Manufacturing Lead Time

What Is Manufacturing Lead Time?

By Team TranZact | Published on Mar 3, 2023

Manufacturing lead time denotes the total production time starting from order placement to the delivery of products. It is also called production lead time. Going along the article, you will learn what is manufacturing lead time, the factors that affect it, why it is important, its types, and more details. Also, you will learn how to reduce it to satisfy your customer and beat your competitors.

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What Is Manufacturing Lead Time?

Manufacturing lead time is the duration between the manufacturing of a product from its order placement to the shipment. This includes all the stages of production, such as sourcing raw materials, processing, assembly, and quality control.

The lead time is calculated in days or weeks, which may vary depending on the complexity of the product, availability of resources, and production process. Bringing down manufacturing lead time is always important for businesses as it results in customer satisfaction, helps meet demand promptly, and increases the production efficiency. In contrast, if the production lead time isn't reduced, it can lead to losses in business and the manufacturing process.

Efficient management focuses on manufacturing lead time to ensure the timely delivery of products to customers and optimize the production process. A shorter production lead time will help you in keeping up with your sales and customers, so it becomes important to understand manufacturing lead time.

Manufacturing Lead Time Factors

It is necessary to improve manufacturing lead time as it ensures good sales, turnover, revenue, efficiency, and productivity in businesses. Therefore, to reduce lead time in manufacturing, it is important to understand the following factors.

1] Minimize Unnecessary Processes

If you manufacture all parts of the product until the time of its final assembly, then it can increase manufacturing lead time and lead to unsatisfied customers with delayed deliveries.

2] Inefficient Inventory Control

Another factor that increases manufacturing lead time is when inventory management is imbalanced and results in inefficient inventory.

3] Stock Outs

As mentioned above, inefficient inventory control techniques, if not improved, can result in stock-outs which can be another reason for escalating manufacturing lead time.

Importance of Manufacturing Lead Time

Manufacturing lead time is important as reducing it can help you reach more customers and expand your business network. Other than this, controlling it will keep you ahead of your competitors in understanding the changing market trends in less time and selling your products faster.

Besides, short production lead time will give you satisfied and happy customers. Moreover, less lead time can also save you money in shipping costs because a faster lead time always helps you with quick shipping. Here are some more points that indicate the importance of manufacturing lead time.

1] Meeting Customer Demands

In today's fast-moving world, customers expect quick services. Therefore, reducing manufacturing lead time can help you to make quick deliveries to meet customers' demands.

2] Efficient Capital Deployment

Businesses follow the capital cycle, i.e., investing capital in raw materials to manufacture a product and converting the same into capital by selling the finished products. It is needed to finish the product and sell it at the right time. So, speeding up manufacturing lead time will ensure efficient capital deployment.

3] Cost Management

Long manufacturing lead time can result in high costs because the more time manufacturing takes, the more it will require additional labor charges, inventory costs, and shipping costs. By reducing lead time, businesses can lower costs and improve profitability.

What Are the Other Types of Lead Time?

As we discussed above, the importance of manufacturing lead time, and what are the factors that affect it? Now it is time to know different types of production lead times that are suitable for businesses according to their needs.

1] Material Lead Time

This type of manufacturing lead time is the duration between the availability and requirements of raw materials. Through an inventory management system, you can be informed when orders are processed. Thus, material lead time works like information systems that alert the management when inventory levels are low. Besides, it can get affected by ordering, shipping, delivery, and fulfillment by suppliers.

2] Customer Lead Time

Customer lead time is the time period from a customer ordering a product to receiving it. This also includes the time when the customer orders online and the company receives and confirms the order. Customer lead time is a type of manufacturing lead time that follows the choices of the customer and the terms of the deal. Lastly, it includes the complete manufacturing process, shipping process, and delivery process.

3] Cumulative Lead Time

Cumulative lead time is the complete duration from sourcing raw materials to manufacturing the product until its delivery. More simply, if we add customer lead time and material lead time, it will give us cumulative lead time. Moreover, in this type of manufacturing lead time, businesses not only have to consider their own lead time but also have to keep a check on the supplier's lead time.

4] Production Lead Time

Production lead time is another type of manufacturing lead time that starts when the businesses have all the raw materials in hand and are ready for the manufacturing process and ends with finishing the product. Production lead time needs to be managed internally, and it is dependent on internal factors such as equipment, waste, labor, efficiency, and machinery downtime.

