Cycle time reduction is one of the most important elements of successful manufacturing today. More and more customers are demanding that manufacturers quickly respond to their wants and needs, deliver perfect quality products on time. This trend, which will continue, has led companies to focus more attention on their order-to-delivery cycle time.
Order-to-delivery cycle time reduction is often a good place to start in the overall effort to improve operations because it can often be done without heavy capital investment. Clearly, long cycle times cause high inventories, higher cost, and poor customer service. As a result, many manufacturers are streamlining internal and external supply operations to reduce overall order-to-cash cycle time. Some have even undertaken initiatives to extensively redesign and streamline the entire supply chain process.
Customers Want Cycle Time Reduction
Customers generally evaluate a supplier’s performance on four factors: product performance (features), price, quality, and delivery within a reasonable time. Now customers are increasingly emphasizing two additional performance criteria: flawless delivery, that is, very short-cycle on-time delivery, and responsiveness to the customers’ changing needs. In fact, flawless delivery and responsiveness can very often be the difference in getting new customers and keeping old ones.
In the past, manufacturers made products and stored them in Finished Goods Inventory (the “make-to-stock” mode) and waited for customers to place orders to buy them. In this “push” production model, large runs of batches of products are produced using highly inaccurate sales forecasts.
In contrast, today, it is the customer who largely dictates what products are manufactured and when. The customer says: “I’ll let you know what and how many I want, when I’m ready to buy, and then you ship it exactly as I want the product configured, and in a very short lead time.” This trend has already contributed to the adoption of short cycle, pull-oriented lean manufacturing models, where products are made to customer demand, (sometimes called “demand flow manufacturing” or “mass customization”).
A major consequence of this trend is that CEOs and others in top management are revisiting their existing strategies and operational tactics. That in turn has led many to pursue new initiatives and directions, including:
Demand Management—Using improved sales forecasting processes and sales and operations planning processes to give top management a better handle on demand and supply.
Cross-functional Integration—Redesigning order-to-delivery and other key processes to connect processes across the enterprise.
Lean Manufacturing—Radically redesigning information flow and material flow processes with dramatically shorter cycle times, lower costs, minimum inventory, and near perfect delivery performance.
Supply Chain Management —Implementing supply chain planning, execution, and event-level alert systems, sometimes in conjunction with other modern information technology. As customers up the ante by insisting orders be promptly delivered and at a precise time, reducing cycle time becomes the pivotal point in a supplier order-to delivery performance rating. A shorter order-to-delivery cycle time also has other implications, including reduced inventories, lower costs, and more effective use of resources (see Figure CTR-1).
In addition, experience has shown that production throughput can improve dramatically once the order-to-delivery cycle time is substantially reduced. An added set of benefits affects the bottom line in lower operating expenses, dramatically decreased requirements for working capital, and increased profit margins.
What Makes Cycle Times Longer?
Many different processes, not just the manufacturing process, contribute to long cycle times. While all the delay may appear on the factory floor in the form of waiting (often more than 95% of the order-to-delivery cycle time consists of waiting), the causes for those waits stem from various processes both internal and external to manufacturing. When order-to-delivery problems are properly diagnosed, management almost always finds that one or more problems have contributed to the delay.