Introduction Of Lead Time Management Assignment Sample
Organisations in the modern world face many 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 the context of an organisation. Lead time is the total time a process takes from its initiation to its end. In 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, along with the benefits and downside for an organisation. For this purpose, the manufacturing firm that deals with stainless steel material for construction and other purposes is considered. The report comprises a literature review analysing the complex interrelationships among the problems or issues in the business. Some relevant theories are also elucidated, and some recommendations are also provided.
In every manufacturing industry, inventory management and production processes can impact the lead time. In the context of the overall production, manufacturing all final products onsite may take more time than that required for completing some goods offsite. In addition to this, transportation issues can also cause a delay in the delivery of essential parts, resulting in a delay in productions and poor efficiency. All this would ultimately impact the return on investment and turnover. However, the organisation can minimise these delays if the supply chain manager thinks wisely and takes necessary decisions. Many researchers have their views on lead time and factors affecting it. Some believe effective inventory management is the key to reducing the lead time. In case of stockouts, the organisation cannot fulfil the customer demands on time, which results in customer dissatisfaction, and the organisation might lose valuable clients. This not only affects 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 production and earn more profits in the same period. In this research report, the factors affecting the lead time will be discussed, and ways to compress the lead time, thereby increasing the organisation's net profitability would be discussed in detail.
Aim & Objectives
This research aims to control the lead time 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 an organisation's overall growth and profitability.
- To study some real-time models and case studies 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 reduce the lead time.
Lead time is the total duration between process beginning and completion. In addition to this, from a customer perspective, the Lead Time is the total time between placing 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 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) talk about the material Lead Time, the time duration between placing an order with the supplier and getting it delivered to the company. The author also mentioned production lead time, the 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 taken 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 times 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 a different literal meanings. According to Chaharsooghi and Heydari (2010), cycle time is the amount of time taken to complete or accomplish a cycle of tasks, i.e., from start to finish. It can be measured by recording how frequently a specific process completes a part of a product. On the other hand, the Lead Time is the total time required to complete a product from its very beginning to the ultimate end. Lead time can be a summation of numerous cycle times as each stage in the manufacturing process can have its cycle time.
Importance of Lead Time Compression
There are two schools of thought in the context of Lead Time. One supports the argument that Lead Time is very important for a firm of all types as it affects the final delivery of the orders. On the other hand, some business analysts do not consider it crucial. However, supply chain managers give Lead Time Compression a great emphasise. The reason is 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 sustain those customers for so long. This directly impacts the sustainability of the organisation. For the manufacturing industry, the Lead Time is directly correlated with the stocks and inventory amount existing at various points in the overall supply chain. Song et al. (2013) argue that if the Customer Lead Time is on the lower side than Production Lead Time or Material Lead Time or Cumulative Lead Time, this would ultimately result in the holding of stocks and inventory at all or some points. Inconsistency and variation often compound such problems.
Factors Affecting the Lead Time
Chaharsooghi and Heydari (2010) mention that Lead time compression is a great way to increase productivity and output quality and quantity. It is about streamlining the process and operations. However, there are many factors, such as delays in the transportation of the inventory from the supplier end, that can extend the lead time and hinder the other processes. Apart from this, other factors include many redundant processes, disorganised inventory, and stockouts. Keeping all the final product parts at one site can help the workers assemble them quickly without wasting much time. It has been seen that when the supply chain is disorganised and proper communication does not exist in the organisation, and the workers find it tough to carry out their work. This is the case with the organisation having a stock surplus. The excess inventory would complicate the processes and also increase 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 to remove any redundant process that consumes resources and time. This would greatly reduce the Lead Time. Chaharsooghi and Heydari (2010) argue that ordering excess inventory might disturb the company's budget. The best way of dealing with this problem is to consolidate the company's suppliers. This would help cut 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 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 to spare time of the organisation and use that in other helpful activities. Moreover, the organisation can likewise go for kitting administrations. The director can consider clubbing different components that are utilised frequently together in bunches. This would assist the labourers with remaining progressively sorted out, and the inventory network administrator can effectively oversee these. 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 implementing 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 reduced Lead Time in a manufacturing company. The first and foremost is that it can result in reduced inventory and stocks. This means the business is at lower risk and exposure. In addition to this, this would also mean managing the material and workforce better. 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 organisation's profitability 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 the demand for 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 has varying demand curve values. In addition to this, the author also argues that an increase in Lead time would also impact the per-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 some costs for compressing the Lead Time. The organisations sometimes have to pay extra for urgent delivery. However, it is usually assumed that the client or customers do not charge this cost. Hill&Khosla (1992) mentions a quantitative relationship between the cost of compression and compression amount of the lead time. The model uses a "segmental cumulative calculation method" that begins with a minimum cost of compression and calculates the cost of each part of the manufacturing process. The formula is given below:-
In the following equation,
ð'ðœ= "total compression cost of the lead time."
ðœð'-= "length of the lead time after compressing one to ð'- components, ð'- = 1, 2,…ð'›;
ðœ= "lead time existing in each operating sector of the supply chain."
ð'ð'-= unit compression cost of the ð' -th component of the lead time
ð'ð'-= "standard operation time of the ð' -th component of the lead time."
ð'ð'-= "shortest operation time of the ð' -th component of the lead time after complete compression".
