Reducing Production Lead Times to Improve Supply Chain Performance

In our ongoing discussion about reducing the “ToC Replenishment Time” as a factor in cutting away at the many troubles that afflict supply chains, we will continue to look at ways to reduce Production Lead Times (PLTs).

Remember, the ToC Replenishment Time or Theory of Constraints Replenishment Time is the sum of the following factors:

1. Order Lead Time (OLT)
2. Transportation (or Shipping) Lead Time (TLT)
3. Production Lead Time (PLT)

See the previous articles for more details.

More Ways to Reduce Production Lead Times (PLT)

We have already discussed two ways that supply chain participants who buy from manufacturers and assembly operations (without doing any manufacturing or assembly themselves) can contribute to reducing PLTs.

First we talked about how longer Order Lead Times (OLTs) contribute to longer Production Lead Times (PLTs). Next, we talked about how actions might be taken to reduce or eliminate policy-induced demand variability. So, what else can be done by supply chain executives and managers to aid in reducing PLTs?

1. Place orders with the manufacturer every day reflecting actual demand. We already discussed this in conjunction with reducing OLTs and providing greater visibility of actual demand to the manufacturer, but it is worth reiterating here as a separate element in building the kind of supply chain agility that rapidly improves supply chain performance for all the participants in such a plan.
2. Disconnect the size of the replenishment order from pricing. Collaboratively work out agreements regarding long-term (six months or longer, where appropriate) purchase quantities and long-term pricing. This will add stability to your collaborative supply chain arrangements while allowing replenishment orders and transfer batch sizes to balance the flow (not the inventory) in the supply chain.
3. Reduce the size of transfer batches everywhere in the supply chain. Wherever possible, work collaboratively to reduce the size of transfer batches. The ideal—not achievable in all cases—would be to aim for transfer batches that approximate actual daily demand on a SKUL (SKU-Location) basis. Encourage your manufacturers to consider cutting production batch sizes dramatically wherever additional setups will not add actual costs to production. [Note: Additional set-ups in work centers that are not capacity-constrained in meeting actual demand generally add no actual cost because no additional labor is added to the workforce to accomplish them. At least this is true up until the additional set-ups begin to make the resource or work center capacity-constrained when measured against actual demand.]
4. Encourage manufacturing and assembly operations in your supply chain to adopt Theory of Constraints (ToC) solutions. ToC methods and POOGI (process of on-going improvement) will help the manufacturing operations in your supply chain balance flow with demand while making them also more stable through improved profits. And, the good news is that the manufacturers’ improved profits will come from internal improvements, not higher prices in the products you buy from them. In fact, your cost of goods from these manufacturers may actually fall as they uncover and leverage excess capacities in their operations.

These combined options—or almost any combination of them—effectively implemented should cause PLTs to begin dropping significantly in a relatively short period of time. This should lead to an improving balance in the flow within your supply chain and diminished supply chain troubles.

In our next article on supply chain troubles and what you can do about them, we will discuss simple, yet effective, ways to determine just how much stock you should keep at each SKUL (SKU-location).

In the meantime, we would like to hear about your progress in improving your supply chain and the methods you are using to achieve your improvement. Please leave your comments here, of feel free to contact us directly, if you would prefer.