From long lead times to efficient operations: here’s how you do that

You shorten long lead times by first measuring where an order waits. Then you align the lead times, safety stock and lot sizes in your enterprise resource planning (ERP) system with what you measure.

Perhaps you hold too much stock and still wait for that one part. Or planners do not trust the lead times in the system and add days of their own. Orders then go into the factory earlier, work in progress grows and the real queue gets longer. That is how a long lead time sustains itself.

Below, Ralph Engelbert, Senior Functional Consultant at Eqeep, explains what long lead times cost and what helps.

Why do long lead times cost you stock and money?

Because you absorb uncertainty with extra stock. According to Ralph, material shortages are one of the most common obstacles to shorter lead times. An uncertain delivery time often leads companies to hold more safety stock. That raises inventory costs and makes processes less efficient.

Excess stock costs add up quickly, from storage and depreciation to the risk of obsolescence. Depending on your industry, marketability counts too, meaning how quickly you can sell what you hold.

Take the high-tech industry. Your customers want the new version of a product while you still hold plenty of the previous one. You sell that stock at a discount, or write it off. Companies with shorter lead times respond faster to a changing market, and a good supply chain needs less buffer stock.

What makes up a lead time?

Queuing, set-up, processing and transport. In IFS Cloud, each is a separate figure:

• Queue time before an operation, held per work centre
• Set-up time per operation in the routing
• Run time per unit, multiplied by the standard lot size
• Transport time to the next operation

Without overlap, the fixed lead time is queue, set-up and transport together; run time grows with the lot. In a worked example from IFS, a lot of five units through three operations takes 27 hours. If each operation may start once the first unit of the previous one is done (overlap), it takes 17 hours. You judge per operation whether overlap is possible.

For a purchased part, IFS adds up the supplier’s manufacturing time, transport, internal transport and inspection on receipt.

How do lead times and lot sizes decide how much stock you hold?

The more generous the lead time, the earlier work and material enter the factory, and the higher the safety stock. Material requirements planning (MRP) subtracts the lead time from the date a part is due. From that start date it plans demand for the components.

Calculate Planning Data sets safety stock as a safety factor times the spread of demand times the square root of the lead time. Four times the lead time therefore means twice the safety stock.

Check which lead time sits where. MRP plans a purchased part with the lead time of its primary supplier. Calculate Planning Data uses the lead time on the inventory part. That stays at 0 until someone calculates or enters it, which makes the safety stock 0 too.

For lot sizes, IFS says a planning method balances ordering or set-up costs against stockholding costs. According to IFS, lot-for-lot is the wrong choice for screws and nuts used in several structures. So is a minimum lot size of 1,000 for an expensive part you use once a week.

You decide which service rate each part needs, and at which level of the product structure you buffer.

Why does releasing orders earlier make lead times longer?

Because more work then sits on the shop floor while output stays the same. Under Little’s law, average lead time is work in progress divided by output. At the same output, twice the work in progress means, on average, twice the lead time.

IFS describes how infinite scheduling treats each shop order as if it were the only one in the system. That schedule therefore works with the fixed queue time of the work centre, however full the shop floor gets.

Capacity requirements planning (CRP) sets load against capacity per work centre, showing overloads before release. The Advanced Planning Board also takes capacity, labour and tools into account when it schedules. You decide how much work to release at once.

Are the lead times and routings in your system still right?

You only know by putting actual times next to planned ones. IFS Cloud can work out actual values such as machine and labour run factors and crew size, and set them against the routing. You decide whether the new values go into the routing. For purchased parts, IFS can calculate the lead time from the average of past receipts.

Any comparison is only as good as shop-floor bookings. Operation Time Prediction uses machine learning to forecast machine run time per operation. It learns from recorded start and stop times, and IFS notes that predictions reflect the quality of that data.

Agree which deviation is large enough to change a routing or lead time, and who makes the change. Our guide to KPIs and metrics covers choosing measures and acting on them. Where work waits or takes a different route, IFS Process Intelligence shows it from your transaction data.

Which strategies shorten lead times?

By releasing less work at once, correcting lead times against measured times and placing stock deliberately. Ralph also names two measures. The first is first-in, first-out (FIFO), where you use the oldest stock first. That helps prevent obsolescence and keeps goods flowing.

The second is constant contact with your suppliers, so your systems hold current delivery times and logistics agreements. Regular consultation can reduce unexpected delays and improve delivery reliability.

In IFS Cloud, those agreements live in the lead time per supplier and purchase part, and in the transport times of the Supply Chain Matrix. An agreement that sits only in an inbox is invisible to planning.

Demand-driven MRP is one way to place stock deliberately. You look for shared components with a long, unprotected lead time. According to IFS, a buffer there can reduce the lead time or the stock of the parent parts. See how demand forecasting and demand-driven MRP in IFS Cloud fit together.

What did lead-time training achieve?

Above all, a conversation between regional depots. At a leading international telecom infrastructure specialist, we ran training on shorter lead times and a better supply chain. Project controllers, buyers and work planners gained a clearer view of lead times, order times and strategic stock levels, drawing on market best practice.

In August 2024 it was too early to say what the training had delivered financially. Internally, it clearly had an effect. Depot staff looked at how colleagues worked, to learn how to improve their own processes. According to Ralph, this culture of continuous learning and improvement set off a wave of positive change.

Read how we design customer-specific training in the Eqeep training plan.

Where do you start?

With one product group or department where lead times overrun most often. There, compare actual operation times with the routing, receipts with lead times, and work in progress with output. Then adjust the parameters, and measure again.

A parameter does not make a scarce material arrive any sooner. If the cause is a supplier or a lack of capacity, a conversation or extra capacity helps more than a different setting. Also check which functions in this article your licence includes, from the Advanced Planning Board to demand-driven MRP.

We map those dependencies with your planners. You decide which settings to change. Start with an analysis.

Questions about lead times and stock

What does Little’s law say about lead times?

That average lead time equals work in progress divided by output.

How does Calculate Planning Data in IFS Cloud calculate safety stock?

Calculate Planning Data multiplies the safety factor by the standard deviation of demand per period and by the square root of the lead time. The safety factor follows from the part’s service rate. A lead time of 0 gives a safety stock of 0.

Should you hold safety stock at every level of a product structure?

No. IFS advises against safety stock or safety lead time on several consecutive levels of a structure. According to IFS, a buffer is for uncertainty in planning, such as varying consumption, scrap or uncertain receipt dates. Your operations decide whether that is at raw materials, intermediate levels or end products.

Tell us where you stand with IFS. After one conversation you will have a clear next step. Bring an order whose lead time overran, and we will look at where the time went. Discuss your IFS question.