation would be talked about in detail.
Aim & Objectives
The main aim of this research is to control the lead time in order to minimise the customers waiting time while increasing the number of services.
- To understand the factors increasing the lead time in an organisation
- To study the impact of lead time compression on organisation’s overall growth and profitability
- To study some real time model and case studies in order to understand the actual depth of the problem
- To work out the relationship between compression cost and amount of compression in Lead Time
- To provide some recommendations to the manufacturing organisation regarding the efforts to be taken for reducing the lead time.
Lead time is the total duration between process beginning and completion. In addition to this, from customer perspective, the Lead Time is the total time between placing of an order and getting it delivered based on the terms and conditions. This type of Lead Time depends on the products and customers.
Types of Lead Time associated with an Organisation
Different researchers have mentioned about different Lead Times. According to Chaharsooghi, and Heydari (2010), Customer Lead Time is the amount of time taken from the placement of the order to the final delivery to the client. Song et.al (2013) talks about theMaterial Lead Timewhich is the time duration between placing an order with the supplier and getting it delivered in the company. The author also mentioned about production lead time which is the time period between the initiation of the production process and its termination. Priyan&Uthayakumar (2015) elaborated the cumulative lead time which is contemplated as the total time duration taking between the confirmation of the order to its delivery. In other words, it is the sum of the material lead time and production lead time. All these lead time are crucial and can be managed individually by controlling one or more factors associated with them.
Difference between the Lead Time and Cycle Time
It has been seen that people get often confused by the two terms that are quite similar but have different literal meaning. According to Chaharsooghi, and Heydari (2010), cycle time is the amount of the time taken to complete or accomplish a cycle of task i.e., from start to finish. It can be measured by recording how frequently a part or a product is completed by a specific process. On the other hand, the Lead Time is the total time requires to complete a product from its very beginning to the ultimate end. Lead Time can be a summation of numerous cycle time as each stage in the manufacturing process can have its individual cycle time.
Importance of Lead Time Compression
There are two school of thoughts in context of Lead Time. One is supporting the argument that Lead Time is very important for the firm of all types as it is affecting the final delivery of the orders. On the other hand, somer business analysts do not consider it as crucial. However, supply chain managers give Lead Time Compression a great emphasise. The reason being its importance for client and customer satisfaction. Usually, customers ask for timely delivery of their orders. If the Lead Time is large, then an organisation won’t be able to sustain those customers for so long. This directly impacts the sustainability of the organisation. For manufacturing industry, the Lead Time is directly correlated with the stocks and inventory amount existing at various points in the overall organisation’s supply chain.Song et.al (2013)argues that if the Customer Lead Time is on the lower side in comparison to Production Lead Time or Material Lead Time or Cumulative Lead Time, then this would ultimately consequence intothe holding of stocks and inventory at all or some points. Inconsistency and variation often compounds to such problems.
Factors Affecting the Lead Time
Chaharsooghi, and Heydari (2010) mentions that Lead time compression is great way to increase the productivity and output quality and quantity. It is about streamlining the process and operations. However, there are many factors such as delay in the transportation of the inventory from supplier end that can extend the lead time and hinders the other processes as well. Apart from this, other factors include large number of redundant process, disorganised inventory, and stockouts. Keeping all the parts of a final product at one site can help the workers to assemble them quickly without wasting much of a time. It has been seen that when the supply chain is disorganised and proper communication does not exist in the organisation, the workers find it tough to carry out their work. This is the case with the organisation having stock surplus. The excess inventory would complicate the processes and also increases the wastage. Having an organised and pre-directed team can benefit the organisation immensely. In addition to this, having too many processes in the supply chain can unnecessarily increase the Lead Time. The supply chain manager should keep a regular check and keep updating the supply chain in order to remove any redundant process that not only consumes resources but also the time. This would greatly reduce the Lead Time. Chaharsooghi, and Heydari (2010) argues that ordering excess inventory might disturb the budget of the company. The best way of dealing with this problem is to consolidate the suppliers of the company. This would held in cutting down the transportation cost and managing the resource would be more convenient.
Lead Time reduction requires something beyond the administration of a considerable number of providers. Taking care of every single provider separately and putting a request with them might be tedious and complex. Consequently, at whatever point it is conceivable, the trough should attempt to combine every one of the providers so as to spare time of the organization and using that in other helpful activities of the organization. Moreover, the organization can likewise go for kitting administrations. The director can consider the proposal of clubbing different components that are utilized frequently together in bunches. This would assist the labourers with remaining progressively sorted out and these can be effectively overseen by the inventory network administrator. At last, this would build the efficiencies as workers need not invest energy in endeavouring errands independently.
