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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
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.
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.
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:
On hold-waiting for materials
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:
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.