In today’s global market space, speed is now the key differentiator. When labour costs are high and quality is a must, short lead times become the key to remaining competitive.
In todays’ consumer-empowered world, customers want quality, they want value and they want it delivered “yesterday”. With this in mind, manufacturing companies now need to explore all kinds of ways to reduce their lead times as much as is humanly possible.
It obviously sounds attractive, but what does a reduction in lead time mean in reality? Well, let’s dare to dream for just a moment. Imagine, if you can, reducing your lead time to 10% of its current duration.
It could mean the end of ‘hot’ jobs and rush orders. If that was the case, how much money would that save? What do hot jobs currently cost your organization in time and money – not just in completing them, but in terms of the impact they have on other processes and planning? Continually working on these types of orders eats cash – extra transport, extra personnel, overtime. None of these help the P&L report – or you to sleep better at night.
Consider your working capital
Bringing your lead time down by anywhere near this amount will have a dramatic impact on your working capital. The amount of your cash tied up in work in progress is reduced, easing cashflow. This is then further helped by your customers being able to pay you quicker. You’ll also be investing less time in planning and production meetings, be able to generate forecasts with more accuracy, and house fewer obsolete products in your assortment.
Minimize margin-eating order changes
Shorter lead times will also lead to fewer changed sales orders. The longer a lead time for a custom build project, the greater the chance that the customer will change his mind about something during the process and request a modification. Clients have even been known to purposely use this phase to complete their designs and deliver a last set of requirements.
This scenario is obviously less than ideal, leading to wasted time, effort and materials. You also run the risk of losing sales altogether when you’re unable to deliver exactly what a customer wants in the time frame they want it. And in the current climate, many businesses are not prepared to wait for what they want – if you haven’t got it, the chances are that someone else will. And once they’re gone, it may well be difficult to get them back.
Shorter lead times need simpler IT
When lead times are shorter and the operational environment becomes less dynamic, your need for complex planning, rescheduling and early warning solutions is also reduced. This means that a simpler ERP system can also be implemented to support the business in creating and dispatching orders – offering attractive time and cost savings.
Focus where you can make a difference
Ensuring your customers get their orders quickly and accurately can be the key to outperforming your competitors, wherever their manufacturing operation is based.
The key to improving the speed with which you get your products to your customers is to focus your efforts in the right areas. I’ve previously identified three major hotspots for production companies with lead time issues – digital and mobile technology on the shop floor, process optimization in the back office, and the relationship between touch time and overall lead time. Here, and in the next article, I’m going to dive a little deeper into this third point.
Finding the real win
In attempting to reduce lead times we see many companies focusing on reducing the ‘touch’ or ‘run’ times within the factory, while the overall manufacturing lead time represents a much bigger picture. Think about the office processes like sales administration, calculation, planning time, waiting, queuing, etc. They all have a role to play, and can often make up the majority total time involved. As such, focusing purely on the run time is unlikely to deliver the real breakthrough these companies are hoping for.
In the next article, we’ll look at an example of just such a business, and discuss where they need to focus to ensure they drive the changes they need.
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