Author: Michael Gamper
Pile of Pallets behind delivery truck

The Problem Statement

Lead time is not static. Lead time is dynamic and depends on various factors. One of those factors is load. Load is the amount of work loaded into a fixed and available capacity. As capacity is consumed, any new work has to wait for free capacity slots. Hence lead-time changes with the amount of work loaded into capacity and when free capacity is available. Many ERP systems and companies work with fixed lead times because they cannot easily determine the time changing aspect of capacity load and the resulting variation of lead-time.

How is the relationship between Lead Time and Load defined?

The basic relationship between lead time and load is as follows:

Lead Time = f (Load)

Load = productive work + non productive work

Although capacity is available continuously, manufacturing companies manage and plan capacity using a time slot or a time bucket. Those slots or buckets can be daily, weeks, months or any other definition of a period of time. Looking at any time bucket, we have two basic work types consuming the capacity within the bucket. Those are:

Productive Work: is equal to the processing time, usually making pieces per hour or minute

Non productive Work: includes wait time, set-up, clean-down time, etc

Wait time becomes, in a fully loaded factory, a major driver of lead-time. This represents the time work needs to wait before the production resources are available and can start the set-up and processing.

Is there a minimum Lead Time?

Yes, there is a minimum lead time. Let us assume that a factory is completely empty and set up, hence there is zero wait time due to queuing, then the lead time is only dependent on the process (or production) batch size, ie the number of units produced, and processing time per unit.

One approach to reduce the minimum lead time is to use the transfer batch method developed by Eli Goldratt. Rather than waiting for the entire process batch to be finished, a number of units once completed are already moved to the next work station for being processed further. This number of units transferred is called the transfer batch and represents a number less than the process batch. Using this method decreases the total process lead-time for the completion of the entire batch by removing wait time.

How to reduce Lead Time?

There are 3 basic ways to reduce lead-time, either through inventory, capacity or the reduction the time a productive or non-productive activity consumes. We focus in this paper only on the impact of capacity on lead-time.

The 5 following approaches can be used to manage the capacity and lead-time relationship:

  1. Multi-Sourcing – Manage capacity dynamically within a time slot through using alternate capacities as an overflow capacity. For high volume items is the correct approach for ensuring that items are supplied within defined lead-times.
  2. Dynamic sequencing – Ensure that the quality of load only reflects supply serving needed demand. Pulling forward demand to load factories prevents a factory from serving short term demand variation.

    a. This will lead to replacing more dynamically the work loaded in the near term with more needed demand and push other, less needed work out.

    b. This is common practice in the automotive industry, customer orders are slotted against constrained capacity to determine the delivery date (see also paper on attribute based planning) and vehicle orders for stock are replaced by real customer orders

  3. Implement campaigning strategies to reduce setup time and increase productive capacity available for work within a given time slot.
  4. Reduce non productive capacity used through application of, for example, the SMED (Single Minute Exchange of Dice) method.
  5. Manage pro-actively the OEE (Overall Equipment Efficiency) and make available more productive capacity within a time slot.

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