Since introducing time-to-market as a concept in 1995, shrinking time-to-market has been a driving force in new product development. Companies use multiple methods to take time out of every step from start to finish of the product development process. Many management consultancies and a mountain of textbooks have sprung up to cover this topic. The significant progress made in this area has changed the expectations in the boardroom and with consumers. And yet, one schedule-related part of the product development process is still a thorn in the side of companies bringing products to market — lead time.
Anyone who has brought a product to market in the past has been in a scheduling meeting and asked, “It will take how long?” when a supplier shares their estimate of lead time. And, like many things in the world of consumer products, the pandemic and subsequent supply chain upheaval have produced long lead times.
This article focuses on helping to make this thorn, lead times, less prickly in your side. The first place to start is understanding what lead time is and how it impacts product development, marketing, and sales. Next, we will cover how to know your lead times accurately and shrink them. Through all of it, we will talk about the importance of planning, having inventory throughout your supply chain, and where logistics pull it all together.
What Is Lead Time?
Lead time can refer to any step in your product development process and is the amount of time between the start of any process until you have a finished product.
It is called lead time because of how it is shown as a line leading to a milestone. When you map out everything that has to happen, you start with the major events, called milestones, in your schedule. For product development, these are things like finalizing the design, parts arriving, or product shipping. To figure out how long everything will take, you then add the time it takes from initiation to completion for each of those events. This is the time before the milestone, the number of days, weeks, and months leading up to the critical schedule event.
The Many Different Flavors of Lead Time
Although most people think of manufacturing when they think of lead time, it applies to every step in the product development process. Some common types of lead time in product development are:
Material Lead Time
The amount of time it takes from purchase order to delivery.
Development Lead Time
The amount of time it takes to deliver usable software for your product.
Production Lead Time
The amount of time it takes to make your product from when you start making a production run until it is on the loading dock and ready to be shipped. Sometimes called manufacturing lead time.
Procurement Lead Time
The amount of time from when a purchase order is issued until you can sell the product to a customer.
Customer Lead Time
The amount of time it takes to fulfill customer orders.
Order Lead Time
The amount of time it takes for you to receive something you ordered or for a customer to receive their order.
Design Lead Time
The amount of time required to go through all of the product development steps up to manufacturing handoff.
Phase or Task Lead Time
The amount of time required for a phase or a task when using work breakdown structure (WBS) to plan a project.
Regulatory Lead Time
The amount of time needed to complete regulatory and other government-imposed tasks.
Shipping Lead Time
The amount of time it takes to get an object from one location to another.
Cumulative Lead Time
When you add all the lead times up, you get cumulative lead time.
There are many more. If a task takes longer than a few minutes, it has a lead time.
Why You Need to Accurately Calculate Your Lead Time
The concept of lead time is essential in product development. The length of time things take drives cost, and not just money spent on people, infrastructure, and materials. Longer lead times can also drive up opportunity costs. How long things take and how much everything costs can only be understood and minimized if you know what you are working with.
Lead times also play an important role after you start selling because longer lead times impact your bottom line. And when processing time, shipping time, or any part of the production process changes (like during a global pandemic), that costs you money and maybe even customers.
Also, because there is a cost associated with longer lead times and savings when you reduce cycle time, accurate product pricing requires accurate lead time forecasting.
Experts in project management obsess about lead time to avoid problems caused by delays. They also work to minimize lead times to deliver a significant competitive advantage. Shorter lead times allow you to get more done with the same resources. As an example, if your lead time for product research is usually six months and you make improvements to get the time down to three months, you can now research two products with the same resources.
By knowing your lead time you also avoid wait time. You don’t want any of your total lead time to include waiting for one or more supplies you need to show up. If you know how long it takes for your vendor’s order fulfillment, you can plan ahead and order everything at the right time so there is no waiting around.
How to Predict and Track Lead Time Better
The first part of managing lead time is accurately estimating how long things will take and then tracking how long it took. In an ideal world, everyone involved in your project does precision forecasting, and you assume no shortages or unexpected delays. This almost never happens.
More often than not, you miss something, you get a workflow wrong, or your raw materials become hard to find. Shortages and labor issues can also toss a wrench right in the middle of what you thought was a perfect lead time calculation. In fact, lead time calculating is a science in and of itself.
