Cumulative Lead Time for Order Processing and Manufacturing
‘Lead Time’ is the amount of time between the initiation and completion of an operation or a process. So as the word ‘cumulative’ suggests, ‘Cumulative Lead Time’ is the longest length of time consumed to accomplish the activity in question.
Let’s define cumulative lead time for order processing and manufacturing:
Cumulative lead time for orders:
It is the total amount of time it would take from confirmed order to delivery of the product if you had to order all the materials (if none were on hand). It is the sum total of material lead time and factory lead time.
Cumulative lead time in manufacturing:
Mathematically, it is the total lead time for an end item, calculated by taking the individual lead times for all items on the critical path through all levels of the bill of material. The cumulative lead time only considers the lead time required to finish an end item if no raw materials, components or intermediate levels were on hand, but had to be ordered or produced to create the final item.
Below is an illustration showing the different cumulative lead times you may find in manufacturing processes:
The above diagram describes the relationship between preprocessing, processing, and postprocessing lead times for manufactured items (assembly A and subassembly B) and purchased items (component C). This diagram also describes the cumulative manufacturing lead time and cumulative total lead time for a manufactured item (assembly A).
Why is it important to calculate cumulative lead time?
The cumulative lead time of a product is a very important piece of information to determine MRP and to calculate how much time you need to build a product if you start from scratch.
How to reduce lead time and cumulative lead time?
- Hold stock, ideally the right amount of stock.
- Integrate vertically – enhance the ability to source, manufacture and assemble internally. For eg: Suppliers or business processes can be vertically integrated.
- Reduce Cycle Times, hence reducing Production Lead Times.
- Have good equipment and employee availability and robust quality systems in place.
- Reduce Supplier Lead Times. Try to source locally.
- Implement Vendor-Owned Inventory (VOI) system; Vendor Managed Inventory system (VMI); Consignment Inventory system etc.
- Change shipping methods; implement faster, more frequent shipments.
- Have accurate forecasting, planning, and scheduling.
- Good supplier performance and quality management.
- Reduce product and component variation as well as obsolete low runners.
The Impact of Cumulative Lead Time on Business Operations
Understanding cumulative lead time is essential for optimizing supply chain management, demand forecasting, and inventory planning.
- Demand Forecasting: Longer lead times can impact a company's ability to meet customer demand, leading to stockouts or overproduction.
- Inventory Planning: Businesses must align stock levels with lead time expectations to avoid overstocking or running out of materials.
- Customer Satisfaction: Shorter cumulative lead times improve order fulfillment rates, ensuring customers receive products faster, enhancing loyalty and retention.
How to Calculate Cumulative Lead Time
Cumulative lead time is calculated by adding up the lead times for all components and processes involved in manufacturing a product.
Formula for Cumulative Lead Time:
Cumulative Lead Time=∑(Procurement Lead Time+Production Lead Time+Assembly Lead Time+Delivery Lead Time)
Step-by-Step Calculation:
Identify all components in the Bill of Materials (BOM).
Determine lead times for each item (procurement, production, and shipping).
Find the longest lead time path—this is the cumulative lead time.
If raw materials take 10 days, production takes 7 days, and shipping takes 5 days, the total cumulative lead time is:
10+7+5=22 days
Reduced lead time and cumulative lead time means:
- Reduced inventory and more cash on hand for the businesses. It means less risk, exposure, and management of materials.
It can mean winning more business and at the same time holding higher stocking levels.