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there would be no need for a forecast and no need for inventory and at the same
time a greater variety could be offered to the customer.
Whilst clearly zero lead times are hardly likely to exist in the real world, the target
for any organisation should be to reduce lead times, at every stage in the logistics
pipeline, to as close to zero as possible. In so many cases it is possible to find
considerable opportunity for total lead-time reduction, often through some very
simple changes in procedure.
Lead-time concepts
From the customer’s viewpoint there is only one lead time: the elapsed time from
order to delivery. Clearly this is a crucial competitive variable as more and more
markets become increasingly time competitive. Nevertheless it represents only a
partial view of lead time. Just as important, from the supplier’s perspective, is the
time it takes to convert an order into cash and, indeed, the total time that working
capital is committed from when materials are first procured through to when the
customer’s payment is received.
Let us examine both of these lead-time concepts in turn.
1 The order-to-delivery cycle
From a marketing point of view the time taken from receipt of a customer’s order
through to delivery (sometimes referred to as order cycle time (OCT)) is critical. In
today’s just-in-time environment short lead times are a major source of competitive
advantage. Equally important, however, is the reliability or consistency of that lead
time. It can actually be argued that reliability of delivery is more important than the
length of the order cycle – at least up to a point – because the impact of a failure to
deliver on time is more severe than the need to order further in advance. However,
because, as we have seen, long lead times require longer-term forecasts, then the
pressure from the customer will continue to be for deliveries to be made in ever
shorter time-frames.
What are the components of order cycle time? Figure 6.4 highlights the major
elements.
Each of these steps in the chain will consume time. Because of bottlenecks, inef-
ficient processes and fluctuations in the volume of orders handled there will often
be considerable variation in the time taken for these activities to be completed.
Customer
places
order
Order
entry
Order
processing
Order
assembly
Transport Order
received
Figure 6.4 The order cycle
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The overall effect can lead to a substantial reduction in the reliability of delivery. As
an example, Figure 6.5 shows the cumulative effect of variations in an order cycle
which results in a range of possible cycle times from 5 days to 25 days.
In those situations where orders are not met from stock but may have to be manu-
factured, assembled or sourced from external vendors, then clearly lead times will
be even further extended, with the possibility of still greater variations in total order-
to-delivery time. Figure 6.6 highlights typical activities in such extended lead times.
2 The cash-to-cash cycle
As we have already observed, a basic concern of any organisation is: how long
does it take to convert an order into cash? In reality the issue is not just how
long it takes to process orders, raise invoices and receive payment, but also
how long is the pipeline from the sourcing of raw material through to the finished
product because throughout the pipeline resources are being consumed and
working capital needs to be financed.
1. Order communication
3
Time range
1 to 5 days
2. Order entry and processing
2
Time range
1 to 3 days
3. Order picking or production
5
Time range
1 to 9 days
4. Transportation
3
Time range
1 to 5 days
5. Customer receiving
2
Time range
1 to 3 days
Total
155 days 25 days
Figure 6.5 Total order cycle with variability
Source: Stock, J.R. and Lambert, D.M., Strategic Logistics Management, 2nd edition, Irwin, 1987
STRATEGIC LE A D -T I ME M A N A GEMENT
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Installation
lead times
Distribution
lead times
Assembly
lead times
Materials
lead times
Commercial
and planning
lead times
Transportation time
to customer
Despatch preparation time
(documents, packages)
Transport time to next stage
(e.g. to inventory assembly)
Processing times
Waiting times
Assembly release
and order picking
Reception and
inspection lead time
Transport lead time
Supplier lead time
Materials planning and
purchase lead time
Planning lead time
Processing lead time
Order reception lead time
Figure 6.6 Lead-time components
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