Strategic lead time management

Strategic lead-time management1Time based competitionTime sensitivity of customers:Hectic life-style of customers (end customers experiencing difficulties in banking, shopping, eating etc.)Short lead times for delivery (distributors experiencing difficulties with long lead times of product deliveries)JIT assembling requires for JIT deliveries (manufacturers experiences difficulties with higher inventory carrying costs)2Competitive advantage of time focusCompetitive advantage ProductServiceOn time deliveryJITShort lead timesTime reduction: Cost reduction Less WIP inventory Less working capital Greater flexibility Cash-to-cash cycle time reduction Less vulnerability/risk

3Logistics pipeline(cash-to-cash cycle time and end-to-end pipeline)

45Time Based CompetitionPrice and quality important, but increasingly cost of time is crucial element in choice:Shortening life cyclesCustomers drive for reduced inventoryVolatile markets making reliance on forecasts dangerous6Life Cycle and Lead TimeTimeSalesLate EntrantObsolescentStockMarket7Drive to Reduced InventoriesThe drive towards Just in time delivery has had a major impact .Responsiveness can only be achieved through time compression in supply chain.Volatile Markets & Forecasts:History tell; us that no matter how sophisticated the forecasting technique it will be wrong8The Concept of Lead TimeThe time it takes for customers to receive their purchases.The order to delivery cycleCustomers are increasingly sensitive to time.Shortening delivery time a major potential source of competitive advantage9The order to delivery cycleOrder Cycle Time:Time taken from order to delivery Short lead time major source of competitive advantage.Customer places orderOrder entryOrderprocessingOrder AssemblyOrderreceivedTransportEach step consumes timeIf order not met from stock but manufactured lead times will be extended.10Cash to Cash CycleTime taken to convert order in to cash.The longer the pipeline form the source of materials to the final user the less responsive to changes in demand the system will be.Ensuring timely response to volatile demand will require a fundamentally new approach.11Logistics Pipeline ManagementThe process whereby manufacturing and procurement lead time are linked to the market.Key managing the supply Chain as a single entity.Common fallacy long lead times give security. The opposite is true!12Lead Time GapProblem of most organisations is time taken to procure, make and deliver is longer than the customer will wait.ProcurementManufacturingDeliveryLogistics lead timeCustomer order cycleOrder fulfilmentLead TimeGapIf logistics lead time = customers required order cycle. Forecast & inventory not required!13Reducing Logistics Lead TimeThe visibility of the logistics process must be increased.Fundamental questioning of why we do things the way we do. Optimising Production Technology (OPT1):All activities can be categorised as bottleneck (slowest activity in the chain)or non bottle necks.Throughput of whole system is determined by bottlenecks.Bottlenecks often associated with information flow14Improving Visibility of DemandKey requirement of getting earlier warning about customers requirements.Real demand may happen a lot earlier than demand penetrating the system.How:Improving information flow so manufacturing gets to hear about changes in the market earlier.Postponement of commitment of product to its final formEarlier notification of customer intentions get customers to order more frequentlyImpact of pipeline on profitability

15Dimensions of time based competitionTime to market (recognizing the market and reacting with product or service): Continuous market research Innovation New product development (parallel to sales of existing products)Launching the product on timeTime to serve (order to delivery cycle):order fulfillment team (cross-functional analysis)Time to react (flexibility or time required to respond to the market change): Reducing the lead times (both procurement and order delivery) Integrating with suppliers Reducing the forecast time horizon16Strategies to reduce lead times Shortening the pipeline time by identifying value added and non-value added times: Time based representation of materials/ products movement (horizontal time or value added time) Time based representation of materials/products waiting/idle time in inventory (vertical time or non-value added time, increases costs only)17Process flow (supply chain) mapping

18Value added through time

19Dealing with non-value added timeLogistics process re-engineering: Eliminating stages in multi-echelon distribution chain Moving the inventory to close to customers (to local warehouses, distribution centres to minimize transportation costs and lead times) Speeding up the flow of relevant and correct information Reducing the process flow and waiting times wherever possible20