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.
What Is Cycle Time?
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.
How To Calculate Cycle Time
You can calculate cycle time with the following formula:
Cycle time = Net production time / Number of units produced
Example of Cycle Time
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.
Benefits of Calculating Cycle Time
- Production rate transparency: 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.
- Production modifications: 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.
- Lead time Adjustments: 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).
What Is Lead Time?
Lead time is another manufacturing metric that helps calculate the total time it takes for orders to be completed and shipped to customers. 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.
How To Calculate Lead Time
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
Example Of Lead Time
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
Benefits of Calculating Lead Time
- Snapshot of production processes: Lead time allows you to understand the entire scope of production processes, giving you a greater understanding of the entire supply chain.
- Supply chain improvements: 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.
How Do Cycle Time and Lead Time Work Together?
Lead time and cycle time 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 — thus, making these issues easier to address.
Differences Between Cycle Time and Lead Time
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.
How to Calculate More Accurate Cycle Time and Meet On Time Delivery Targets
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 more here.