(EN) Reducing Lead Time 3 – Throughput and Lot Size

Two more factors for reducing your lead time are the throughput and the lot size. However, the throughput has a smaller effect – although with other benefits that are often larger than the reduction in the lead time. The reduction in the lot size can have a huge effect, although usually only for make-to-stock production. Nevertheless, both are worth looking at if you want to reduce the lead time.

Improve Throughput

Another possible approach to reduce lead time is to speed up the system (i.e., to improve throughput). You simply crank out more parts in the same time.

My apologies, did I say simply? Unfortunately, it is not quite that. If you just randomly improve the speed of your processes, you may waste a lot of effort. The output of a system is defined by the bottleneck. Hence, you need to find the bottleneck. This is complicated by your bottleneck shifting between different processes. I spent a lot of time developing two methods to detect shifting bottlenecks, the Active Period Method and the Bottleneck Walk. Once you found the possible bottlenecks, you need to improve them. While you may think first about technical solutions, there are also organizational solutions to improve bottlenecks. For more details, see my series on bottleneck management. But somehow, you have to improve your throughput.

In practical terms it may be easier to measure this as the line takt, which is the inverse of the throughput. You can also see this as the line cycle time plus the average losses. How long is the average time between the completion of a product? Reducing this will improve your lead time (all other things being equal). If we replace the throughput with the line takt, the lead time equation in Little’s Law changes can be rearranged as shown below.

\[{ Lead Time = Inventory \cdot  LineTakt} \]

This is now a linear relationship. If you shave one second off your line takt, you will shave one second off your lead time … for every part in the system. Hence, with 1,000 parts in the system, a one-second reduction in the line takt will give you a lead time reduction by 1,000 seconds. The easiest way to see this is as a percentage. Shaving x percent of your line takt will shave the same x percent of your lead time.

Improving throughput feels natural to most people on production. Hence, chances are, the speed of your system has already been looked at many times before. Further improvement potential certainly does exist, but may not always be easy or cheap. It depends on your system if the effort of reducing your line takt is worth the benefit of an improved lead time. Don’t forget that there are also other benefits, like a reduction in production cost through reduced labor and machine invest. In fact, most often when improving throughput, the main goal is to either increase capacity or to reduce cost or both. A smaller side benefit may also be that faster lines may fluctuate a bit less in absolute terms than a slower line, but don’t expect huge benefits from this side benefit. Overall, reducing your line takt (increasing your throughput) will lead to a proportional reduction of the lead time, although this is often less important than other benefits of this change.

Reduce Lot Size (for Make-to-Stock)

Finally, you can reduce your lead time by reducing your lot size. However, this is most useful for make-to-stock production. In make-to-stock production, the lot size influences the inventory you need to cover the time until the part can be produced again. This is shown below in a simple example with two part types. The inventory over time are the blue and green lines for the respective part types.

If you reduce the changeover time by half, you can reduce the lot size. The new inventory over time is also reduced as shown below. Using Little’s Law, this will also reduce the lead time. Both graphs are examples from a longer post on „What to Do with SMED: Reduce Lot Size or Increase Work Time?“

Hence, for make-to-stock, reducing the lot size can proportionally reduce the inventory and subsequently lead time. The exact numbers depend, among other things, on the number of parts. This massive effect on reducing the inventory is one of the main reason that lean is pushing hard for smaller lot sizes! The reduction in inventory will have significant cost savings. The reduction in lead time, however, usually makes no difference for the customer, since the material is „in stock“ anyway. It does, however, make a difference for the speed of information flow within the system too. Quality problems will be detected earlier and fixed easier, product changes will be faster, and overall you will run a much tighter ship. Hence, while the main reason for a reduction in lot size is savings related to inventory reduction, the reduced lead time will also have some benefits, although it will make less difference for the customer.

Unfortunately, this method does not work quite as well for make-to-order. The lot size in make-to-stock provides inventory (stock) to cover the time until the parts are produced again. Since there is no stock to cover with make-to-order, a reduction in lot size will only distribute a larger job over a longer time. It can be done for make-to-order products too, although it does not reduce the average lead time. It does make it easier for the suppliers to provide material as it levels the production a bit more. It also allows you to fit in more urgent jobs between the smaller lot sizes of the formerly larger job. But to significantly reduce the average lead time, you would need to convince your customer to order smaller quantities more frequently, although in this case producing make-to-stock may be better anyway.

This is the last post of this series looking at the lead time in production systems. Inventory, fluctuations, utilization, throughput, and lot size are the most important levers you can influence if you want to reduce your lead time. The next post will close this small series on the lead time by looking at product development. Until then, stay posted, and go out and organize your industry!

Series Overview

• Reducing Lead Time 1 – Inventory
• Reducing Lead Time 2 – Fluctuations and Utilization
• Reducing Lead Time 3 – Throughput and Lot Size
• Reducing Lead Time 4 – Development

P.S.: This series of posts is based on an inspiration by Rajan Suri, and also chapter 7 of his book Quick Response Manufacturing and chapter 3 from his book It’s About Time.

• Suri, Rajan. It’s About Time: The Competitive Advantage of Quick Response Manufacturing. 1 edition. New York: Productivity Press, 2010. ISBN 978-1-4398-0595-4.
• Suri, Rajan. Quick Response Manufacturing: A Companywide Approach to Reducing Lead Times. Portland, Oregon, USA: Taylor & Francis Inc, 1998. ISBN 978-1-56327-201-1.