Leadtimes are shrinking,but not everyone's a winner
By Anne M Porter -- Purchasing, 11/5/1998
Leadtime reduction and stabilization are goals of most U.S. procurement organizations. Eighty-five percent of buyers surveyed by Purchasing say leadtime reduction is a long-term goal of their organization, while 78% say leadtime stabilization is wanted.And there is plenty of evidence to suggest that leadtimes are shrinking on a long-term, non-cyclical basis. For example, Purchasing has been tracking national average leadtimes for more than 100 common industrial commodities since 1972. Over that time, our weighted Leadtime Index displays a distinct downward trend (see chart)--one that appears to defy business-cycle ups and downs.
Still, this overall shrinking trend is not apparent to all buying organizations. While 43% of surveyed buyers believe leadtimes are being permanently reduced, 50% do not and 7% have no opinion on the subject (implying that they have witnessed no significant reductions).
A booming economy
The discrepancy between what the data say (that leadtimes are shrinking) and what many buyers say (that leadtimes are not shrinking) may be explained in part by the effects of the lengthy economic expansion. Buyers cite a number of industry segments where capacity has tightened considerably over the last several years. Example: Aerospace-grade machined parts. A buyer with AlliedSignal cites, "military and aerospace cutbacks 5-8 years ago resulting in business closures," and "supplier consolidation," as reasons for substantial leadtime stretching in this area.
The long economic expansion also has taxed capacity for products that have always carried long leadtimes. Sherry Dobbs, buyer for Mile High Equipment Co. in Denver, says leads are generally out on "any custom manufactured item." Likewise, Jesse Perkins, senior buyer, Gulf Coast purchasing, for Lyondell in Channelview, Texas, says leads are out on "specific engineered items." The director of purchasing for a Pa.-based chemicals processor cites longer leads for "capital goods and specially designed pumps," due to "increased demand at producers."
Rising product complexity may be another factor pushing some leadtimes out. The PA for a chemicals manufacturer in Connecticut cites longer leads for "fabricated processing equipment," because the machines are now "more complex and computerized."
Movement of manufacturing offshore is another factor, buyers say. The buyer for a Milwaukee-based manufacturer says "We have seen instances of increased leadtime when manufacturers move plants out of the country or when they need to communicate with foreign facilities."
John Holmes, a senior buyer for Grumman Olsen suggests that as big-volume buyers form partnerships with suppliers to reduce their leadtimes, delivery speeds can sometimes deteriorate for smaller-volume buyers of the same products. "[Steel bar] mills and service centers are concentrating on partnerships and long-term high-volume quantities. Small-quantity users are at a disadvantage," he says.
Why short leads are important to buyers
Asked to explain their reasons for long-term leadtime reduction and stabilization, buyers most frequently cite inventory and customer service.
Typical are the remarks of Nancy Ange, senior buyer for Hankison International in Newport, N.C.: "We pride ourselves on being able to take a customer order and ship it the next day." But since the company's products are custom-configured, she says, it must stock many items and turn inventories frequently. "Short leadtimes allow us to do that." What is more, Ange adds, "Our shipments are made on time by having a reliable planning system in place. If leadtimes are not stable, planning information is not reliable. We must be able to count on and trust supplier leadtimes."
Bernard Ferry, Jr., buyer for Xerox in Webster, N.Y., says the company's "time-to-market" and "build-to-order not build-for-inventory" mentalities underpin its leadtime reduction goals.
Others say leadtime reduction strategies are more a function of competition for customers. "We're in a market that requires us to service our customers in three days for any product we offer," says Edward Lopez, buyer for Gould Pumps, in Auburn, N.Y. The buyer for an automotive supplier in Flint, Mich., says the firm's strategy to speed supplier deliveries is simply, "market driven."
Two ways to shrink a lead
When Purchasing asked buyers to name the commodities for which they have witnessed significant leadtime improvement in the past five years, no strong industry patterns emerge. The largest number of mentions go to electronic components, although some buyers report long-term leadtime stretching in this industry as well. Survey results suggest that leadtime improvements--when they do occur--tend to be supplier- or relationship-specific.
For example, Ange of Hankison International says a supplier of cardboard products has improved leadtimes by installing better equipment and "new planning systems." Meantime, she says, a supplier of copper fittings has improved leadtimes by "narrowing its product offering, enabling them to perform better on their top sellers."
Buyers say significant leadtime improvements are often by-products of strengthening supplier relationships, process improvements, better planning, and improved communications. For example--
* Lopez of Gould Pumps says his firm achieves leadtime reduction through long-term commitments and better forecasting to OEM suppliers. In return for long commitments, he says, "we receive better service."
* Greg Sachs, strategic buyer for Honeywell, Micro Switch, in Freeport, Ill., cites "supplier-managed inventory plans," as a reason for shrinking leads.
* Ron Gregory, buyer-planner for Edwards Systems Technology (a unit of General Signal) in Pittsfield, Me., attributes shorter leads to "better production methods" and projections of purchasing requirements.
* Jim Knechtges, vice president of purchasing for Impact Products in Toledo, Ohio, attributes shorter leadtimes to, "better predicting of customer demands" and the "open sharing of usage" data.
* Another purchasing director says: "Pro-cess and transactional efficiencies provide leadtime shrinkage as a side benefit."
In many other cases, however, leadtime improvements are simply a function of greater inventory (and cost) in the supply base. For example--
* The director of purchasing for a chemicals firm in Pennsylvania says "suppliers have added more warehousing," to explain an improvement to MRO leadtimes.
* The PA for an Illinois manufacturer says, "We have a program with suppliers under which we buy more than we need and they warehouse it for us."
* The PM for a food firm in Wisconsin attributes shorter leads to "long-term contracts written to require significant safety stocks."
E-commerce connection
Asked if electronic commerce will help in the fight against long or volatile leadtimes, some buyers are more optimistic than others. Most agree that e-commerce will cut leadtimes by shrinking order cycles, but there is considerably less agreement about the effect of e-commerce on either the production or delivery components of supplier leadtimes.
The PA for an electronics contract manufacturer in Indiana says e-commerce, "will affect the amount of data being transferred between two points, but we are not sure that the analysis and response to the volume of data will be the same." The buyer for a Milwaukee-based OEM says e-commerce, "should reduce the leadtimes of administrative tasks associated with orders, but not manufacturing leadtimes." Winona Patterson, PA with Boldt Metronics International (BMI) in Palatine, Ill., says "I place a lot of MRO orders online and leadtimes are the same. It just makes ordering easier."
Others are more optimistic. For example, Gregory of Edwards Systems thinks e-commerce will improve delivery speeds by allowing buyers to shop more easily. "Leadtimes and availability from different suppliers and distributors will be readily available at progressive companies." Another buyer agrees: "information regarding deliveries, pricing, and supplies is readily available." Perkins of Lyondell says: "The availability of information will allow manufacturing to make better, quicker decisions." An Orlando-based PM says: "E-commerce gives quicker and significantly more information and access to products, thereby affecting leadtimes." "Faster, accurate communications always help," says the PA for a Conn.-based chemicals manufacturer.
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