Lead times and inventory levels

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In most production companies material costs account for almost 70% of manufacturing costs and 50% of operating costs. The longer the lead time, the higher the material costs.

The reasons for long production lead times are usually very diverse and therefore require a complex array of measures to effect a system change that brings you closer to a Lean management system to reduce lead times and increase the inventory turnover rate.

Below you will find some of the typical reasons for long lead times and high material inventory.

1. Non-synchronous processes


Most production companies have multi-level manufacturing processes. Setup times, production processes and production cycle times are usually very different. In addition, production processes are rarely linear, but run parallel, merge or branch. There are also alternative resources (with different process times compared to the main resources) and alternative process routes.

Varying products and different order quantities pose an additional challenge to the synchronization of production processes. Against this background, the reasons for non-synchronous processes may be:

  • Insufficient production planning and control
  • Lack of continuous sequence planning that takes into account the entire process synchronization
  • Several planners (tact givers) in the same value-added chain
  • The production management is focused on OEE instead of overall efficiency (lead time reduction)
  • Push production instead of pull production
  • Downtime and waiting times due to unavailable parts and staff capacity
  • The timing of upstream and downstream processes along the entire value-added chain are not properly coordinated.
  • Defective master data, especially incorrect process times
  • Poor labour standards
  • Poor staff training
  • Non-coordinated material supply

2. Provision of process capacities is not coordinated with demand


Customer orders are not received evenly. The "art" is to plan the utilization of process capacities in advance and manage any necessary adjustments as early as possible (front-loading). The reasons for non-provision of process capacities in line with demand are as follows:

  • Missing or inadequate rolling forecast planning in sales
  • No simulation possibility (short/mid-/long-term) in production planning
  • Unrealistic delivery date promise - without consideration of capacity availability
  • Lack of visualization: missing visual representation of process utilization and available capacities
  • Lack of communication between sales and downstream processes
  • Lack of flexibility in capacity adjustments
  • Lack of flexibility due to the lack of employees with multi-product and multi-process capabilities

3. Missing parts or poor delivery reliability on the part of suppliers


An ERP system calculates the production scheduling with fixed lead times and infinite capacities. The MRP calculation is then based on these incorrect or unrealistic assumptions.

Your suppliers also use this same faulty scheme to calculate their production and material planning. Since the proportion of purchased parts and reliance on external suppliers is often very high, Lean know-how and experience in your purchasing (supplier management) is just as important as in your lean production department.

Missing parts and poor delivery reliability are due to:

  • Missing link in production scheduling: an APS between the ERP and MES systems
  • Unrealistic results of production scheduling
  • No regular update of the material replenishment lead time
  • Discrepancies between target and current material inventory
  • Minimum stock (target) not adjusted regularly
  • Potential missing parts cannot be detected in time
  • Long equipment setup times
  • Lack of ability to produce small batch sizes by suppliers and in-house
  • Lack of Lean knowledge and experience in purchasing
  • Poor supplier management

4. Inadequate adherence to deadlines for technical documentation

An often-forgotten aspect of Just-in-time manufacturing is the provision of 100% correct design drawings and technical/material specifications to the purchasing, material planning and production departments. This is particularly true for manufacturers with predominantly custom or made-to-order production. Receiving accurate design documentation “Just-in-time” is the basis for a reliable production and can be delayed by the following:

  • Order details, technical specifications are not properly clarified with sales
  • Standard times are applied in the design department
  • Inadequate capacity planning and order control in engineering
  • No simulation function available to assist engineering in planning (short/mid-/long-term)
  • Visualizations are not available to display the current planning and process status
  • Low flexibility due to the lack of a multi-skilled engineering staff capable of multi-product, multi-process design

Only results count!

In our Kaizen-/Lean consulting to implement just-in-time production and reduce operating costs, we follow the motto "only results count!"

  • KPC analyses your current situation, the problems and their causes.
  • According to the Kaizen philosophy, we create a tailor-made catalogue of Lean measures and an implementation plan for your company, concentrating on measurable results.
  • KPC support, on-site
  • The engaged and creative cooperation between our Lean consultants and the client team in the gradual implementation of measures results in a Lean production with increased productivity and lower operating costs.
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