LeadTime Technology™ (LTT) and Lean Operations
Les Shipman - Shipman Enterprises, Inc

Here are the five most important points that I would like to make about LeadTime Technology™, Lean Operations, and the synergy between the two.

1. The developers of LeadTime Technology™ are strong supporters of Lean Operations.

The most common business result from implementing LTT is both leaner inventories and increased customer service level. There is a metric that we hold even higher than Lean-ness and that is Economic Profit (the net operating profit over and above a charge for all the capital invested in a business). It is Economic Profit that defines the optimum level of Lean-ness.

The overall goal of LTT is to maximize Economic Profit, and for most companies a migration toward Lean Operations is an excellent way to increase Economic Profit.

The faster and less-expensive the changeovers become, the more the LTT recommendations automatically move toward the ultimate in Lean — one-piece flow (also known as "lot sizes of 1"). And our model automatically supports this. However, if the current operating conditions as well as the fill rate and lead times required by customers mean that a lot size of 6 maximizes Economic Profit, then LTT will use a lot size of 6. It is the right thing to do for the standpoint of the owners of the company because it maximizes the return on their investment of capital in the business.

Just like human beings, Production Lines (or Production Cells) and their associated Distribution Centers have an optimum target level for lean-ness, which is characterized by peak health. The job of LTT is to find that optimum level of lean-ness (characterized by maximum Economic Profit) and operate at that point of optimum health until underlying conditions change spontaneously or are changed by focused human effort (see "Move the Mountain" in #4 below).

Also, just like human beings, if you try to operate much leaner than optimum for the design of your system, then your business will be sick. Operating too lean can mean loss of market share because:

• Customer tires of waiting for production to satisfy their orders placed with your company while a competitor satisfies the demand rapidly;
• Overspending on overtime;
• Overspending on permanent investment to increase capacity that is eaten up by excessive changeovers;
• Falling productivity (fewer units produced per worker hour because of too much time spent in changeovers);
• Lower quality (more rejects) and loss of capacity because the learning curve after changeovers leads to an increased rejection rate, etc.

2. A unique aspect of LeadTime Technology™ is that the LTT model covers the entire spectrum of operating modes from completely push (also known as "make-to-stock") at the one extreme to completely pull (also known as "make-to-order" or "Lean Operations" or "Lean Manufacturing") at the other extreme

LTT encompasses every point in-between the extremes—- these intermediate points are characterized by a mix of "push" and "pull" and have different values for Economic Profit. LTT automatically finds the Economic Profit maximum point on the spectrum, every day for every product, at every stocking location.

Further LTT covers this entire spectrum of operating modes at each level in the supply chain. For example, you might very well have situations in your company in which optimum component manufacturing is "mostly push" and assembly of finished product is "mostly pull". This mixed mode is something LTT handles very well.

We find in real-life that the economic optimum is usually one of the intermediate points and not one of the extreme points. Said another way, the highest Economic Profit is often realized by a mix of push and pull. The faster and less-expensive the changeovers, the more the economic-optimum mix looks more like pull and less like push.

3. LTT provides the salient information, through decision support, to migrate quickly to an operations mode (usually a mixed push & pull mode) with higher Economic Profit

The LTT modeling can tell you what changes to make in production run inventory trigger points, production run lengths, safety stocks, how much to hold in components vs finished product, how to balance inventory between distribution centers, etc.

4. LTT tells you when to stop— or more accurately when to wait— for an operations breakthrough in your journey to Lean

Imagine a tall mountain with a valley on either side. The mountaintop is symbolic of the highest economic profit obtainable. The valley on side A is characterized by purely Push. The valley on side B is characterized by purely Pull (Lean).

Many companies start the journey from A to B and don't know when to stop when they have reached the mountaintop because they believe in their hearts and minds that the economic optimum is purely B -- and are driven by the mistaken belief that leaner is always better. So they go right over the mountain top and land in valley B and find themselves operating with little inventory but also with:

• Low line item fill rates and/or excessive overtime charges and/or;
• Excessive capital investment (to increase capacity) and/or loss of business because the competition can supply quickly out of finished inventory when necessary and/or;
• Failure to grow because available capacity was eaten up with changeovers and/or;
• Giving up short lead time business to competitors, and/or, etc.

The usual situation is that the characteristics of the mountaintop are neither "purely A-like" nor "purely B-like", but are a mix of A and B.

On the journey to Lean one can:

a.] Move from A to the mountaintop without changing underlying fundamentals
b.] Move the Mountain (that is changing the fundamentals so that changeovers are faster and less expensive)
c.] Split the process into multiple mountains (to be co-optimized) such as one would do if "mostly A" was the optimum for component manufacturing and "mostly B" was the answer for final product assembly.
d.] Combinations of a, b, and c

LTT can help your company accomplish a, b, and c in any combination.

5. LTT can be used for sensitivity analysis to help determine the best ways to "move the mountain."

There are many ways to "move the mountain". Some have stronger positive economic returns than others and some even have negative economic returns, especially if done out of the optimal sequence.

LTT can be used to perform what-if analyses to determine what is best to work on in the journey to Lean given the current operating parameters and market demand for products.

For example, should one give priority in assignment of resources/effort to:

• Changeover cost?
• Changeover time?
• Yields?
• Manufacturing cells?
• Focused manufacturing lines?
• Logically separating final assembly from component manufacturing?
• Shortening run lengths?
• "Buy" rather than "Make" for some components?