Lead Time Reduction

Order Submission
In the Order Submission process, dealers enter orders and the Original Equipment Manufacturer (OEM) accepts and confirms those orders, following a determination of whether the vehicle configuration ordered is build-able, and a review, if applicable, of allocation rules to determine if the dealer is indeed permitted to order the products they desire. Lead-time in this segment is typically a product of:

The frequency with which dealer orders are submitted
The relative timing of dealer order entry and OEM order review activities
The time lag between order entry/acceptance and production
Order confirmation delays due to limitations posed by supply constraints, and whether the dealer has earned allocation of those constraints

In many cases, dealers' orders are only placed once a week or once a month, either because of OEM requirements, or because of dealers' own business practices. In addition, the OEM's processing of these orders may be structured to begin well after the dealers enter them.

Relatively significant gains in the process can be made by simply allowing dealers to enter orders every day. Of course, the OEM must also adjust their internal processes to enable daily processing and acceptance of those orders, in concert with their daily submission.

For many OEMs, there is also a significant gap between the time orders are submitted and confirmed and the time they are ultimately produced. This gap, which can be measured in weeks � or even months � represents a buffer reaching far in front of the production process, a product of a manufacturing-centric business model intended to support the development of better optimized production schedules and sequences. Several OEMs have made significant progress in reducing lead-time simply by challenging and reducing the size of these order buffers, supported by changes in the relative timing of the order submission, scheduling and production processes.

Additional delays in the order submission process can result from any constraints in the supply side of the production system. Such constraints drive the allocation of scarce production capacity or particular options or features which are in short supply. This allocation can lead to delays in any given dealer being able to order the product they desire. A key step in managing this process is establishing robust linkage to the order submission process, so that allocation issues are readily identified and their impact on lead-time is identified when the order is confirmed. OEMs can also attack this issue by identifying the constraints which have the most significant impact on the ordering process, and developing plans to reduce or eliminate them through either internal process improvements or by working with their key suppliers.

Scheduling and Sequencing
Scheduling and sequencing is the two-stage process through which the OEM determines where and when each vehicle ordered will be assembled. Scheduling involves assigning an order to a plant that can produce the vehicle and to a time period, typically a week, in which it will be produced. In sequencing, plant-specific production optimization rules then define the specific order that vehicles will get built within a given time period. Within this segment of the order to delivery process, lead-time is driven by the following factors:

The frequency with which these processes are executed
The scheduling and sequencing time horizons or "frozen periods" � in other words, how far in advance of production are schedules and sequences frozen for parts planning purposes
Manufacturing and supply constraints that place limitations on production schedules and sequences, discussed in the Manufacturing section below

A first step in reducing scheduling and sequencing related lead-time is increasing the frequency with which these processes are executed. By changing from weekly to daily processing, an OEM can shave several days off of average lead-time. If a move to daily processing cannot be made immediately, a review of the timing of these sequential processes may still reveal opportunity.

A major driver of lead-time in this segment, and of the order to delivery cycle in total, is the number of weeks of firmly scheduled and sequenced orders in front of OEMs' assembly plants. For many manufacturers, these frozen schedule periods have historically been several weeks, at minimum, on the premise that this created the most stable and efficient manufacturing environment for the OEM and its suppliers. Many manufacturers, however, have started to challenge those assumptions, reducing the horizon of firm orders in front of production. This requires a review of any potential supply network implications, and the development of contingency plans to manage them, as well as considerable work with the manufacturing community on the importance of lead-time reduction. Several OEMs have already made significant reductions in this area without adversely affecting production.

Manufacturing
The impact of manufacturing on lead-time is most significant in limitations placed on the development of the production schedule and sequence, based on supply constraints or plant-specific sequencing rules. Together, these cause the OEM to push production dates out to match material availability and plant constraints, hindering its ability to develop a schedule that is consistent with true consumer demand. For many OEMs, rules governing scheduling and sequencing have accumulated over time, driven by the manufacturing organization's quest for improved performance against key efficiency metrics � the product of a manufacturing-centric business model. While cost pressures dictate the need to preserve a focus on manufacturing efficiency, these needs must be balanced with demand-driven requirements. A thorough review and challenge of these rules is likely to reveal many that can be easily eliminated, removing artificial limitations on the development of a demand-driven production schedule.

Once the production sequence has been determined, assembly plants generally build to the plan they are given, in a reasonably short period of time. Other than "acts of nature," the only real disruptions to lead-time in this segment come from issues related to material availability, production process reliability or product quality. Changes described above which provide for the final production sequence to be developed closer to the actual production day do create some risk that supplier parts needed for assembly will not be on hand when needed. However, improved collaboration with suppliers to more quickly communicate schedule changes, coupled with enhanced techniques for managing and buffering inventories, can successfully mitigate this risk.

If other problems arise during the production process, OEMs should maintain a focus on lead-time when resolving them. A technique which can support this is to prioritize vehicles through repair and inspection on a first-in, first-out basis, or based on promised delivery date. Visually identifying those vehicles being produced to fill a specific consumer order can also help ensure that they complete the assembly process as quickly as possible.

