Lead Time Reduction – The Missing Magic Elixir for Today’s Lean?

Lead Time Reduction – The Missing Magic Elixir for Today’s Lean?

What! – you may be thinking. You are going to talk about “lead time” again? Haven’t you stressed that enough already? Yes!  – and – No! – in that order. Just out of curiosity I did a word count of “lead time” for all of my posts thus far. I get 106. That’s about 4 mentions per post. Is that a lot? Not in my opinion. Not if you remember my fundamental principle:

Thus the underlying principle behind TPS/Lean is the systemic creation of the shortest possible lead time for the continuous flow of materials and information in order to generate the highest quality and lowest cost.

Yes, I think lead time is important. But I mentioned “flow” 244 times. Is that too much? I mentioned “cost” 136 times. Is that too little? Just to let you know where my head is, I mentioned “system” 390 times (only 36 from the long version of TPS) and “time” 488 times (but you know where 106 of those came from). “Quality” only showed up 68 times – probably too low, I’ll try to fix that going forward. By the way, “tools” were only mentioned 7 times – about right.

So, with that out of the way, let’s talk about “lead time” – some more.

Let’s start with a repeat of Taiichi Ohno’s famous quote:

“All we are doing is looking at the time line from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time line by removing the non-value-added waste.”

But remember that Ohno only said this after he retired, when Toyota was already becoming a dominant force within the world’s manufacturing companies. “Lead time” is not highlighted in either of his two major books, which were written while he was still at Toyota. (Japanese editions were copyrighted in 1978 and 1982, but the English translations weren’t copyrighted until 1988 and 2007, respectively). He talked about just-in-time but in a very perfunctory manner. In the forward to Ohno’s major book, “Toyota Production System”, Norman Bodek, in addition to launching the famous quote above, suggested that Ohno was very secretive about the details of just-in-time. Ohno even admitted to this secretiveness near the end of his life.

So was Ohno trying to hide the secret ingredient to his success? I don’t know for sure, but I’ll raise one hand at least half way. He later admitted he did not want his Western competitors to understand “what we were doing” (i.e., his river system). Masking the importance of lead time would certainly be a step in that direction.

But let’s now look at what John Shook, current Chief Executive of the Lean Enterprise Institute, said about “lead time” in Liker’s 1998 book “Becoming Lean. Shook worked for Toyota, both in Japan and in the U.S., from 1983 to 1994. This was when Ohno was no longer on the front lines of Toyota’s operations (Ohno passed away in 1990).

“Perhaps the most instructive of Ohno’s insights for us today is the focus on reducing lead time. If we focus on how to reduce lead time, all other processes and measures will come along. The path to reducing lead time is one-piece flow. …The advantages of one-piece flow are numerous, but the most important is reduction in lead time. So the most important question we can ask is: How can we shorten lead times?”

What happened? Once Ohno says it, it can be revealed?

Actually, Ohno’s silence concerning lead time becomes even more stark when you read the 1977 Toyota paper “Toyota Production System and Kanban System Materialization of Just-in-time and Respect-for-human System“. This was written by the Production Control Department of the Toyota Motor Company, which I assume worked for Mr. Ohno. The importance of lead time was not missing here. At the beginning of the paper we see the first discussion of Just-in-time production:

Just in time production: In order to avoid such problems as inventory unbalance and surplus equipment and workers, we recognized necessity of schemes adjustable to conform with changes due to troubles and demand fluctuations. For this purpose, we put our efforts in development of a production system which is able to shorten the lead time from the entry of materials to the completion of vehicle.

The just-in-time production is a method whereby the production lead time is greatly shortened by maintaining the conformity to changes by having “all processes produce the necessary parts at the necessary time and have on hand only the minimum stock necessary to hold the processes together”. In addition, by checking the degree of inventory quantity and production lead time as policy variables, this production method discloses existence of surplus equipment and workers. This is the starting point to the second characteristic of Toyota Production System, that is, to make full use of the workers’ capability.” (Pgs. 554 – 555) [Emphasis mine]

Thus “just-in-time production” (or JIT), one of the two pillars of TPS, “is a method whereby the production lead time is greatly shortened”. Lead time reduction is the basis for JIT! And by making inventory and lead time “policy variables”, i.e., variables controlled by management, they can root out “waste” at its source. This is the JIT/Jidoka relationship in its most basic form.

