For those who want to know what lead time means, this article provides a detailed explanation of lead time. The term “lead time” is often heard in business, but some people may not really understand its meaning.
If you want to know about lead time, please refer to the contents of this article.
What is lead time?
Lead time is the amount of time it takes from the start of a process or task to its completion.
The word “lead time” is a Japanese-English term that is said to have first been used in Toyota Motor Corporation’s process management, but it is also used in various industries other than manufacturing industries such as automobiles, such as sales, logistics, sales, and development. It may be used in
However, the meaning differs depending on the industry in which it is used.
Typical types of lead time
Now, let’s take a look at the typical types of lead time. Representative ones are as follows.
I will explain each in turn.
Procurement lead time
Procurement lead time, mainly in the manufacturing industry, refers to the time from when raw materials and parts are ordered until they are delivered. Its length and stability are important factors in the manufacturing industry, as they directly affect the efficiency of the entire manufacturing process and production planning.
There are several additional components to procurement lead time. First, there is the “delivery lead time” required from ordering raw materials to delivery.
This period refers to the time it takes for raw materials to be shipped from the supplier and arrive at the manufacturing site.
Delivery lead time varies depending on the location of the supplier and the complexity of logistics, and if it is long, it may affect manufacturing planning.
Next, there is a “receiving lead time” during which raw materials arrive at the manufacturing site and undergo receiving inspection.
This inspection is carried out to ensure quality control and is a period to confirm whether the raw materials are in a usable condition.
Receiving lead time is affected by inspection complexity and manufacturing site capacity and must be taken into account during the planning stage. Procurement lead time also has great significance in terms of inventory management.
For example, longer procurement lead times lead to increased inventory and inventory management costs. On the other hand, reducing inventory to shorten lead times may result in opportunity costs.
Efficient inventory management is required while taking this balance into consideration. Given the above, proper management of procurement lead times is an essential element in ensuring efficient and smooth processes in the manufacturing industry.
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Development lead time
Development lead time is the period from planning a new product to planning the manufacturing process. During this period, we will proceed through the following steps in order to give concrete form to the product concept.
First, a detailed design is carried out to realize the product concept. This is the stage where details such as functionality, appearance, and performance are worked out to meet product requirements.
The design team and engineers collaborate with each other to solidify the overall image of the product and create blueprints and specifications in preparation for subsequent processes. Next, production preparation work is carried out to build the factory, production line, molds, etc. for actually manufacturing the product.
Before manufacturing begins, the necessary equipment and processes must be in place to efficiently produce the product.
This is a critical stage where manufacturing and design departments work closely together to establish the appropriate production process based on the product design. Please note that the breakdown of lead time varies depending on the manufacturing method.
For example, in the production system called “Equipment to Order” (ETO), the planning and design of the product must be done from scratch, so the development lead time must be considered.
This is often seen when manufacturing products that require customization according to customer requirements.
On the other hand, in the production method of “Make to order (MTO)”, manufacturing is carried out based on existing product specifications, so there is no need to consider development lead time for product planning and design.
In this case, the product design is completed in advance, and manufacturing begins when an order is received. By shortening development lead times, companies and manufacturers can respond faster to market and increase productivity.
Efficient processes and smooth collaboration are required to optimize the time from product development to manufacturing and become a competitive company that responds quickly to customer needs.
Order lead time
Order lead time is the period from when a product is ordered until it is delivered to the customer. This is sometimes used as an indicator not only in the manufacturing industry but also in the sales and sales fields.
This is because the time it takes from receiving an order from a customer to delivering the product has a direct impact on customer satisfaction and reliability. Order lead time generally includes the following processes:
Responding quickly to customer requests and delivering products quickly are essential elements for improving customer satisfaction and increasing competitiveness.
Logistics lead time
Logistics lead time is the period from when a product is ordered to be shipped until it is delivered to its destination. Logistics lead time measures the time it takes for a product to leave the warehouse, go through the logistics process, and reach the customer.
Logistics lead time can be further divided into the following two categories:
Shipping lead time refers to the time from when a product shipping instruction is issued until the product is picked (removed) from the warehouse or storage area, inspected, packed, etc., and then shipped.
At this stage, it is important to improve the efficiency of logistics systems and machinery.
By utilizing technologies such as automated warehouse systems, picking robots, and barcode scanning, it is possible to shorten shipping lead times and realize efficient logistics operations.
Delivery lead time is the time from when a product is shipped until it is actually delivered to the customer.
At this stage, transportation mode selection and route optimization are important.
For example, delivery lead times can be shortened by selecting the optimal delivery method, taking into account factors such as the distance between the distribution center and the customer, traffic conditions, and delivery schedule.
Reducing logistics lead time is an important goal for companies, but they must also consider the balance with costs.
This is because reducing logistics lead time requires investment in advanced technology and an increase in the workforce, which may lead to an increase in logistics costs.
