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In manufacturing, understanding how much time it takes to receive orders, make products, fill orders, and send orders out to customers can provide vital information regarding the overall efficiency of business operations. If a task takes too much time, it could indicate potential problems.
Conversely, when a high number of items move through the production line, it may indicate that overall operations are meeting business goals. Cycle time and lead time are key performance indicators (KPI) calculations to determine manufacturing progress and production times. Below, we'll explore how to calculate lead time and cycle time and how understanding these metrics can benefit your manufacturing business.
Cycle time is the amount of time it takes for a task to be completed, from start to finish. It's a measure of the time it takes to complete one cycle of a process.
Lead time is the amount of time it takes to deliver a product or service to a customer, from the moment the customer requests it to the moment it's delivered.
Cycle time is the time it takes to complete a single task, while lead time is the time it takes to deliver a product or service to a customer.
Lead time includes the time it takes to complete all the tasks involved in producing and delivering the product or service, not just the time it takes to complete a single task.
Cycle time and lead time are important metrics in process improvement and project management. They help identify bottlenecks, inefficiencies, and areas where improvements can be made.
Ready to be an expert in this? Let's dive into the specifics.
Cycle time is a lean manufacturing metric using kanban methodology to calculate the amount of time it takes for a specific task or product to be completed. Cycle time starts when the item moves into the progress stage and ends when the item is completed and received by the customer. It may involve one product in the manufacturing line or several products in one customer order.
Calculating cycle time is relatively simple, and it can be done by dividing the total time taken to complete a process by the number of units produced in that time. For example, if a team completes ten units of work in two hours, the cycle time for each unit of work is 12 minutes (120 minutes divided by 10 units).
You can calculate cycle time with the following formula:
Cycle time = Net production time / Number of units produced
To calculate cycle time accurately, it is essential to identify the start and end points of the process. The start point is typically the moment when the work enters the system, and the endpoint is when the work is delivered to the customer. It is also important to define what constitutes a unit of work, whether it is a single task, a complete product, or a specific process step.
Once the start and end points are identified and the unit of work is defined, you can start measuring the cycle time of the process. The goal of calculating cycle time is to identify bottlenecks in the process, improve efficiency, and reduce waste. By tracking cycle time, organizations can identify opportunities to streamline their processes and improve their overall productivity.
When you know about the standard production rate of operations, you can discover any abnormalities that may occur when changing processes or experiencing equipment malfunctions.
You may change your production process to streamline the workflow, such as removing a redundant task, so you can more consistently meet (or ideally, exceed) customer expectations.
Cycle time metrics provide you with valuable data when you want to adjust the lead time for processes due to certain factors, such as raw material shortages or inclement weather (which plays a role in how long it takes for products to reach customers).
By measuring and analyzing cycle time, businesses can identify areas for improvement and implement changes to reduce cycle time and increase efficiency. This helps businesses stay competitive by improving their processes, reducing lead times, and delivering products or services faster and with higher quality.
By knowing how long it takes to complete a specific task, businesses can better allocate their resources, including labor and equipment, to optimize productivity. This can result in cost savings as businesses can avoid overstaffing or underutilizing resources. Furthermore, by understanding the cycle time of a specific product or process, businesses can estimate the delivery time to customers, which is crucial for meeting customer expectations and maintaining customer satisfaction.
As an example, let's say you have a manufacturing company that makes chairs. The production line may make 200 chairs during a full 40-hour work week. To determine the cycle time, you would take the total number of operational hours for that week (40) and divide it by the number of chairs produced in that time (200):
Cycle time = 40 hours / 200 chairs
Cycle time = .2 hours
This measurement indicates that it takes .2 hours to make one chair, which would be considered the throughput, or the average time it takes to make products to meet customer demand.
Because ".2 hours" may not be the most straightforward measurement, it may make more sense for your business to look at cycle time measures in terms of minutes. To convert your cycle time hours into minutes, multiply .2 by 60 (since there are 60 minutes in an hour), which gives you a cycle time of 12 minutes.
Lead time is a metric used to measure the time it takes to complete a process from the moment a customer request is made until the request is fulfilled. Unlike cycle time, lead time considers the time it takes to receive and process a customer order, in addition to the time it takes to deliver the items.
Lead time is an important metric for businesses to measure because it provides valuable insights into the efficiency of their processes and allows them to identify areas that need improvement. By measuring lead time, businesses can determine how long it takes to fulfill customer orders, which can help them make better decisions about inventory management, production planning, and customer service.
Lead time may be different depending on your specific operations. In the case of manufacturers, you would only count the time it takes to procure materials and orders, perform the work in progress, and ship the finished items out. If you were a retailer, you would only need to calculate the procurement and shipping times. The formula that manufacturers can use to calculate lead time is:
Lead time = Procurement time + Manufacturing time + Shipping time
In essence, calculating lead time requires measuring the time it takes for a task or product to move from the start of the process to its completion. This includes all the steps involved in the process, including any waiting time or time spent in queues. To calculate lead time, you need to choose a specific starting and ending point and track the time taken for the product or task to travel between them.
