My previous blog made a case for the need of a primary metric of manufacturing effectiveness in the assessment of supplier performance. That blog ended with a couple of “teaser” quotes hinting at the type of metric that was needed. From these quotes—the first by Taichi Ohno (father of the Toyota Production System), and the second by one of Toyota’s past executive vice presidents of supply management—it should have been apparent that the metric to be proposed was going to be time-based.
Manufacturing critical-path time (MCT) is a measure of “true” manufacturing lead-time. It is defined as:
The typical amount of calendar time from when a customer creates an order, through the critical-path until the first, single piece of that order is delivered to the customer.
Saying this in a different way, MCT is the time it takes a manufacturer to satisfy unanticipated demand through normal processing. The phrase “normal processing” implies many things, including that the customer order is:
- Not treated as a “hot” job by being given priority to the detriment of other work already in the schedule.
- Not fulfilled through the use of pre-built, pre-positioned WIP or finished product inventory.
It is common sense to think that the longer it takes to deliver an order, the more the potential for waste reduction. It also is appropriate that a new metric for lean involves “time” since this has always been at the root of the Toyota Production System, which is from where lean was derived. One question that does arise is, “Why is there a need to propose a new metric for lead-time?”
Talking to people about lead-time can seem like a discussion on the 10th floor of the Tower of Babel. Individual perspectives lead to different takes on what lead-time implies. For instance, when marketing personnel are asked by customers to quote lead-times, what is the basis of their quote? Is the lead-time number they provide in any way related to the “physics of the factory” or is it more related to what the marketing rep thinks it must be to obtain the order? On the other hand, a quote that included an MCT value is both quite definitive and is based on actual capability.
There’s another fundamental reason for adding a lead-time metric to lean. This can perhaps be best explained by asking the question, “How do you quantify the status of a company’s lean-ness?” There is currently no straightforward way to answer that question, which often leads manufacturers to the question of wondering “when will we get there?” i.e., be lean.
As a next generation lean metric, manufacturing critical-path time answers this question. The shorter your MCT, the leaner you are. “Build-to-demand” is a term often characterized as describing order fulfillment “nirvana”, i.e., being able to satisfy an order without pre-built inventory or other types of waste. The shorter a job’s MCT, the closer a manufacturer is to being build-to-demand capable. The closer a company is to build-to-demand capability, the leaner that company is.
Next generation lean metrics should open the door to new, more effective strategies for lean implementation. Manufacturing critical-path time does just that. MCT reduction potential is a great way to prioritize available lean activities. Those activities that offer greater opportunity for reducing your “true” lead-time should be done first. You might ask why. The following two points offer convincing arguments for this:
1) Lean activities today tend to be isolated events. As such, it can be difficult to consolidate the impacts of individual lean activities to a level that gets them recognition at the executive level. MCT reduction as an over-riding lean strategy prioritizes manufacturing improvement activities that will most impact order fulfillment capability. I guarantee that if you can tell the executives of your company that your work has maintained or increased company “customer fill rates” at the same time reducing necessary levels of pre-built, pre-positioned finished goods inventory, you’ll have their attention.
2) Lead-times can represent a competitive advantage. If you are able to guarantee better support of customer unanticipated demand/unforecast orders than your competitors, you will increase your success at getting and retaining customers. Having a lean metric that is a measure of this competitive capability will only raise the level of appreciation of lean throughout both your internal organization and your potential customer base.
In closing, a justification has been laid out of the need for MCT (“true” lead-time) as a new lean metric and stated that this metric will deliver increased lean—what I call “next generation lean”—impact. This is a fairly bold thing to do. In the next blog I’ll review documented results of firms applying MCT reduction to internal operations as well as original equipment manufacturers who have applied it in the management of their supply chain which provide strong support for this assertion.