KPIs #8 - A Focus on Lead-Time Performance

In our last Newsletter we explored the measurement of Delivery performance. We discussed how to establish a performance standard and then measure how we are performing against it. However, although the measurement of Delivery Schedule Achievement will give us some useful information on our performance, there is another dimension to on-time delivery that we will need to consider if we are to be effective at resolving any delivery issues we may observe. This is the measurement and understanding of our Lead-Time.

In today’s newsletter we will be investigating the measurement of Lead-Time Performance. We will explore what this means in its simplest terms, why it is of critical importance, and the considerations you should make when deciding on the specific measurements you should use, appropriate to your situation.

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Lead-Time Measurement

To start, in its simplest terms, the measurement of Lead-Time performance is in fact genuinely simple. The Lead-Time is the time it takes to complete a defined series of Business activities. If we receive an order to deliver a construction project within 6 weeks of order agreement, but we handover the project a week late we will have delivered in a Lead-Time of 7 weeks and have recorded a failure against our Delivery Schedule Achievement performance.

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If this situation, of delivering our orders late, occurs regularly, we will see a consistently low Delivery Schedule Achievement performance. If we measure the Lead-Time of each delivered order though, we will build up data that can start to give clues as to why this might be the case.

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Lead-Time Performance

The ongoing measurement of Lead-Time will provide intelligence on the characteristics of our delivered Lead-Time performance and the relationship between these and our delivery schedule achievement. This is essential to our understanding of our business performance and the selection of the right approach to resolving delivery performance issues.

The kind of insights we are looking for relate to the level of consistency in our Lead-Times and where the average Lead-Time sits relative to the Order Lead-Time requirement. For example, if we offer our client a 60-minute turnaround on all of our services, but consistently deliver a 61-63 minute Lead-Time, we have a very repeatable process, but this process has a mean Lead-Time in excess of our commitment to our customers. If in another example, with the same order turnaround requirement, we have an average Lead-Time of 58 minutes, but the variation is more widely spread between 54 and 62 minutes, we still have a Delivery performance problem, but the nature of the cause, and the required solution are quite different.

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Performance considerations

When evaluating our demonstrated Lead-Time performance, we should make sure not to lose sight of the nature of our Business Model, and what order winning criteria we are reliant on, and where any customer, or market, sensitivities might lie. For instance, I have regularly faced suggestions for quoted Lead-Times to be increased in client companies when faced with poor Delivery Schedule Achievement figures. I would always try to make this response a last resort. There are 3 main reasons for this.

?Firstly, we could find that increasing the Lead-Times quoted to our customers, particularly if these are now longer than those of our competitors, reduces the quote conversion rate. Secondly, the longer the Lead-Time, the greater the process costs (we are attracting resource costs over a longer period of time). Finally, I have found the increasing of quoted Lead-Times to provide only temporary benefits. Relatively quickly, the delivery performance will return to where it was previously, and often become worse still. This might seem counter-intuitive, but it is actually quite predictable since increased Lead-Time inevitably means a proportionally greater volume of work-in-progress, with the relative increases in inventory, queueing times, storage and retrieval issues and general management complexity.

The resolution of Delivery Schedule Achievement problems should be focussed on improved management of processing prioritisation or actual Lead-Time performance. Whether the issue is predominantly related to mean Lead-Time or Lead-Time variation will guide our improvement actions. Historically, I have always found the resolution of Delivery Schedule Achievement problems to be relatively quick and easy. If you have been struggling in this area do drop me a message. I might be able to provide a little practical guidance to help you get past these issues.

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Where to Measure

The focus of our Lead-Time measurement will depend on where we, as a particular department, sit within the process or on the nature of any existing Delivery Schedule Achievement issues observed. Lead-Time could be measures from order receipt to order delivery, from start to finish of the actual Processing of the part or service, across company departments, or along individual stages, or steps within the sequence of the process.

The number of locations of measurement, or level of detail, should be driven by circumstances. Essentially, we should follow the breadcrumbs, maybe deploying increased areas of detail when and where necessary to understand and resolve any observed issues, before reverting back to higher level oversight of performance once problems have been resolved.

For example, imagine a manufacturing company that offers a 6-week delivery on all of its parts. After observing poor delivery schedule achievement performance we have started to measure our Lead-Time and recorded a mean of 7 weeks. We might then investigate the next level down in the process, measuring Lead-Time for order processing, material and component sourcing and kitting, manufacturing and then packing & despatch. Its not uncommon in an example like this to find that we might have a planned production Lead-Time of 5 weeks, but that jobs are not being loaded into production until the end of week 2. Production are actually beating their required Lead-Time performance but they are already in an un-winnable situation before they start.

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Summary

Delivery Performance represents a critical areas of Business performance measurement, being one of the key Effectiveness measures essential to performance oversight and one impacting directly on the customer and their opinion of us as a supplier.

To effectively manage our delivery performance, we will need to adopt performance measures for both Delivery Schedule Achievement and Lead-time. We need hand-in-hand information on both in order to address and resolve any observed problems in an effective manner. Once we are generating the right level of intelligence about our process delivery performance we will be able to see the relative impact of average lead-times and variation on our delivery results. The resolution of delivery performance issues is typically quick and easy, if addressed in a disciplined manner.

The Greybeard Academy is made up of highly experienced, hands-on experts in business performance improvement who have ‘seen it, done it and achieved it’ many times in the past. This means that our advice and support is effective and efficient, saving time and costly mistakes.

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Karl Smith (M.D.)

The Greybeard Academy