Lead Time Analysis

The Value of Short Inventory Lead Time

In today’s market, businesses are looking for every advantage possible. Maybe the focus is on increasing profits through improving product, or cutting costs. One way to improve profitability is by reducing inventory lead time, or the amount of time that passes between your customer placing an order with your business and receiving their product. As a result, many firms actively look for suppliers with shorter lead time. 

Why is short inventory lead time important?

Short inventory lead time equals more profit. Customer satisfaction is crucial to keeping a business afloat. With a market full of competitors, customers can easily find another business that can satisfy their high standards for delivery, quality, and cost. A short inventory lead time can provide an advantage. In fact, trends have indicated that quality and delivery often surpass costs in terms of customer’s values. And of course, a long and drawn out lead time means an overabundance of inventories, expedition costs, excessive overtime pay, and inefficient use of resources. And what do these factors add up to? High cost for your company.

A longer inventory lead time translates to more time that your inventory is sitting in your warehouse or store room. As you know, excess inventory adds no value, and in fact is incurring cost. In fact, that product incurred cost before it even was stored in your inventory. 

What's more, lead time reduction can improve the bullwhip effect, make forecast more accurate and reduce finished goods inventory level.  

How can you implement practices that will lead to shorter lead time?

Operations management is going to be a key component of keeping your inventory lead time short. There are several different kinds of lead time that can all be reduced to minimize cost. These lead times are set up time, queue time, and move time. There are two main ways for companies to shorten their all-around lead time: 1. Practice better scheduling and production control, and 2. Re-engineer manufacturing operations. To reduce lead times by adopting better scheduling and production control habits, you may find it helpful to invest in some finite capacity scheduling software. This software will help you determine how to split lots, determine lot sizes, and what delivery dates will work best. To reduce inventory lead times by re-engineering manufacturing, you may incorporate some of the following strategies into your system: shorter product move distances, a narrow set-up variety as opposed to wide, and items that are dissimilar grouped together. This changes can set the stage for reducing set up time, queue time, and move time. By using the strategies of better scheduling and re-engineering manufacturing, your business is almost guaranteed to reduce inventory lead time. This translates to less cost, and more success. 

Furthermore, redesigning distribution network, implementing effective information systems (EDI) and using strategic partnership (POS sharing/VMI) can also help reduce lead time.  

Decreasing Manufacturing Lead Time

How do you cut down manufacturing lead time? Everything from regular meetings with warehouse managers to having an efficient order management system in place can help reduce your manufacturing lead time without sacrificing the quality of your product.

Here are four ways that Traco, America’s leading manufacturer of aluminum building products for the construction industry, use the intense quality measure of Six Sigma and lean manufacturing principles to cut down their manufacturing lead time:

1. Advanced manufacturing practices and reduced manufacturing lead time

Traco made an effort to trim the fat from their manufacturing and focused on less time and material waste. They introduced a new assembly layout that followed the principles of lean manufacturing, instituted a process to approve parts using Six Sigma, and began performing inspections and audits both during the manufacturing process and at completion. In order for these initiatives to be successful, Traco directly engaged employees by showing them how these initiatives made their jobs easier.

2. 5S and assembly layout
A batch processing layout is being ushered out in favor of a layout that supports flow, where a product moves smoothly from step to step. There has also been am emphasis on tidying up the production area with 5S: sort, set in order, shine, standardize, and sustain.

3. A part approval process during production
Traco manufactures cutting edge product that has been optimized for good design plus manufacturing and performance requirements. Part of these process includes making samples in several different stages: a prototype sample, a pilot sample, and a final mock-up sample that is shown to the customer.

4. In-house product audits and inspections
These processes inspect for quality both during production and when the product has been completed. Inspections are completed daily using defined checklists for in-process products, plus the product is audited for aesthetics and operations when it is finished.

Can you incorporate some of these progressive steps into your business to decrease your manufacturing lead times? Constantly re-evaluating the efficiency of your business is paramount to success.

https://www.ordoro.com/blog/2012/10/15/inventory-lead-time/