Distribution
The distribution leg of the order to delivery process typically begins when a vehicle is completed and ready to be handed over to a carrier for transport to its dealer destination. In this segment in particular, the physical realities of moving an automobile � potentially across the country � require a certain amount of lead-time. Primary drivers of lead-time in this final leg of the order to delivery process, and opportunities to reduce them, include:

The mode of transportation used � ship, rail or truck: Significant lead-time gains may be made by converting from rail to truck transportation, although this will usually come at a higher cost which should be weighed against the value of accelerated distribution to determine the best solution for each destination
Time delays between completion of production and shipment of the vehicle: This time is generally used to create optimized loads for shipment. Rules governing these processes � historically aimed at cost optimization � need to be reviewed and, as appropriate, revised to incorporate lead-time considerations.
Unplanned disruptions during the distribution process: To manage against these, it is critical to understand the anticipated transportation time between each assembly plant and dealer, creating a baseline against which actual performance can be measured. Capitalizing on this information also requires the OEM to have visibility into its distribution pipeline. With such "track and trace" capabilities, problems can be spotted as they arise, allowing the OEM to react quicker to potential disruptions which would otherwise add lead-time.

Measuring Success
Lead-time reduction initiatives stand a much greater likelihood of delivering results if the OEM adopts order to delivery lead-time as a key metric, and sets aggressive targets for improvement, across the organization. It is critical that this metric is shared across the organization, so that lead-time reduction is a mutual goal that does not fall victim to competing objectives of different functional groups. It is important to remember, however, that shorter lead-time is just one objective for the OEM, which should not lose sight of other important cost, efficiency and reliability metrics. And, of course, all of the steps discussed above must be evaluated in light of their cost to execute and other priorities of the organization, to ensure that they all make practical sense.

Reducing Lead Time - THE Most Important Factor in Achieving World-Class Operations

In the 1960s and 70s, manufacturers competed on the basis of cost efficiency. In the 1980s, quality was the rage and Zero Defects and Six Sigma came into vogue. Cost and quality are still crucial to world-class operations, but today, the focus is squarely on speed. Nearly all manufacturers today are under pressure from customers to cut lead times. And rapid-response manufacturing pays big dividends.

Let's clarify what we mean by lead times. Customer lead time refers to the time span between customer ordering and customer receipt. Manufacturing lead time refers to the time span from material availability at the first processing operation to completion at the last operation.

In many manufacturing plants, less than 10% of the total manufacturing lead time is spent actually manufacturing the product. And less than 5% of total customer lead time is spent in the production process. The cumulative cycle times of the processes in the value stream are the theoretical limit to how much we can reduce lead times, without investing in different equipment. Clearly, there is ample opportunity to reduce lead times in most organizations.

Reducing lead times doesn't involve speeding up equipment to cut the cycle times or getting plant personnel to work faster. What is does involve is the rapid fulfillment of customer orders and the rapid transformation of raw materials into quality products in the shortest amount of time possible.

Here is a lead time analysis for a product line at a plant we recently visited:

Activity	Total Days	%
Processing	3	7.5
In-transit	.5	1.3
Set-up/ changeover	.5	1.3
In queue	30	75.0
On hold-waiting for materials	4	10.0
On hold-quality	2	5.0
Total	40	100.1

At this company, actual production accounted for only 7.5% of the total manufacturing lead time. As in most plants, the largest contributor to lead time is queue time -- the time product is sitting idle waiting to be processed at the next operation. Waiting in inventory, tying up cash, adding no value and causing unnecessary customer waiting.

Implementing Lead Time Reduction

The following guidelines will help you to reduce lead times in your organization:

Measure current lead times and set improvement targets. Lead times, as important as they are, are not measured in most organizations. People may have a sense as to the planning horizon, but can't say how long it took for individual products to cross the value stream. Things that are not measured cannot be improved.
Change the organization from a functional orientation to a product orientation. If possible, all resources required to produce a product should be located close to each other. These product-focused groups are called work cells or cellular manufacturing. Include office operations as these functions often account for half of total customer lead time.
Cross-train plant personnel within cells in a number of operations for greater flexibility. Reducing the number of job classifications and maintaining multiskilled teams on each shift is critical to rapid response manufacturing.
Empower work cells and teams to take ownership for the entire value stream. Drive accountability for product cost, quality and delivery down to the lowest appropriate level (ideally, the operators themselves).
Continually reduce batch sizes between work centers. With operations in close proximity, transfer batches can be smaller and WIP inventories can be minimized.
Institute local scheduling between work cells. Visual shop floor scheduling tools, like kanban systems, can be used to minimize WIP between cells and to eliminate queue time throughout the value stream.
By employing these principles, many world-class manufacturers have shrunk lead times by 50-80%, gained market share, improved profitability and increased employee morale on the shop floor.

	The Deming PDCA Cycle	QMS Implementation	FMEA Information	APQP Information
Auditing Information	8-D Problem Solving	Statistics	Error Proofing (Poka Yoke)	Brainstorming
Identifying Waste	Pull Systems	Lead Time Reduction	Planned Maintenance	Quick Setup
Discovering Change	Process Capability - Cp vs. Cpk	Histogram Animation	Process Loop Animation	Taguchi Loss Function
		Fishbone / Cause and Effects Animation

This page last reviewed or revised: Sun, 2013-04-21 1:09 PM EST USA - GMT {Greenwich Mean Time} -5 hours

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This page reviewed or revised: Sunday, April 21, 2013 1:09 PM EST USA - GMT {Greenwich Mean Time} -5 hours

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Lead Time Reduction

5/8/04

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