Companies are required to develop appropriate logistics strategies in order to quickly respond to customer demands while considering the balance between shortening lead times and costs.
It is important to achieve a good balance between shortening lead times and reducing costs by building an efficient logistics system and carrying out continuous improvement activities.
Total lead time
Total lead time is the total amount of time it takes for a task or project to be completed. However, total lead time may have different meanings depending on the situation.
For example, when we refer to “the entire period from receiving an order to delivering a product,” we are referring to the overall period from receiving an order to actually delivering the product to the customer.
In this case, total lead time has the same meaning as “delivery lead time” and also includes “customer lead time (the period from when the customer places an order until the customer receives the product)”.
On the other hand, when targeting the period from product order to finished product shipment in the manufacturing industry, it is also called “product lead time” and may be confused with “total lead time” and “cumulative lead time.” .
However, this lead time does not cover the logistics process after the finished product is shipped.
Based on the above, when dealing with lead time in a company, it is important to clearly define the total lead time and other lead time periods.
In addition, easy-to-understand names must be selected and used to ensure common understanding within the organization. This allows you to avoid misunderstandings and confusion about lead times and make more effective decisions to improve and streamline business processes.
What are the benefits of shortening lead time?
In any case, it is generally said that the shorter the lead time, the better.
So, what are the benefits of shortening lead time?
By shortening lead time, there are two main benefits:
I will explain each in turn.
Cash flow improves
Shorter lead times lead to improved cash flow. This is because the sooner products are delivered to customers, the sooner revenue will be generated, and by receiving cash earlier, it will be easier for companies to secure the funds they need to operate their business and take on new projects and investments. Because you can afford it.
Another reason is that it will be possible to control excessive purchases and inventory, and prevent unnecessary outflow of funds. Improving cash flow is extremely important as a factor supporting stable business management of a company.
In particular, it is essential to secure sufficient working capital in order to flexibly respond to sudden requests for increased production or unexpected expenses. By improving cash flow through shorter lead times, companies can respond quickly and effectively to market changes and maintain and strengthen their competitiveness.
Can reduce costs
Shortening lead time also leads to cost reduction. This is because inventory management costs can be reduced due to the reduction in inventory.
Furthermore, in terms of labor costs, the entire manufacturing process becomes smoother, which reduces waiting time and surplus labor time for workers and management staff, leading to a reduction in unnecessary labor costs.
Shortening lead times leads to overall cost reductions, so companies should focus on improving lead times, building efficient production processes and supply networks, and responding quickly to customer needs. It is important to reduce costs and strengthen competitiveness.
How to shorten lead time?
So, how can we shorten lead time? The following are effective methods for reducing lead time.
I will explain each in turn.
Approach customers with more obvious needs
By approaching customers with more specific needs, lead times can be shortened. This is because by approaching customers with obvious needs, requirements and specifications for products and services can be clarified.
Being able to more accurately understand customer wishes and needs means reducing unnecessary modifications and unnecessary additional work in the process from product planning and design to production.
For example, by strengthening communication with customers and listening to their requirements in detail, you can eliminate uncertainties about product specifications and functions in advance.
It is also possible to improve production efficiency by optimizing production lines and supply chains to match the products and services desired by customers. By working closely with customers, you can reduce the number of product prototypes and tests, and shorten the time to product completion.
Identify waste in existing operations
Identifying waste in existing operations is also effective in shortening lead times. This is because existing operations may contain processes and redundant procedures that are decreasing in efficiency.
These wasteful tasks can lead to wasted time and resources in product development and production.
For example, let’s say that the production process for a product involves a lot of manual work, and automation has not been fully implemented. This manual process not only increases the risk of human error but also slows down the process.
By identifying these wasteful manual processes and introducing appropriate automation systems, it is possible to dramatically improve production efficiency.
By eliminating unnecessary work, the production process runs smoothly, which not only shortens the time it takes to complete a product, but also improves production efficiency.
Optimize processes
It is also important to review and optimize your current processes.
This is because current processes may include inefficiencies and wasteful procedures, and identifying and improving these issues will speed up product development, manufacturing, and delivery. , because lead time can be shortened.
For example, during product development, there may be times when information is not shared sufficiently or there is a lack of communication between teams.
This can result in time-consuming product planning and design and can lead to problems during manufacturing.
In that case, reviewing processes, strengthening information sharing, and promoting collaboration between teams will speed up product development and shorten lead times.
Analyzing current processes in detail and identifying problems is also effective in reducing lead times.
summary
In this article, we explained the meaning, types, and ways of thinking about the word lead time.
Shortening lead time in business is extremely important for successful management.
Shortening lead times not only improves the speed from product development to production and delivery, but also improves customer satisfaction and strengthens competitiveness.
In addition, by reviewing processes in daily operations and identifying and improving areas of waste or inefficiency, you can speed up and improve the efficiency of your operations.
While referring to the contents of this article, try to maintain a business style that is conscious of shortening lead times.