To lessen lead time inconstancy and improve the precision of anticipating requests, the lead time is decreased by expanding use. There are numerous basic issues in businesses to convey the items at the opportune time to the client. Enterprises with expanding lead time face high-hazard introduction. The client inclinations are ideal 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 decentralised, brought together, and agreeable mentalities are three different - basic leadership methodologies utilised in this creation and stock model for the item. Adjusting the exchange off issue between creation cost and request estimating danger is fathomed in this examination. To diminish the capacity on the lead time, the conjecture requests are refreshed to illuminate the standard deviation of interest. Lead time is one of the primary parameters of 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 expenses and opportunity costs of the lead time. Diverse culture with aggressive retailers is another intriguing beginning stage for business.
The principal intention of this exploration is to control the lead time to diminish the clients holding up time with expanding the administration. The lead time rebate planning methodology is utilised in this exploration to augment the benefit of the whole production network by diminishing the lead time. The lead time can be abbreviated by the general capacity of the generation cost structure. The lead time vulnerability pressure is the contributed venture that expands the production network's benefit. The globalisation improvement on centre skills is the effect of lead time in inventory network the executives.
- The complete focus is given to the manufacturing system.
- Both Supplier Lead time and Lean production time are considered for the study
- It is assumed that the firm will not use any external assistance in reducing the Lead Time.
- It is assumed that customer demands vary with Lead Time.
- Customers are not charged the cost of compression of Lead Time.
The quantitative data must be collected for the following research as both compression cost and Lead Time Cost are numeric. Only secondary sources are referred for the data collection, including journal articles and peer-reviewed research papers. The data required for further analysis include:
- Normal operating time.
- Shortest operating time.
- Unit compression cost of the ith part.
- The total compression cost.
Once the data was collected, the basic statistical analysis was carried out to determine the variance and standard deviation and correlation factor. These would help work out the relationship between the cost of compression and the amount of the Lead Time compression. It is assumed while working out the relationship that the inventory level is kept lower than the safety inventory. If the lead-time compression cost turns out to 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, one can straightaway say that L.T. is not compressed. It has been seen that for reducing the total cost associated with the firm's supply chain, the manufacturer and retailer might adopt the ordering and corresponding production strategy under various inventory levels.
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 L.T.
It is inferred that the supply chain manager should compare the supply chain while considering 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 to be on the lower side of the stock cost. At that point, one can say that the Lead Time is packed. If this does not occur, at that point, one can straightaway say that L.T. isn't compacted. It has been seen that for diminishing the all-out expense related to the store network of the firm, the producer and retailer may embrace the requesting and comparing creation technique under different stock levels.
It is well-known that the customers and clients 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 a manufacturing firm, the consequences may amplify and go way beyond mere frustration. The organisation may lose clients right away and damage its competitive position in the market. There is always a risk of stockout or faulty raw material from the supplier. This would hinder the progress of the final goods from reaching the market and customers well on time. Such events are fatal for the organisation as they might lose market share, revenue, and clients. In addition to this, the competitors will also outrace the company and grab the losing clients. Hence, the company must consider all the worst possible scenarios and prepare a comprehensive plan for such events.
Minimising and forecasting the Lead Time accurately is crucial for all manufacturing firms. The following recommendations are provided to the manufacturing firm that will surely be helping in Lead Time compression. These are:-
- Using domestic suppliers can be very effective in reducing 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 a large amount of raw material at once is inconvenient for the supplier to supply. They need to arrange the material to fulfil the order and the transportation. This may unnecessarily increase the L.T. However, frequently ordering from the suppliers can reduce the L.T.
- Providing a relevant sales forecast to the supply chain manager and the suppliers. This would make them aware of the expected orders and help them anticipate the company's net demand. 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 every supplier individually and placing an order with them may be time consuming and complex. Hence, whenever it is possible, the manager should try to consolidate all the suppliers to save the company's time and utilise that in other useful operations of the company. In addition to this, the company can also go for kitting services. The manager can consider clubbing various elements that are used very often together in batches. This would help the workers to remain more organised, and the supply chain manager can easily manage these. Ultimately, this would increase the efficiencies as workers need not spend time attempting tasks individually.
- Developing a better communication network and an incentive plan can also be considered a major recommendation. Numerous operations are running in an organisation at the same time. For better coordination, an effective communication plan is required to highlight the communication with the suppliers. Creating an incentive plan for the supplier and workers can also reduce Lead Time.
- Building a strong partnership with a supplier that is efficient in their work and has a large success rate can resolve 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 duration of the process from its initiation to its termination. It was also discussed that the organisation's reputation and its revenues are also dependent on the Lead Time. Hence, compressing or reducing the L.T. 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 recommendations to reduce the lead time were also illustrated in the end. These would be very beneficial for a successful organisation. It was stated that using domestic suppliers can be very effective in reducing Lead Time by a greater amount. Moreover, developing a better communication network and an incentive plan can also be considered a major recommendation.
- Chaharsooghi, S.K., Heydari, J., 2010. L.T. variance or L.T. mean reduction in supply chain management: which one has a higher impact on S.C. 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. Optimising 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 integrated inventory system under consignment stock policy with controllable lead time and buyers' space limitation is an operational policy. Comput. Oper. Res. 40 (11), 2632–2645.
- Zhang, S., Li, S., Zhang, S. and Zhang, M., 2017. The decision of lead-time compression and stable operation of the supply chain. Complexity, 2017.