managing lead times

7/30/2019 Managing Lead Times

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Mr. Julius S. Kabiling

Course Instructor



Time = COST

1. Extended lead times = cost The longer the logistics pipeline the higher the holding

cost of the inventory

2. Extended lead times = customer dissatisfaction Slower response

Irresponsive logistics

High cost + lack of responsiveness = POOR LOGISTICS MANAGEMENT



Customers are very Price-sensitive The cheaper the product of the perceived same quality,

the higher the purchase posibility

Customers are very time-sensitive Customers always have second options

Suppliers with shorter lead times add up to the quality of their customer’s product

Although price is co-important, COST OF TIME is onemajor determinants of choice



1. Shortening Product Life Cycles

2. Customer’s drive for reduced inventories

3. Unpredictability of the Market makes reliance onForecasts Dangerous



The story of cell phones From analog (five years life cycle), to texting (3 years),

to polytones (2 years), to camera phones (1 year), to

smart phones, androids, tabs, notes (with a life cycle of approximately 1 MONTH!!!

Time needed to develop, introduce, and to meetdemand of the market has reduced significantly

Need to fast track product development,manufacturing, and logistics



The time for the new product to reach the market isNOT the only important aspect

Your ability to respond to demands

Your lead time to re-supply the market Exploit the demand during the life cycle

Suppliers with lesser order-to-delivery cycle has betterstrategic advantage over slower competitors



S A L E S

TIME

Introduction

Growth

Maturity

Saturation

Decline



S A L E S

TIME

Late Entrants

Obsolete Stocks



Logistics of suppliers upstream have been affectedpositively by more active consciousness on inventory costs of their customers downstream

JIT has become important among suppliers Effectiveness in the delivery is a number criterion in

winning the competition



Challenge = inaccuracy of forecasts

Despite different forecasting techniques, market is very volatile making forecasts wrong

The root cause: Forecast error increases as lead timeincreases

Competition, marketing and promotions, and pricechanges makes demand volatile

ALL FORECASTS ARE PRONE TO ERRORS The longer the horizon, the higher the possibility of

error



Automation helped shorten time required to produce But this resulted to inventories in their warehouses

Other companies think that long lead times produce

security and cover against uncertainty Demand could have shifted by the time the product

reaches its destination

Short lead time means more time to make adjustments

The requirement – look at every stage in the supply chain and fined opportunity for total lead timereduction



For Customers:

The time it took fromorder to delivery

For Suppliers:

The time it takes toconvert an order intocash

The time that workingcapital is committedfrom procurement of

materials to customer’spayment of orders

Cash to cash cycle



The Order Cycle Time (OCT)

Short lead time strategies offer good competitiveadvantage But suppliers need to be reliable and consistent on this

Each steps of the OCT will require time

Bottlenecks, inefficiency in the processes, andfluctuations in the volume of orders adds up to variations in the required time for each steps

CustomerOrders

OrderEntry

ProcessOrders

Productionof Orders

TransportOrders

CustomerRceives Order



Question among companies: “How long does it take toconvert an order into cash?”

How long is the whole system from sourcing of rawmaterials to production of the finished product? Throughout the system, resources are being consumed

and working capital needs to be financed

The true scope of lead-time management is to control

the WHOLE pipeline The longer the pipeline from source of materials to the

final user, the less responsive to changes in demand



Process linking manufacturing and procurement leadtimes to the market needs

It seeks to meet the competitive challenge of increasing the speed of response

Goals of Logistics Pipeline Management:

1. Lowering costs

2. Higher quality

3. Better flexibility 4. More responsive management to demands



Each step incurred creates benefit to customers These benefits are something that the customer is ready

to pay for

Any activity that contributes to the achievement of the

“main goal” could be classified as value-adding In other words, Value-Adding time are those that are

NECESSARY and/or ESSENTIAL

Unwanted processes MUST be eliminated

Brainstorm among key officers and agree on whichsteps are TRULLY value-adding Beware however, agreements may not be easily achieved



The Challenge to Logistics Managers: Find ways to improve the ratio of value-added to cost-

added time within the pipeline system

Value-added time_______

End-to-end pipeline time Remove problems along the pipeline

Examine in details the interfaces between thecomponents

X 100



Normally implies forecasting Although accuracy is almost always less than perfect

Mistakes in forecasting end up as inventory problem

Managers should seek for the perfect match between thelogistics lead time and the customer’s required order cycle Gain earlier warning of requirements through improved

visibility of demand

Procurement Manufacturing Delivery

Customer’s Order Cycle

Logistics lead time

Lead-time gap



Processes may be inefficiently performed along thelogistics system

Sub units within the system may NOT be concernedabout their impact with the others

Managers must identify opportunities for reducingend-to-end pipeline time

Essential starting point = construct a SUPPLY CHAIN

MAP



Time-based representation of the processes and activitiesinvolved in the system

Highlights the time consumed by inventory

The map distinguishes the “Horizontal Time” and the“Vertical Time” Horizontal Time: time spent in process

Vertical Time: non value-adding, cost-adding time

Non value-adding time may be self-inflicted (e.g. inventory

rules visible within the system) The basic principle: every hour in the pipeline is directly

reflected in the quantity of inventory in the pipeline, whichaffects the time it takes to respond to market requirements



Logistics processes can only be optimized by focusingon the total time

Attempt to optimize individual elements in theprocess leads to less-than-optimal result overall

The Theory of Constraints [Optimized ProductionTechnology (OPT)] Activities categorized as “Bottlenecks” or “Non-

bottlenecks” Focus on bottleneck activities to speed up total system

output



Extend the customer’s order cycle Seek to obtain early warnings of customer requirements

Look at the Demand Penetration Point Occurs at the point in the system where real demand

meets the plan

Upstream is driven by a forecast

Downstream responds to customer demand

Logistics management should seek to identify ways topush the demand penetration point as far as possibleupstream



Information exchanges within the logistics system

Gain early notice of customer requirements The Feed-Forward

The “Tip of the Iceberg” philosophy



Purpose of Supply Chain is to Balance the Supply andDemand, achieved through: Forecasting ahead of demand Creating inventory against the forecast

Additional capacity may be maintained if demand isgreater than forecast

There MUST be sufficient capacity/inventory to meetanticipated demand

Ideally, the fulcrum should be closer to demand. To do this, improve VISIBILITY of demand while

enhancing VELOCITY of the supply chain

managing lead times

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