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Lead Time Considerations in Manufacturing

Lead-time to produce a product is generally based on producing and/or acquiring the components and then assembling them. However, lead times in manufacturing a product should have more to do with how often the product changes than how much money is tied up in inventory you are willing to carry.

Let me explain…

Some years ago, the company I was working for produced 10,000 product “kits” in a single production run. One of the principals of the company was extremely proud that these “kits” cost only $20 each. This was a fallacy, since before less than half the kits were distributed, we’d be modifying the BOM and “re-kitting” them with new components at substantial cost. The cost to constantly change or scrap unused inventory led me to introduce a Just-in-Time manufacturing approach with a different supplier. I could never get the principal to understand the hundreds of thousands in savings, since all he could fixate on was the original price of $20 versus the new price of $40 per kit. His thinking was that it had to be cheaper to produce mass quantities than just one, my answer is that there are hidden costs, not only that, HOW you manufacture something has lead time considerations. Besides, in my view, we only made what we sold.

2018-08-10 10_14_51-Cash Flow Report Blog Post - Google Docs-1He wasn’t thinking of the scale of manufacturing required to do this either, nor the engineering change process, nor warehousing costs, etc. So, before you commit your product to manufacturing and ask the age old question – “What’s the lead time?” – I’d ask you to work backwards from the customer’s expectation of delivery and answer a few more internal questions such as:

  • What’s the sales forecast and over what period of time?
  • How often is the product likely to be modified in that period?
  • Will the distributor/customer assume the cost and commit to the entire run?
  • How much $ am I willing to tie up in inventory?

Talk to a Manufacturing Expert

Yes, you can make the lead time shorter if you are willing to invest in how you are manufacturing product. Lead times are a balancing act of setting customer expectations, costs, and logistics. A more recent employer of mine makes luxury powerboats with a six-month lead time where the customer is required to pay installments as the build comes to fruition. There is no inventory without a customer commitment – so different approaches in different industries. The moral of the story is that when someone wants something immediately, there’s a cost!

Don’t let lead times control costs – control the manufacturing process and customer expectations instead.

About the author: Peter d’Anjou is an American Production and Inventory Control (APICs) certified production and inventory control (CPIM) qualified professional with experience in New Product Introduction, Purchasing Management, manufacturing system integration and outsourced vendor management who has helped coordinate & transition companies’ manufacturing growth strategies.

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