Lead Time is one of those terms many speak about having different interpretations and meaning. When speaking about LT everybody should be aware of what he wants to describe.
Lead Time – A simple Explanation
Lead Time Basics
Though nobody should care if lead time is used in the right way or not unless others knows what you speak about. Also the term Throughput Time is an often used term describing something very similar to lead time though differences between both exist.
Imagine going to a fast food restaurant. Once you place an order, let’s say a hamburger, employees of the restaurant start to produce your order. If we take the time from placing the order until you receive your hamburger you will finally get the lead time of that product. At McDonald’s for instance the lead time is around 90 seconds depending on the product you order though we know some components of the hamburger are already prepared ahead, like the meat or sauces.
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Lead Time in Industry
If we apply same thinking on a manufacturing company we get a better feeling about the actual meaning of lead time. Similar to the case of our fast food restaurant above, the costumer comes with a customer request. At that moment we start with the LT measurement. Let’s see what the production is doing based on the customer order.
Unless no finished goods are on stock we have to pick all raw materials from our storage and bring them to the manufacturing cell. In here it takes manufacturing time to finished the goods according to the customer needs. Once the finished goods are available and ready to be shipped to the customer we can stop with our LT measurement. During that time we have seen transportation time in our business, waiting time in terms of work-in-process condition, stock, buffer, handling, movement and so on – as well as manufacturing time which is the actual value-adding time, scrap, rework and all other sort of things delaying the shipment of the requested goods.
Lead Time vs. Throughput Time
What was described before is the actual LT. In this case the lead time is equal to the throughput time of that product – but not always. The throughput time is quite easy to get. You could mark a raw material part once you receive it and measure the time until that marked part leaves the company manufactured into a finished product. The throughput time always can be measured like this whereas the LT(the time from receiving the order until shipping) can vary. Once you have semi-finished or finished goods on stock the lead time can be far less. But be careful, that is no invitation of keeping high stock levels but more a well-intended thought of where you have to tweak your process flow. The vision has always to be to keep lead and throughput time as low as possible. If your LT is above 4 weeks think about ways to significantly reduce lead and throughput time to less than 1 week.