5] Throughput Time

This is also known as cycle time, which calculates how efficiently and fast resources and goods are moving through a business's production system. Throughput time is calculated by considering the processing time, inspection time, move time, and wait time. If you wish to streamline your manufacturing process, then reviewing these specific times can create a huge impact.

Lead Time vs Cycle Time

Lead time and cycle time are two metrics that are used in the manufacturing process, logistics, and project management. Lead time is the complete time duration from ordering a product until the customer receives it. For example, if a customer orders a product and it takes two weeks to reach it, then the lead time will be two weeks.

In another contrast, cycle time is a type of manufacturing lead time that gives the specific time of the single task included in the manufacturing process, such as inspection time and move time. Understanding both these times can reduce lead time in manufacturing, help businesses in improving efficiency, identify bottlenecks, and resource collection.

Why Is It Important to Reduce Lead Time?

A shorter manufacturing lead time allows businesses to manufacture products more quickly, reducing the amount of work in progress in inventory. This results in leaving free space for other projects as well. Less production lead time gives businesses more flexibility to respond quickly to changes in demand and supply chain disruptions.

Moreover, since the market is full of competition today, and it gives customers more choices, so if you do not provide quick service, the customer will move to the other. Therefore, reducing manufacturing lead time can give you an advantage over your competitors.

How to Calculate Manufacturing Lead Time?

Manufacturing lead time can be calculated by breaking down the production process into single components, the pre-processing, the processing, and the post-processing. These can be defined or stated differently.

Manufacturing lead time formula

Lead time = pre-processing time + processing time + post-processing time. To calculate manufacturing lead time, you need to follow some steps for correct lead time calculation, and these steps are:

1] Planning Bill of Material

Planning a bill of material in calculating manufacturing lead time is making the list of all the materials and their quantity needed to make the final product. This list may include equipment, materials, and assembling processes.

2] Calculate Administration Lead time

It calculates the time from when the material order is placed until the bill of material arrives. The business must note the supplier's turnaround time for processing and supply of raw materials.

3] Calculate Inter-Operations

In this step, the time that a task spends moving from one workstation to the other can be calculated.

4] Determine Total Production Lead time

This step includes adding all the time for each phase of the manufacturing and getting the total amount of time. This will be used for calculating the actual lead for producing a product.

How to Reduce Manufacturing Lead Time?

Here are some points that will help you clear doubts about how to reduce lead time. Besides, taking action on these points can make sure your business grows, and your customer reach expands.

1] Automation of Inventory Management System

There are chances of faults and errors by humans when managing the inventory. Bringing automation to the inventory management system can help reduce these mistakes, as all the entries will be automated. Besides, it will make inventory management efficient and easy so that businesses can perform their functions smoothly.

2] Sharing Sales Data With Suppliers

This is another way to reduce manufacturing lead time; considering your supplier as a partner will take your business to new heights. Sharing sales inputs with them will help them understand what the market demand is. Besides, this will also prevent you from stock-outs as the sales data will allow the suppliers to know how much stock you are left with, and they will be ready for your next order.

3] Ordering Small Amounts

The benefit of ordering small amounts is that it takes less time to process and ship compared to large amounts. This will help you in staying up to date with your stocks regularly. This can result in a shorter manufacturing lead time as it will also reduce the chances of a large number of dead stocks. For example, if you order a larger amount and the demand in the market falls due to some reason, then you will be left with dead stock. Therefore, it is better to have a small number of dead stock than a large number.

4] Discuss Lead Time Contract

To reduce manufacturing lead time, you must have good communication and relationships with the supplier. Communication with them will allow you to make sure that all the details and terms are clear. On reaching a final decision, you can discuss the lead time contract with penalties if there is any delay in delivery or a damaged product.

5] Boost Internal Learning

Any manufacturing process needs labor, and if the workforces are not well-trained and skilled, it can lead to long manufacturing lead times. Hence, it is important to boost internal learning for every individual in the company. Cross-training and learning opportunities will make them efficient in their work and function according to the business demands.

Benefits of Reducing Manufacturing Lead Time

There are many benefits of reducing manufacturing lead time, such as improved output, prevention of dead stocks, flexibility, and increased production. Apart from this, short lead time streamlines the production process by identifying the tasks that are taking long durations to finish. Below are the points discussed, which will help you understand the benefits of manufacturing lead time.

Improves Output

Growing sales results in greater profits and high sales can be achieved only if businesses have shorter manufacturing lead times. Besides, this will increase earnings in the company which will boost the output.

