Competitive Advantage Through Reduced Cycle Times

Five “red flags” to watch to keep cycle times fast

With the threat of foreign competition, many senior factory managers are wondering “Is it possible to stay competitive and still offer a product at a fair price in the United States?” The ability to compete on lead-time versus price allows many types of companies to maintain higher prices, better cash flow and greater chances of profitability. The key benchmark: cycletime reduction. Faster cycle times enable a sales force to quote shorter lead times for delivery. For many customers, this can be a compelling reason to pay a premium for faster order fulfillment, rather than turn to foreign or low-cost suppliers.

The time between receipt of an order and its shipment is cycle time. It is primarily influenced by “work-in-process,” whether it’s a widget produced in a factory or a home loan underwritten by a mortgage bank. When a company experiences increased orders, cycle time can quickly outgrow expected lead-time — and trouble meeting customer expectations is not too far behind.

Factory and service managers need to understand the interrelationship of increasing work-inprocess to future delivery failure. If they can create a culture where the entire team works together to reduce work-in-process, the amount of work and cycle time follow suit. How is it possible to see opportunities for improving cycle times and increasing the bottom line? Here are five major “red flags” to alert managers of growing cycle times and some general guidelines for waving off trouble:

Red flag #1: Waiting Game

Managers can walk the plant floor or service area and conduct a physical count of all unfinished orders during a “freeze time,” at the end of the day or week. These orders are waiting for something — a part from a vendor, a color decision from a customer, a clarification from engineering, etc. These are clear signs that the orders should not have been started in the first place.

Two rules of thumb: Never put more in than what comes out. And don’t start a job until all questions are answered. A simple method called “input/output control” can effectively lower the amount of work-in-process by consciously releasing less work into production than comes out each day. Gradually remove empty work-in-process carts from the factory to slow down the amount of new work-in-process being created.

Red flag #2: Starting Orders Too Early

Closely associated with #1 is when managers have a mindset that it’s going to take “X weeks” to fulfill an order and, therefore, issue the order early without having all of the components available. When the parts do not arrive on time, jobs get stuck on the factory floor, take up space and require people to work around them.

Rather than starting the order early, finish existing work-in-process and reduce the cycle time for the next order so that it can be completed in “less than X weeks.” Starting early adds to the problem of long cycle times by creating more work-in-process, not less.

Red flag #3: Reducing Inventory Without Planning

People sometimes talk about “Let’s reduce inventory to save money.” This could mean three different things: raw materials, work-in-process or finished goods. Reducing the work-inprocess allows a company to operate with less finished goods as orders can be filled more quickly from production. Sometimes, however, it is beneficial to increase raw materials to provide more flexibility in filling the next order faster, if vendors cannot shorten their lead times.

The emphasis here is not on finished goods or forecasting, but on improving the capability to make products or provide services to order within the lead-time based on the availability of common components. “Configuring to order” frees up cash by eliminating the investment in producing or storing finished goods that may have many combinations from common components.

Red flag #4: Expediting

I don’t believe faster cycle alone, although necessary, is sufficient. As a foreign or low-cost supplier, I can counter this by increasing capacity and building more inventory. Due to cheap labor, inventory carrying cost is cheaper for them.

One of the dangerous outcomes from expediting is the time-consuming function of tracking work-in-process. Beware of companies selling “exception management” software that automate expediting but fundamentally do not reduce cycle times.

Red flag #5: Job security and Measuring Individuals

A major barrier to overcome is the nature of the average worker — work only as hard as needed. People who see work around them tend to have a greater sense of job security. When work piles get smaller, they tend to slow down due to the fear of being out of work. They need to understand the benefit of reducing cycle times brings to the entire company and that their jobs are to help reduce cycle times, not working independently to increase them. Since each work step takes a different process time, managers need to encourage cross training and clarity of purpose among employees to demonstrate that success comes from everyone focusing on one goal, such as maximizing shipping, as opposed to “my job.”

American businesspeople have measured individual work center production for years. Workers are trained to track and report completed units by work step. People are rewarded based on these measurements, which reinforces a worker’s mindset of “this is my job.” This entrenched management system is a significant contributor towards growing work-in-process cycle times.

Summary: Remember the big picture: Challenge the company to achieve shorter cycle times and quote shorter lead times, to meet and even exceed customer expectations. Measure cycle times; acknowledge and celebrate improvements. With shorter lead times comes a strong and lasting competitive advantage, and one that customers will pay for dearly.

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BruceMallory is a partner in the Twin Cities-based Platinum Group, a turnaround management consulting firm. Mallory has 27 years of experience restoring value by providing assistance to companies experiencing difficult transitions.

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