Shorter lead times are always a good thing. In many markets, the ability to deliver sooner will win business away from competitors with similar product features, quality and price. In other markets, quick delivery can justify a premium price and will certainly enhance customer satisfaction. In all cases, shorter lead times increase flexibility and agility, reduce the need for inventory buffers and lowers obsolescence risk. Lead times are cumulative and bi-directional—that is, order handling, planning, procurement, inspection, manufacturing, handling, picking, packing, and delivery all contribute to the lead time; and the time it takes to get signals down the supply chain to initiate each activity adds to the overall time it takes to get the job done.

Inflexible business rules and policies can drive undesired effects. Purchasing rules too focused on unit cost lead to large quantity buys that result in high inventory and long lead times. Ironically, this type of buying can also lead to shortages, since longer lead times mean you will be making and buying to a less accurate forecast. The best combination of price and lead time often comes from a stable buyer-supplier collaborative relationship based on long-term contracts with deliveries according to a forecast that is shared with the supplier and updated frequently.

The same is true on the customer side. Instead of focusing on securing large, one-time, single orders that clog up the supply chain, companies must focus on creating long-term contracts with customers and sharing forecast information with customers to reduce lead times. The same issues concerning large lot sizes also apply to internally produced parts and products. Large lots, driven by a focus on lowest unit cost, raise inventory and lengthen lead times while reducing flexibility and responsiveness, increasing eventual cost through premium expediting instead of using large fixed lots, companies must dynamically adjust the lot size based on market demand, product mix and capacity. Ongoing continuous improvement efforts focused on reducing setup times can help companies reduce lot sizes, which provides flexibility in responding to market demand.

Appropriate measurements contribute to high performance on the plant floor. On-time shipment and inventory turns are good examples of high-level measures that tie to company objectives. Focusing on isolated measurements like equipment utilization on non-constraining resources encourages “busy work” that creates excess inventory and longer lead-times. Shop floor measurements must encourage overall performance—shipping orders on time at minimal total cost and minimal total cycle times. Performing manual transactions often slows down the supply chain and adds to lead time. Reporting transactions at each operation or creating a paper purchase order before suppliers work on a component are just two examples. In addition, manual transaction reporting often introduces errors and impacts work productivity. Companies must eliminate non-value added transactions and automate transactions to speed up the supply chain. For example, backflushing can be used on the shop floor, and supplier purchase orders can be electronically sent or completely eliminated using Supplier Relationship Management (SRM) solutions.