Prevent Deadstocks

If your manufacturing lead time is high, then your order may get delayed, which will leave you with an unsatisfied customer. Further, the customer may move on to other options by canceling the order, and this will result in dead stocks. Therefore, reducing manufacturing lead time can avoid this situation.

Increase Production

Another benefit of reducing manufacturing lead time is that it can increase production because it eliminates all the unnecessary tasks, breaks, and waste in many processes. A good management plan for reducing production lead time can increase production.

Flexibility for Production

It is easy to notice variations in stocks with a shorter manufacturing lead time. This means that you understand market demands and the production process together. Apart from this, less lead time helps in quickly changing strategies with market trends and demands.

Tips for Reducing Lead and Optimizing Inventory Management

Inventory management and manufacturing lead time can co-relate as both manage the flow of goods in the supply chain. Below are some tips to optimize inventory management and reduce manufacturing lead time.

Optimize Transportation

Transportation can be optimized by using an efficient route, working with reliable carriers to reduce lead time, and choosing the right mode of transportation.

Standardize Process

Standardizing all the processes throughout the supply chain can reduce lead times and errors and improve efficiency.

Integrating Technology

Utilize technology such as automation tools, electronic data interchange, and digital inventory management systems to reduce lead time and optimize inventory management.

Use the Just-in-Time Inventory

Use a JIT inventory system to reduce manufacturing lead time and improve inventory management by ordering materials and products only when needed.

Collaborate With Suppliers

Work closely with suppliers to reduce lead time by improving communication, providing forecasts, and establishing clear expectations.

Employee Training

Training employees can help them develop skills and gain knowledge; this will result in efficient workers and minimum errors, which will reduce manufacturing lead time.

Demand Forecasting

Use demand forecasting to improve inventory management and shorten manufacturing lead time by predicting future demand and adjusting inventory levels accordingly.

Categorize Inventory

Categorizing inventory according to fast-moving, slow-moving, and non-moving products will help in optimizing inventory and ensuring its smooth functioning.

Streamlining Production

You can streamline the production process to reduce manufacturing lead time and optimize inventory management through lean manufacturing techniques, reducing waste and improving workflow.

Example of Manufacturing Lead Time

Suppose every year there is a festival in December, such as Christmas, and for this occasion, a business needs 10,000 Christmas t-shirts to sell. So, the order will be placed for making these t-shirts. The manufacturer that supplies the t-shirts needs one business day to design it, one business day to proof the t-shirt, two business days to print it, and three business days to package and deliver the order.

Therefore, counting the day the order was placed, the manufacturing lead time here will be eight days. The business selling t-shirts would have to place the order eight days before the festival so that the delivery expectations could be fulfilled. However, the lead time can be reduced in some cases if the buyer is ready to pay a premium price.

If the sales of t-shirts are high, then the seller could order more t-shirts to be made, but this time the manufacturing lead time will be less compared to the first order as the t-shirt has already been designed. Further, to meet the demand, the supplier will have to quickly manufacture t-shirts and deliver the order on time.

There can be some additional factors that can affect manufacturing lead time. For example, if the festival organizers want a certain amount of t-shirts in pink color, but the supplier doesn't have the same in stock. In this case, the lead time will increase as the supplier will have to order the pink color t-shirt.

Grown Your Business With a Shorter Manufacturing Lead Time

We are at the end of this article which talked about manufacturing lead time and the factors affecting it. Besides, we also learned how to reduce manufacturing lead time and what are the benefits of shorter lead time. Opting for TranZact software can help you keep an eye on all manufacturing operations from start to finish, enabling you to eliminate inefficiencies, and maximize production capacity to reduce manufacturing lead time!

FAQs on Manufacturing Lead Time

1. What is lean manufacturing?

Lean manufacturing is a production process in which the main motive is to increase productivity and, at the same time, decrease waste within the manufacturing operation.

2. What are the five elements of manufacturing lead time?

The five elements are set up, manufacturing, administration, waiting and storage, and transport time.

3. What is the lead time for MRP?

Lead time in material requirements planning (MRP) refers to the planned period in which orders have to flow through the manufacturing system.

4. What is lead time supply chain management?

Lead time in supply chain management involves the time that the supplier takes to keep the goods ready for delivery.

5. What does it mean to have a three-day lead time?

Three-day lead time means a business takes three days from manufacturing the product to delivering it to the customer.

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