Here are some suggestions to help you and your team consistently develop accurate lead time forecasts:
1. Implement Top-Down and Bottom-Up Estimation and Resolve Any Differences
Have a knowledgeable person estimate the lead time by looking at the big picture. Then have someone else assign time to each step in the process and add that time up. Both top-down and bottom-up methods should be close. If they produce two very different time estimates, something is missing and you need to find the mistake and try again.
2. Get Competitive Estimates
Obtaining estimates from multiple sources achieves the same thing as comparing bottom-up and top-down lead time estimates. If they disagree, spend time understanding why and eliminate flawed assumptions or mistakes.
3. Make Vendor Estimates Contractually Binding
People tend to be more accurate when money is on the line. Penalties for late delivery or bonuses for meeting or beating estimates can make vendors guess less and spend time on accuracy.
4. Gather and Use Data
Use data from a given product’s production or from a similar product to make more accurate estimates. Focus on items that affect lead time. Big data and AI are also finding their way into lead time estimation.
5. Understand the Lead Time of Inputs
Almost every step in product development involves some input — information, data, raw material, supplies, training, etc. Get lead times for each input and include that in your estimate.
6. Monitor, Check, and Check Again
Lead times are not static. They start as an estimate then deviate from what you expected. By the time you know the actual lead time, it is too late. Keep checking and refining your lead time forecasts.
What Are the Best Ways to Reduce Lead Time?
Now that you have an accurate estimate of your lead times, you can optimize. Every situation is different. However, in general, these ideas can help you get your product into the hands of customers faster.
1. Spend More
If you want to reduce lead time, look at ways you can invest money upfront to get things done faster. In its most basic form, this entails paying vendors an expedite fee. But it could also be paying more for faster shipping, keeping a bigger inventory, or investing in improving a process.
2. Go Parallel
You do not have to complete tasks one after another. In project management, you spend a lot of time understanding and documenting dependencies. If one step is not dependent on the other, you can do both simultaneously.
3. Build a Buffer With Inventory
Business people bought into the myth that you didn’t have to hold much inventory and pushed their supply chain management teams to run the edge. This myth was busted by the pandemic. It showed how many people overdid just-in-time supply chain management. Have some buffer in your system so when an unexpected shortage happens, you are not stuck.
The pandemic-induced supply chain breakdown showed us that the five weeks could be 50. If you had that inventory, you could deliver while your competitors waited for their new inputs to arrive.
4. Design Shorter Lead Time Into Your Product
Design for manufacturing also means design for lead time. Early on in your product development process, get manufacturing and supply chain involved. A good product design team knows the importance of lead time and will make that part of the design requirements.
5. Keep Your Suppliers Informed
Work with your suppliers to make sure they know your forecasts for future needs. Remember, suppliers are dealing with the same lead time issues.
6. Improve Processes
Every process that determines the lead time of a task or a project can be improved. Use lean methods and continuous improvement to assess and improve your processes across the product development journey.
7. Leverage Automation
One growing method of process improvement is automation. Robotics and industry 4.0 technologies can deliver significant reductions in lead time.
8. Implement Digitization
Use software to manage and automate the steps needed to bring your product to market. Look at a full ERP system, point solutions like inventory management, vendor management tools, or even a modern and efficient accounting system.
9. Move Your Supply Chain Closer
Distance costs time and introduces failure points. Moving your supply chain closer by near-shoring to Mexico is a way to take shipping lead time out of your total lead time.
Reduce Lead Time and Get Products to Market Faster
Sometimes tracking and reducing lead time can seem like a sport. The problem with this approach is it takes the focus off of why you want short lead times and becomes a competition to reduce cycle time anywhere you can. For years companies optimized and didn’t plan for problems. And then the pandemic hit, supply chains buckled, and lead times went through the ceiling.
Instead of playing the minimizing game, work with smart partners like Gembah to design a product that is less lead time-dependent. Work to build relationships with partners that results in accurate lead time estimates. And last, invest in inventory to not just weather shipping problems and the like, but to also provide shorter lead times to your customer.
With time, patience, planning, and the right partners, you can shorten your lead time, increase customer satisfaction, and create a competitive advantage. And Gembah’s marketplace and team are ready to help you find the right people to get your lead time under control. Let us know what you are trying to accomplish, and we will guide you through the process of finding the right resources and processes.