Impact of Lead Time Compression
Yi &Sarke (2013)., mentions that the most useful method for Lead Time Compression is the implementation of a specialised map that only traces the product flow at different levels. These stages are characterised by the suppliers, vendors, and customers. This map will be very useful in minimising the Lead Time. Yi&Sarke(2013) talks about the impact of the reduced Lead Time in the manufacturing company. The first and foremost is that it can result in reduced inventory and stocks for the business. This means the business is at lower risk and exposure. In addition to this, this would also mean management of the material and manpower in a better way. Another impact of Lead Time Compression is that it would result in better customer satisfaction which would ultimately mean growth in the business share in the market. Ultimately, the profitability of the organisation would increase immensely by such a small step.
Appropriate Theories and Models for Lead Time Compression
- Lead Time Elasticity of Demand
Hill&Khosla (1992) argue that demand of a product is inversely proportional to lead time. However, the precision of this relationship varies from product to product. In general, the Lead Time elasticity fill have varying value on the demand curve. In addition to this, the author also argues that increase in the Lead time would also have an impact onper unit cost of the product.
- Model of the Compression Cost for Lead Time
Before moving on to the next model, it is important to understand that there is some cost for compressing the Lead Time. The organisations sometimes have to pay extra for urgent delivery. However, it is usually assumed that this cost is not charged from the client or customers. Hill&Khosla (1992) mentions about a quantitative relationship between the cost of compression and compression amount of the lead time. The model makes use of a “segmental cumulative calculation method” that begins with minimum cost of compression and calculates the cost of each individual part of the manufacturing process. The formula is given below:-
In the following equation,
To lessen lead time inconstancy, improve the precision of anticipating request the lead time is to be decreased by expanding use. In businesses, there are numerous basic issues to convey the items at the opportune time to the client. Enterprises with expanding lead time face high-hazard introduction. The client inclinations are the ideal cost with guaranteed lead time by providing the items in focused markets. The ideal conveyance lead time of the item and cost of the item place a significant job in streamlining the absolute benefit of the store network.
The decentralized, brought together and agreeable mentalities are three different - basic leadership methodologies utilized in this creation and stock model for the item. By adjusting the exchange off issue between creation cost and request estimating danger are fathomed in this examination. To diminish the capacity on lead time the conjecture requests are refreshed to illuminate the standard deviation of interest. Lead time is one of the primary parameters in store network the executives that impacts and changes all production network accomplices and impact the store network execution by its vulnerability in requesting framework and stock. The three basic leadership approaches with affectability with investigation lessens the lead time underway expenses and opportunity costs. Diverse culture with aggressive retailers is another intriguing beginning stage for business.
The principle intention of this exploration is controlling the lead time to diminish the clients holding up time with expanding the administration. The lead time rebate planning methodology is utilized in this exploration to augment the benefit of whole production network by diminishing the lead time. The lead time can be abbreviated by general capacity of the generation cost structure. The lead time vulnerability pressure is the contribute venture which expands the benefit of production network. The globalization improvement on center skills is effect of lead time in inventory network the executives.
- The complete focus is given to manufacturing system.
- Both Supplier Lead time and Production Lean time are considered for the study
- It is assumed that firm will not make use of any external assistance in reducing the Lead Time.
- It is assumed that customer demands varies with Lead Time.
- Customers are not charged the cost of compression of Lead Time.
For the following research, the quantitative data is required to be collected as the both compression cost and Lead Time Cost are numeric in nature. Only secondary sources are referred for the data collection which include journal article and peer-reviewed research paper. The data that was required for the further analysis include normal operating time, shortest operating time, unit compression cost of the ith part, and the total compression cost. Once the data was collected, the basic statistical analysis is carried out in order to determine the variance and standard deviation and correlation factor. These would help in working out the relationship between the cost of compression and amount of the Lead Time compression. It is assumed while working out the relationship that the level of inventory is kept lower than the safety inventory. In case the lead-time compression cost turns out be on the lower side of the stock out cost, then one can say that the Lead Time is compressed. If this does not happen, then one can straight away say that LT is not compressed. It has been seen that for reducing the total cost associated with the supply chain of the firm, the manufacturer and retailer might adopt the ordering and corresponding production strategy under various inventory level.
LT Component i
Normal Operating Time
Shortest Operating Time ai/ hour
Unit Compression Cost of the ith LT Componet
Total Compression Cost of the ith Component of LT
Ci (bi-ai)/(x102 Dollars)
Table 1: Quantitative Relationship between Cost of Compression and Compression Amount in
It is inferred that the supply chain manager should compare the supply chain while considering the cost optimisation. This is very useful in reducing the total cost of the supply chain system. It can also be said that any disturbances in the lead time would affect the supply chain and vice versa. From the table above and data analysis, it is clear that the lead-time compression cost turns out be on the lower side of the stock out cost, at that point one can say that the Lead Time is packed. In the event that this does not occur, at that point one can straight away say that LT isn't compacted. It has been seen that for diminishing the all-out expense related with the store network of the firm, the producer and retailer may embrace the requesting and comparing creation technique under different stock level.