In fact, they felt so strongly about lead time reduction that they would not allow the number of Kanban (inventory) to increase even if demand increases. That was to insure that lead times would decrease. Here is their discourse on this issue based around an equation for calculating the number of Kanban (I have identified the variables in brackets – to see the equation, go to the paper):

“Value of y [number of Kanban] is rather fixed despite variation of D [demand per unit time]. Therefore, when D increases, it is required to reduce the value of (Tp + Tw) [waiting time of kanban + processing time], that is, a lead time. At a workshop with insufficient capability of improvement, they cannot avoid overtime for a while. They might even cause line-stops. However, the ultimate objective of Toyota Production System is to visualize such wastes as overtime and line-stop, and to urge each workshop to become capable in improvement. Incapable shops might have to cope with the situation by means of increasing α [a policy variable], that is, number of Kanban for the time being. Hence, the top managers consider the value of α as an indicator of shop capability in improvement.” (Pgs. 561 – 562)

In their mind, an increase in demand was an opportunity to challenge the capability of their production system. A reduction in lead time was “required” by fixing the Kanban level. This would make waste visible, requiring improvement. If the improvement was too slow, they would allow a temporary increase in Kanban by increasing the policy variable “α” (an incremental increase in Kanban over the “fixed” level). But top management would keep a close eye on each shop’s “α” as it was an indicator of process improvement. I think this is where the oriental maxim of “saving face” comes in. Having an “α” hanging around your neck was not where you wanted to be.

(Note: Yasuhiro Monden covered this same topic in his book “Toyota Production System: An Intergrated Approach to Just-In-Time. He validates this Toyota strategy with respect to Kanban size and lead time. I have the Third Edition (1998) and his discussion can be found on pg. 286)

But why did Ohno allow this paper to highlight the strategic importance of lead time while minimizing it in his own writings and presentations? I think it was just a matter of timing. As I mentioned in a previous post, I think this paper was meant for the Japanese market, which he was trying to help after the 1973 oil crisis recession. In 1977, Toyota’s accomplishments were well known in Japan but virtually unknown in the West. The West wasn’t paying attention at that time. But as word of Toyota’s successes started to migrate Westward in the early to mid-80’s, he became more guarded. The English version of his book would be published in 1988, well after hundreds, if not thousands, of Westerners had been hopping planes to Japan to find out what the hell was going on over there. He wasn’t going to help them any more than he had to.

All I know is that I started learning JIT/TPS in the late 1980’s and I was using lead time as a primary metric in the early 1990’s. Although I didn’t know it at the time, what I was learning was the offshoot from work the Shingijutsu group had been doing in the northeast United States since the early 1980’s. So the word got out and the word spread fast! And it became my primary metric for one very good reason – it worked! And it worked beautifully! John Shook is absolutely correct: “If we focus on how to reduce lead time, all other processes and measures will come along”. A focus on reducing the lead time will allow you (or force you) to discover those wastes that are the causes of lower quality and higher costs. When my lead times went down, all my other metrics got better.

But then something happened in the West. “Lean” was born. And “lead time” died.

I’m not sure exactly when “lead time” died, but it is hard to find it in today’s “Lean” world. There are wonderful exceptions, but they are few and far between. You can find 5S, you can find Teams (everywhere), you can find “Lean consultants” (everywhere), you can find “Lean academics” (everywhere), you can find courses in “Lean Leadership” – “Lean strategy” – “Lean Philosophy” – “Lean Tools” – “Lean [insert name here]”, you can find hundreds of “Lean” books, “Lean” websites, “Lean” seminars and conferences, you can find many, many ways to spend your “Lean” money. But you have to search really, really hard to find “lead time” anywhere in that jumble of “Lean” things.

