Reducing lead times has a leverage effect. It not only improves your operational performance but also your financial results.
Often companies focus on reducing costs, looking primarily at the biggest expense on paper. Often this is labor costs. But the investment in labor can improve significantly if your lead time is reduced.
Suppose a manufacturing company makes 150 items per day. The Material cost is 25,- per item. The total production time per article is 10 working days. That means that the OHW value is €37,500 [see figure]If we reduce the lead time by 3 days to 7 days, the capital investment decreases by €11,250. On an annual basis, that is a saving of €411,428.
The advantages financially are now clear. But it is also clear now that Your customers will receive their products 3 days earlier. You will also save space, interest and risk and the supervision of production will become easier. Another advantage is that the chance of disruptions in your process will be smaller [rush orders] but also the effect of unexpected process interruptions [breakdown machine] will have a smaller impact on your organization. Reducing lead time, if focused on bottleneck, is also associated with unnecessary waiting times and waste.
Starting from lean principles offers the best chance and opportunity to reduce your lead time. Together with Goldratt philosophy [pull strategy] in the area of bottlenecks you can achieve a significant result in a short time with limited investments. Partly due to the leverage of lead time reduction.
In the articles below you can read in detail how you can realize lead time reductions. Good luck !