Last Updated on 13 September 2023
Lead time is the full time taken for a part to go through the value stream, and so is a key metric of lean. It is usually considered to be the third most important metric on a value stream map after the takt time and cycle time. Due to the huge amount of waiting involved in a lot of of organizations, it is often similar to wait time. It is not uncommon to see the time measured in months. This does at least give huge opportunities for improvement from lean.
Lead time is the time from initiation of a process to it completion
From your customer’s point of view, it is their wait time, as it is the time it takes them to get their delivery.
How do you calculate the lead time?
You can calculate lead time either for a process or for the entire value chain. The process lead time. For the value chain it is the time from when the order is made all the way to when the customer gets their delivery. The value chain figure is therefore all of the process figures added together.
It therefore is made up of several factors added together:
- Pre-processing as the order from the customer is processed, and it gets into the production systems
- Initial wait time, as any inventory that is required is obtained
- Processing, which is the time needed to make the product. This in turn will be made up of:
- Cycle time (see below); the time to create the product
- Waiting time, the time during production that it is not being worked on, but is waiting while a previous item is finished
- Post-processing, such as inspection, shipping etc.
Lead time vs cycle time
These two are the two metrics on the time line of the value stream map, and it they are commonly confused with each other. The main difference is that lead time includes the time the inventory is waiting between processes, and cycle time doesn’t.
- Lead time is therefore the full time to get from raw material to finished goods
- Cycle time is the processing time to actually create the product
Lead time is therefore usually cycle time plus waiting time. In many processes the waiting time will be so large that it will essentially be the same as the lead time.
What is the impact of long lead times?
There are many consequences to your business of having long lead times, and most of them are costly to your business. It is therefore important that you do all you can to reduce them to as close to the cycle time as possible. The issues with long lead times are:
High levels of inventory
Long lead times means that there is a lot of stock sitting waiting to be worked on. Stock costs money that could be better spent on investments that will earn your organization money. It also increases risk, as it could get damaged, and takes up space that needs to be rented, heated etc.
Missed customer deadlines
If you are slow to produce your product, any issue will cause you to miss your customer deadlines. This will lead to potential fines and lost customer goodwill, reducing future sales and making it harder to increase prices.
If a customer needs an order in a hurry that you don’t have in finished goods and you have a long lead time, you’re likely to lose that sale hurting your revenues
High production costs
The cause may be long cycle times, due to a complicated or inefficient production method. If this is the case, you will be spending a lot of time actually making the product, usually the most expensive part of the process. There may be a large amount of waste in your production method that will be driving up your production costs.
How do you reduce your lead time?
Given the high cost and risks of having a long lead time, you will likely want to do all you can to reduce it. Fortunately a large part of lean can be deployed to improve this. You will want to look at reducing any waste, waiting and unnecessary tasks from your processes.
Take care when you reduce your lead times, as you need to be reducing waste, not reducing quality. It can be tempting to cut corners to get the product out as fast as possible, but you need to make sure your quality levels and reputation are maintained as you work on improving your lead times.
Make a value stream map
If you want to see where your inefficiencies are, one of the best tools you can use is a value stream map. This will show you where there is large distances moved, stock is building up, where cycle times are misaligned and where the lead time is high.
When creating it, you will split the lead time into the sections of the value stream that create it. This will let you see which areas are causing you the issues, so that you can tackle them.
Bottlenecks usually arise when you have mismatched cycle times throughout the system. This is where one process is working faster than the next one in a series, leading to a build up of stock.
There are two main ways to reduce this:
- Load leveling to make your processes work the same speed as each other
- Theory of constraints to tackle each bottleneck in a prioritized manner
A large proportion of your lead time can be in sourcing materials for the order, especially if your supplier is the other side of the world. By sourcing products from a supplier closer to home that can react more dynamically, you can greatly speed up how fast you can get them.
Reduce your cycle time
There will often be waste in your system, and as you get your waiting time down, cycle time will become a large part of the lead time. There are many ways to improve cycle times, from increasing resources to automation. The first step is to look into the processes e.g. using value stream maps or spaghetti diagrams, to see if any waste can be removed.