What is Lead Time?
Lead time is the duration or latency between when a process is initiated and when it is completed. One example would be if a book is ordered by a publisher to be written and its estimated time until delivery is six months, then six months is the lead time.
The Benefits of Lead Time
Comparing against set standards – When an organization compares its lead time against set standards, the business could find the need to spot any inefficiencies.
Increased productivity – The shortening of lead times can help a business boost its productivity as well as modify its operations.
Competition – Being able to reduce lead time can give an organization a competitive edge.
Cost-saving – Being able to shorten lead times saves costs by cutting down on working capital.
Lower shelf-life items – Items with a lower shelf-life, such as perishables with a sell-by date, need a shorter amount of lead time. Cutting down on lead time helps ensure that these items are able to sell while they are purchasable.
How to Calculate Lead Time
The most common way to calculate lead time is by taking the order delivery date and subtracting from it the order request date.
Lead Time (LT) = order delivery date – order request date
In instances where you are dealing with inventory management, you will include the reordering delay and the supply delay. In instances like this, calculating lead time will look like:
Lead Time (LT) = supply delay (SD) + reordering delay (RD)
In manufacturing, Lead Time is refers to the length of time in processing, preparing, manufacturing, and delivering an order. In these situations, lead time is a metric calculated by adding the preprocessing, processing, and post-processing time lengths until the delivery of an order.
Lead Time (LT) = preprocessing + processing + postprocessing
What is Cycle Time?
Cycle Time is commonly defined as the actual amount of time that it takes to create a product or work a process.
The Benefits of Cycle Time
Increased profitability – When your organization puts an emphasis on Cycle Time to control the speed of deliverability, you reduce costs and increase profitability. By knowing how and where time is being spent, you can know where to implement cutbacks.
Production consistency – Having an understanding of Cycle Time gives you a better grasp of your production flow. With this information, you can implement processes that can give a greater assurance of production rates. With the standardization of production rates, there is less chance of over or underproduction.
Happy customers – By being able to properly calculate Cycle Time, you can determine your production rate and give more realistic timelines to your customers. That way, your customers are not getting your product or service later than expected.
Identifying needed process improvements – When reviewing Cycle Time, the opportunity arises to assess and address inefficiencies.
Better project scoping – If you understand the Cycle Time for your team to complete specific tasks, you are better equipped to accurately scope work for your customers.
Outpacing the competition – Calculating your cycle time puts your team at a competitive advantage by using the data to stay ahead of the curve.
Where to put focus – Understanding cycle time can show you what processes should receive the most focus in order to optimize the use of your resources.
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How to Calculate Cycle Time
With Cycle Time, you are figuring out how much work time it takes to complete a specific task, factoring out any downtime. Once you take downtime out of production, you have what is called net production time (NPT). In order to calculate Cycle Time, you are going to divide the net production time by the number of units produced.
Cycle Time = NPT / number of units produced
Lead Time vs Cycle Time: What’s the Difference?
Lead Time and Cycle Time are definitely related, but they are two separate things. A good way to remember how they are related is that Cycle Time can be thought of as a component of Lead Time. Lead Time refers to the amount of time between when an order is placed and when it is delivered, Cycle Time refers to only the amount of time when actual work is done to complete an order.
Lead Time vs Cycle Time: Who would use Lead Time or Cycle Time?
In all instances, keeping an eye on both Lead Time and Cycle Time is valuable for your business, as not only are they related, but having a clear grasp of the Cycle Time for the production of a good is a major determining factor in what the Lead Time will be. Other factors come into play when it comes to Lead Time, some examples being the ready availability of raw materials and shipping time. Nevertheless, knowing how long it takes to actually do the work is absolutely vital.
When dealing with a customer, it is unlikely that you would ever quote them the Cycle Time for the work. This is information that would generally be internal unless a customer needs a specific breakdown of all aspects related to their Lead Time quote.
Choosing Between Lead Time and Cycle Time: Real World Scenarios
A company has received an order of 500 units and is wanting a quote from the customer for when the items can be delivered. The employee taking the order takes into consideration how backed up the supplier is, the delivery time of the raw materials to the manufacturing plant, orders that are ahead of this one, the actual Cycle Time to complete 500 units, and the amount of time it will take to deliver the order once completed. After factoring all of that in, the employee gives the customer a Lead Time quote of 30 days.
Understanding both Lead Time and Cycle Time is important for your business because they help you have a fuller handle on your operations and processes from the inside out. Being able to use these formulas together puts you in the position of being able to give better estimates to your customers for how long receiving an order will actually be. Knowing the Cycle Time tells you how long it actually takes to do the work minus downtime, and knowing where adjustments can be made to Lead Time can help you trim the fat, make your customers happier, and get more business.