Value Stream Mapping should be an exception. It is a practice, brought to the forefront by “Lean” (via John Shook), which does deal with time. But I find that very few practitioners of VSM focus on the total lead time of the entire value stream. They tend to get caught up in the details of the individual process steps and fail to look at the flow properties of the entire system.

Do you think there could be a correlation here that may account for the very low reported “Lean” success rate? I guess you know my answer. I think many of those early “Lean” academics and consultants spent too much time reading Ohno’s (and each other’s) books and not enough time in the gemba of those who were really practicing JIT/TPS. (Those fortunate beneficiaries of the early work by the Shingijutsu group in the U.S. come to mind).

But I did say there were some wonderful exceptions out there. Here is one great example that I recently learned about. At one point in his career, Paul Ericksen was manager of supplier development for a large OEM company (he has also commented frequently on this blog). This company decided to enter a new, demanding marketplace for its products. They wanted to start selling their products through “Big Box” stores in addition to the more traditional markets comprised of smaller, industry-specific stores or brand-specific dealerships. This was an example of voluntarily entering a basic “unforecastable” market. In addition, the “Big Box” guys required much more stringent performance metrics with respect to delivery (very quick), price (very low) and terms (very favorable to “Big Box”).

Adding to this complexity was the fact, which is common in many of today’s OEM companies, that over 60% of its manufacturing cost of sales were generated at its many suppliers. The OEM was more of an “assembler” than a “manufacturer”. The OEM assembly plant was “Lean” but the suppliers were usually not. How could they get their suppliers to reliably supply parts with a much faster turnaround and in unforecastable quantities and mix? Lump in the throat, anyone?

But Paul was a smart guy and he knew what he had to do. He knew the suppliers (and his OEM) couldn’t rely on large inventories to make this successful. And his supplier order commitment policy of “90 days firm” relied on just that. This had to change. Paul launched a supplier support program to work with all key suppliers (200 of them) to begin reducing the lead time for all supply based products associated with the “Big Box” program (I told you he was smart).

Paul worked with the Center for Quick Response Manufacturing (QRM) at the University of Wisconsin-Madison to develop a metric for “true” lead time. He had to make sure that the suppliers could not “game” the system. The result: Manufacturing Critical-path Time, or MCT, is: “The typical amount of calendar time from when a customer creates an order, through the critical path, until the first piece of that order is delivered to the customer.”

Over the next several years, the OEM supplier development group, while teaming with the suppliers, were able to achieve a 78% reduction in average MCT for the supply base. Pretty good!

But that was not all. And this is the part that I want everyone to pay attention to. Over this same period, supplier quality defects were reduced by 84%, late deliveries were reduced by 73% and cost savings at the suppliers ranged from 11% to 20%. This is what Paul called “the unexpected positives”. This surprised everyone. They had concentrated solely on lead time reduction. They admitted that they did not quite understand the “why”, but they sure liked the results. (Those of you who have been reading this blog know the “why”, I hope).

Which again brings us back to:

Thus the underlying principle behind TPS/Lean is the systemic creation of the shortest possible lead time for the continuous flow of materials and information in order to generate the highest quality and lowest cost.

You can read much more about Paul’s amazing effort in his 2013 two-part article “Lean’s Trinity” in Industrial Engineer, which can be found here and here (you must be an IISE member to have full access). You can also read about this project and several others directly related to lead time in Paul’s 2014 IW article: “Where’s the Beef? Industrial Justification for Next Generation Supply Management”.

Paul has since named this effort to concentrate on lead time reduction “Next Generation Lean”. I think he’s right. The “first generation Lean” seems to have missed it somewhere along the line.

And that’s why I titled this post:

Lead Time Reduction – The Missing Magic Elixir for Today’s Lean?

Do you agree?

[In my next post, I will dig deeper into “why” shorter lead times lead to higher quality and lower costs]

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