Manufacturing lead time assumes components are
available when needed in the manufacturing process. This includes
any sub-assemblies, fabricated parts, purchased components and raw
materials used directly in the item being manufactured.
From this perspective, the time between the demand for material to
be supplied by a vendor, and the availability of that material for
use, is the purchase lead time. As in manufacturing lead
time, there will be multiple elements of purchase lead time that
will vary in each environment. These might include:
Requisition processing time Vendor negotiations Purchase
order creation and approvals Transmission time to the supplier
• Supplier's order processing time
• Supplier's manufacturing lead time (or part of it)
• Packaging time
• Transit time
• Import and export processing
• Receiving and inspection
From a manufacturing perspective, too often we
view purchase lead times as a single entity, ignoring the
individual elements. We need to focus on these specific areas in
our efforts to compress lead times, both in our role as customer
and as supplier in the logistics pipeline.
Another perspective of lead time exists with
respect to a product and how it is manufactured. This critical
path through all levels of the product structure is generally
defined as the cumulative lead time for a product. It
represents the span of time required to produce an item if no
subassemblies, parts, or raw materials are available. In other
words, the time to order and receive material from suppliers and
build the item from the bottom up. This is best illustrated by
taking the multi-level bill of material shown in Figure 2 and
laying it horizontally, with manufacturing and purchase lead times
displayed graphically, as in Figure 3. The flip-flop bill of
material in Figure 3 is critical to understanding how we operate
as a manufacturing company, and where we should direct our lead
time reduction efforts. Manufacturing the product is not the end
of the task, however. We still have to get the product to where
the customer wants it.
Delivery Lead Time
This is the manufacturer's view of how
long it takes to satisfy a customer order after the order is
received and the item is available to be shipped. This
includes the customer order processing time, picking and packaging
time, transit time to the customer, and the time required for all
activities that take place prior to the order reaching the
customer's destination. This can be different than the lead
time quoted to customers, which may include a portion or all
of the cumulative lead time.
The time between our receipt of a customer
order and the delivery of the product to the customer is the customer
lead time. This lead time must be viewed from the
customer's perspective'. If we control the market for a
product, we can dictate this lead time to a customer. In engineer-
or build-to-order environments, the Manufac
manufacturer generally defines this lead time as part of the
quote to a potential customer.
Whether we or our customers dictate the lead
time for our products in terms of expected delivery, in reality
it's our competitors who establish customer lead time. When
vying for customers, we have to compete on cost, quality, and delivery.
The relative importance of each of these is determined by
the customer, but it's the competition that sets the level of
expectation for each.
Lead Time Relationships
The length of the logistics pipeline shown in
Figure 4 might be 32 minutes or 32 months*. It's
only important when compared to the time our customers allow us
to satisfy demand. Many of our basic operating policies are
determined by the relationship between the lead time imposed on
us by customers and the competition, and the cumulative lead
time and delivery time for our products.
Let's face it—as manufacturers, we would really like to buy
material and parts, and build individual units, only after a
customer order is received. While we pursue this ideal
environment, let's learn to manage the real world, a world of
constraints and competition—a world characterized by dependent
demands, finite capacity and finite resources.
To be Continued
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