Reducing Lead Times
How does reducing lead times increase profits?
Today's market is different in many ways than ten years ago. Ten years ago if you lowered your Lead times from months/weeks to days you were undoubtedly creating a significant advantage. It is not so clear today how lower lead times help us increase our customer base.
So today to understand the voice of the customer you may seek advice from your Vice President of Sales to help define the edge that will increase your market share. He may respond like many in your industry and say, "Lower our lead times to days instead of weeks", or "Price, our customers are not loyal the demand has dropped dramatically, it is all about our prices".
Some may say it is our product offerings that prevent market penetration. There can be a number of issues that prevent growth, product quality, cost, delivery. So why, focus on lead times if it does not necessarily improve market growth?
Let's review a company that has had a shrinking market to see how their focus on reducing lead times has improved their profits. One example is Pratt & Whitney aircraft engines located in East Hartford, Connecticut.
Pratt & Whitney sales have been flat or declining since 1990, however their ability to make shareholders profitable has been steadily improving. A major reason for their success is attributed to adopting Lean Principles based on the Toyota Motor Corporation Production System. Pratt & Whitney has a different approach than their counterpart GE.
General Electric has been promoting emphasis on Six Sigma (quest for zero defects). Some other companies place emphasis on "Cost Reduction Programs", they all seem to fall short. We need a united front like Pratt & Whitney to relentlessly pursue satisfying customer needs by lowering lead times. In order to make money by lowering lead times we will have to abandon the ideas of having warehouses full of Just in Case inventories.
Our approach is simple:
Stay flexible to all the variations that customers demand by removing all the obstacles that cause our lead times to be long. Create an organization that can produce what the customer needs in the right quantity when needed with the least amount of resources (manpower, material, machines, space, capital). Measuring lead times indicates your ability to remove wastes from your processes.
So how do we make money?
We start by creating an endless desire for waste elimination. Reducing lead times is a results of waste elimination efforts that improve: Safety, Quality, Cost, Delivery and Morale simultaneously. Relating back to he comment above about GE, do you think they are profitable? Imagine how much more profitable they would be if their emphasis was "Lead-Time Reduction" and attacking all of the seven wastes not just defects.
Critical factors of customer satisfaction:
- Time to Introduce New Products
- New Product Development time
- Time it takes to Quote a Customer
- Time it takes to process an Engineering Change
- Time to Enter an Order
- Time it takes to implement corrective action