From time to time, I like to look at some of the LinkedIn conversations and put down a few comments on them from my point of view. They can be a bit lengthy, I like to take some time and in this blog and go into some more detail. This blog item appears in LinkedIn, but is also available on Roland Lester's website. The link is at the bottom. It's an interesting perspective on production lead time (not project lead time).
Lead time, from a customer’s perspective, lead time is the time from when you made a commitment to the customer to the day you have committed to deliver that product. Lead time is a basic element of customer value. "How long will it take to get?" is usually the second question asked after "How much is it?" If you cannot deliver a product in an acceptable amount of time, a customer will see no value in your product, and will buy a similar product from a competitor who promises shorter lead time.
For retail, instant gratification detects that this lead time essentially be zero, and the customer is willing to spend more money to slake that thirst. Having the ability to both have and maintain that inventory so that lead time is zero makes a happy customer and generates profits.
At the same time, promising a deliver date and failing to meet that date on a consistent basis with a customer deteriorates customer value, since it is seen as an inability to keep a commitment. Your customer may be willing to pay more to a competitor who delivers on time, leaving poor reviews and bad comments in their wake. In the age of instant, widespread communication, having a bad reputation for on-time delivery can leave a long shadow, even if you have a large share of the market.
So lead time is important because it impacts profitability, demand, and customer value.
For lead time, the buffer is primary time, not parts, at least from a customer perspective. This is because they typically place a single order for a number of products. Having two parts when the order is for three might no be so bad if their are parts in the time buffer, we know parts are in the pipeline, and we know, with certainty when they will arrive. We can deliver the third product tomorrow by noon may be acceptable to the customer, as long as we manage the time buffer well.
Lead time, in Roland's blog article, is focused on production, not on project management, engineer to order or manufacture to order. If we were to consider ETO or MTO, we would have to use a project management analytical tool, because of its complexity across multiple projects, resources, prioritization, variation, etc., which cannot be managed with a rule of thumb. It requires a tool that understands Critical Chain, handles variation, creates time buffers, and allows for “What If’ capability to understand the cause-and-effect for potential solutions to reduce lead time.
Lead time for production also requires an analytical process as manufacturing becomes more complex and conditions, such as demand, change more rapidly. The eleven points that Roland mentions in his blog and the ability to control them affirms this complexity. Like it or not, MRP system are in place in most of our manufacturing systems. One solution is to move MRP methods from a forecast based solution to a demand based solution, as in Demand Driven MRP. DDMRP, without going to the details, has the analytical ability to manage this complexity and give useful and profitable result. Take a look at https://www.demanddrivenmrp.com/ to understand this method in more detail, check out the LinkedIn conversation, or pick up a book on Amazon.
So lead time is a commitment to our customer that drives customer value, demand, and profitability. But rules of thumbs or intelligent guessing don't cut it anymore as far as managing and reducing lead time. We have to understand the system, and its dependences, we have to understand the variation that comes with the system, and we need a useful analysis tool to help set priorities and make decisions. Sounds like a great topic for a book.