What is 'Lead Time'
Lead time is the amount of time that elapses between when a process starts and its completion. Lead time is examined closely in manufacturing, supply chain management and project management, as companies want to reduce the amount of time it takes to deliver products to the market. Companies look at preprocessing, processing and post processing and compare each against benchmarks to determine where slowdowns are occurring.
BREAKING DOWN 'Lead Time'
Lead time reduction streamlines operations and improves productivity, increasing a company’s output and revenue. In contrast, longer lead times negatively affect the manufacturing process. A number of issues affect a company’s lead time.
Stock-outs make building equipment impossible because required parts are missing. For example, management may have underestimated the amount of stock needed or failed to place a replenishment order. Because suppliers cannot replenish materials immediately, waiting for the new inventory costs the company time and money, especially when the items are not available for weeks or months. A vendor-managed inventory (VMI) program provides automated stock replenishment from an off-site supplier using Just in Time (JIT) inventory management for ordering and delivering components based on usage.
Supply Chain Sources
Lead time varies among supply chain sources, causing difficulty predicting when to expect delivery of items and coordinating production. This results in excess inventory, which strains a company’s budget, and non-production due to stock-outs, which strains revenue. A VMI program helps consolidate suppliers that store required components and ship them as needed. Since everything arrives together, shipping and receiving costs decrease, and scheduling builds becomes easier.
Shipping delays due to raw material shortages, natural disasters, human error or other issues affect lead time. Working with a supplier who keeps inventory on hand while continuously monitoring a company’s usage helps alleviate the issue.
Building Completely Onsite
Building each part of a finished product onsite takes longer than completing specific parts offsite, reducing output and return on investment (ROI). Having sub-assemblies offsite saves hours of onsite production. Because products take less time completing, the company can make and sell more in less time, increasing customer satisfaction and the company’s bottom line.
Disorganized inventory increases lead time. Keeping all necessary parts organized onsite allows easy assembly of finished products. Reducing the number of surplus parts helps as well. One solution is for companies to use kitting services, which group together specific components needed for a project. Workers save time choosing from smaller lots of items, keeping production more organized and efficient.