It is a well-known fact that the customers and client usually don’t like waiting for their orders. No matter what could be the reason, the client may get frustrated. Since the present case of increasing Lead Time is of a manufacturing firm, the consequences may amplify and can go way beyond a mere frustration. Organisation may lose client right away and also damages its competitive position in the market. There is always a risk of stockout or having a faulty raw material from supplier. This would hinder the progress of the final goods from reaching to the market and customers well on time. The consequence of such events are fatal for the organisation as it might lose market share, revenue, and clients. In addition to this, the competitors will also outrace the company and grabs the losing clients. Hence, it is necessary for the company to consider all the worse scenarios possible in future and prepare a comprehensive plan for such events.
Minimising and forecasting the Lead Time accurately is a crucial element of all the manufacturing firms. The following recommendations are provided to the manufacturing firm that will surely be helping in Lead Time compression. These are:-
- Using domestic supplier can be very effective in reducing the Lead Time by a greater amount. This might reduce the time by up to two weeks or more since the transportation time is reduced to one day instead of 2 weeks.
- Increasing the order frequency is another way of Lead Time Compression. Ordering large amount of raw material at once is inconvenient for the supplier to supply at once. They need to arrange the material for fulfilling the order along with the transportation. This may unnecessarily increase the LT. However, ordering frequently from the suppliers can reduce the LT.
- Providing a relevant sales forecast to the supply chain manager and to the suppliers. This would make them aware of the expected orders and help them in anticipating the net demand of the company. Also, this would help them in setting up order well on time and in the right amount.
- Consolidating all the suppliers of the company. Lead Time compression requires more than just the management of all the suppliers. Handling each and every supplier individually and placing order with them may be time consuming and complex. Hence, whenever it is possible, the manger should try to consolidate all the suppliers in order to save time of the company and utilising that in other useful operations of the company. In addition to this, the company can also go for kitting services. The manager can consider the suggestion of clubbing various elements that are used very often together in batches. This would help the workers to remain more organised and these can be easily managed by the supply chain manager. Ultimately, this would increase the efficiencies as workers need not to spend time in attempting tasks individually.
- Developing a better communication network and an incentive plan can also be considered as a major recommendation. There are numerous operations running in an organisation at the same time. For a better coordination, an effective communication plan is required highlighting the communication with the suppliers as well. Apart from this, creating an incentive plan for the supplier and workers can also reduce the Lead Time.
- Building a strong partnership with the supplier that are efficient in their work and have large success rate can be a way of resolving the issue of large Lead Time. Such suppliers have a great reputation in the market and they want to keep it intact and safe in the market.
In the following research paper, a lot of discussion on the lead time in the manufacturing industry was done and simultaneously, its impact on the supply chain and organisational performance was highlighted. It was determined that lead time is the total amount of time duration taken up by process from its initiation to its termination. It was also discussed that not only the organisation’s reputation but its revenues are also dependent on the Lead Time. Hence, compressing or reducing the LT is quintessential for every manufacturing organisation. In addition to this, it was also discussed that there is an inverse relationship between demand and lead time. Hence, this relationship is required to be studied. In addition to this, some recommendation to reduce the lead time were also illustrated in the end. These would be very beneficial for the successful organisation. It was stated that using domestic supplier can be very effective in reducing the Lead Time by a greater amount.Moreover, developing a better communication network and an incentive plan can also be considered as a major recommendation.
- Chaharsooghi, S.K., Heydari, J., 2010. LT variance or LT mean reduction in supply chain management: which one has a higher impact on SC performance? Int. J. Prod. Econ. 124 (2), 475–481
- Hill, A.V., Khosla, I.S., 1992. Models for optimal lead time reduction. Prod. Oper. Manage. 1 (2), 185–197
- Priyan, S., Uthayakumar, R., 2015. Continuous review inventory model with controllable lead time, lost sales rate and order processing cost when the received quantity is uncertain. J. Manuf. Syst. 34, 23–33
- Song, H.M., Yang, H., Bensoussan, A., 2013. Optimizing production and inventory decisions in a supply chain with lot size, production rate and lead time interactions. Appl. Math. Comput. 224, 150–165
- Yi, H., Sarke r, B.R., 2013. An operational policy for an integrated inventory system under consignment stock policy with controllable lead time and buyers’ space limitation. Comput. Oper. Res. 40 (11), 2632–2645.
- Zhang, S., Li, S., Zhang, S. and Zhang, M., 2017. Decision of lead-time compression and stable operation of supply chain. Complexity, 2017.