For example, if you're calculating lead time for a manufacturing process, you would start measuring from the moment a customer places an order and end the measurement when the finished product is shipped out. This would include all the time spent in the different stages of production, such as procurement of raw materials, actual manufacturing, quality assurance, and packaging. If there is a backlog of orders or a queue of products waiting to be processed, this time should also be included in the lead time calculation.
It's important to note that lead time is a dynamic metric that can vary depending on the workflow, process efficiency, and other factors. Therefore, it's essential to track lead time consistently over time and identify the factors that impact it. By doing so, you can identify opportunities to improve your processes and make them more efficient, which can ultimately lead to better customer satisfaction and business success.
Calculating lead time can provide several benefits to an organization, including:
Lead time allows you to understand the entire scope of production processes, giving you a greater understanding of the entire supply chain.
In addition to improving production processes, lead time may also help you make improvements when selecting raw material suppliers and transportation companies to deliver shipments.
By calculating and reducing lead time, organizations can deliver products or services to customers faster, increasing customer satisfaction. Customers are more likely to return to businesses that provide quick and efficient service, leading to improved customer retention rates.
Accurate lead time calculations enable organizations to better plan and forecast their operations. By understanding the time it takes for products to move through the entire production process, companies can better anticipate when products will be available for sale or delivery, and adjust their plans accordingly.
Organizations that can deliver products or services faster than their competitors can gain a significant competitive advantage. By tracking and reducing lead time, businesses can increase customer loyalty, attract new customers, and gain a reputation for speed and efficiency.
Let's calculate the lead time for our hypothetical chair manufacturing business from above. The manufacturing time is 200 chairs in one week (seven days). It takes four days to procure all the raw materials needed to make the chairs, and six days to deliver the chair to the customer. When plugged into the formula, the lead time calculation is as follows:
Lead time = 4 days procurement + 7 days to manufacture + 6 days for delivery
Lead time = 17 days
Cycle time vs. lead time: What separates them? While the main similarity between cycle time and lead time involves measuring how long operations processes take, key differences remain between these two metrics.
Cycle time primarily looks at the length of the manufacturing process from the manufacturer’s point of view, while lead time considers the process from the customer’s point of view and is delivery-focused. That said, the numbers do play off of one another. You may use the data gleaned from cycle time to make improvements with operations to improve customer satisfaction. Meanwhile, you may use lead time to improve both customer and supplier relationships in the supply chain.
Another key difference between lead time and cycle time is the human factor. While cycle time may be a more stable metric to determine, lead time depends on how frequently customers place orders, and suppliers' schedules and project management workflows—all of which are human factors that could vary greatly. Cycle time is completely controlled by your company, while factors like shipment delays are typically out of your control when tracking lead time.
Each metric has its place. Since procurement time is not factored into cycle time, it's always advisable to use the lead time when calculating estimates for deliveries. Cycle time only starts when you have the raw materials on hand to begin making products. As a result, cycle time doesn't offer much insight into how long it will take your operations to deliver a product to a customer.
Cycle time and lead time are two important metrics used in process management, but they measure different things. Cycle time refers to the time it takes for a single unit to move through a process, while lead time measures the time it takes for a customer to receive a completed unit after placing an order.
It's important to note that cycle time does not include lead time, but lead time includes cycle time. This means that cycle time is just one component of lead time, which also includes the time it takes for an order to be received, processed, and shipped to the customer.
When considering cycle time vs. lead time, understand that they work together by providing you with necessary production and supply chain data. To calculate lead time accurately, you must have a good understanding of your cycle time. Both metrics allow you to measure operations based on minutes, hours, weeks, days, and even months, depending on what improvements or changes you want to make to your business. With both metrics, you may find opportunities to lower lead times and cycle times without impacting product quality. You may also eliminate waste by reducing redundant work processes and automating tasks.
Cycle and lead time tracking gives you a greater understanding of how long it takes to run through your entire manufacturing process—or how long it takes to make and deliver specific quantities of products during a certain period of time. For businesses that experience seasonal rushes and lulls, this is particularly helpful to be aware of. During peak sales seasons or when running promotions, you may want to adjust lead times to meet the rise in customer demand. By improving cycle time to make more products, you may be able to meet the increase in orders without overstocking on products. Then you can give customers realistic lead times so that they know when to expect their shipments.
You may also take these metrics and compare them to competitors within your industry to see where you stack up. Industry benchmarks vary widely, so be sure to determine your industry standards for lead time and cycle time before comparing them to your business's operations. Analyzing where your organization stands compared to competitors and industry standards can help highlight gaps, bottlenecks, or redundancies in your workflows, making these issues easier to address.
Both cycle time and lead time are important metrics that can be used as key performance indicators to help measure how effectively your company uses up operational time. With these metrics, you can find potential bottlenecks within your operations and address them more quickly and efficiently. These bottlenecks could result in longer cycle and lead times, so eliminating them is an excellent way to improve overall efficiency within your business and reduce waste that raises costs.
At Amper, we offer machine monitoring and operational analytic tools for manufacturers of all sizes. Machine monitoring tools allow companies to gain greater visibility into how their equipment is performing—at all times—using non-invasive sensor technology.
By gathering this real-time data with machine monitoring tools, you can gain greater insights into how long it takes your equipment to produce goods so that you can calculate accurate cycle times and lead times. Learn a little more about our product!
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