Understanding the Difference Between Lead Time and Cycle Time

Lead time and cycle time are two important metrics that provide insight into a company’s operations and ability to deliver value to customers. However, the two terms are often confused with each other. In this article we will clearly explain the difference between lead time and cycle time when to use each metric, and provide examples to demonstrate when each would be applied.

What is Lead Time?

Lead time refers to the total time from when a customer places an order to when that order is delivered. It includes the time required to process the order, manufacture the product, ship it to the customer, and any other administrative tasks in between. Simply put, lead time measures how long a customer has to wait between placing an order and receiving it.

Some key things to note about lead time:

• Measures total time from customer order to delivery
• Includes processing time, production time, and delivery time
• Focus is on the customer experience – how long they have to wait
• Can involve multiple processes and departments

Lead time provides visibility into how well a company can meet customer demand and deliver orders promptly. Short lead times allow companies to respond quickly to customer needs and gain advantage over competitors with longer lead times.

How to Calculate Lead Time

Lead time can be calculated by subtracting the order request date from the order delivery date

Lead Time = Order Delivery Date – Order Request Date

For example:

• Order Request Date: January 1st
• Order Delivery Date: January 15th
• Lead Time = January 15th – January 1st = 14 days

So in this case, the lead time was 14 days.

Why Track Lead Time?

There are several benefits for a company to measure and track lead time:

• Identify inefficiencies – Long lead times can expose problems in processes and operations. Analyzing lead time helps uncover these issues.

• Increase productivity – By working to reduce lead time, companies can increase throughput and productivity.

• Improve customer satisfaction – Shorter lead times mean customers get their orders faster. This improves customer loyalty and satisfaction.

• Gain competitive edge – Companies with shorter lead times can fulfill orders faster than competitors. This provides a competitive advantage.

• Reduce costs – Long lead times tie up working capital and inventory. Reducing lead time frees up cash flow.

What is Cycle Time?

Cycle time measures the actual time required for a company to complete a process, work order, or task. It only includes the time spent working on that item and excludes any queue or idle time. Cycle time measures throughput and efficiency.

Some key things to note about cycle time:

• Measures only the time spent active working on an item
• Excludes any waiting or inactive time
• Focuses on completion of a process, not total end-to-end flow
• Helps identify bottleneck processes and improvement opportunities

Cycle time provides visibility into the speed at which value is created by an organization’s internal processes and operations. Reducing cycle times increases throughput and efficiency.

How to Calculate Cycle Time

Cycle time is calculated by dividing the total processing time by the number of units completed. Queue and idle time is excluded.

Cycle Time = Net Processing Time / Units Completed

For example:

• Net Processing Time: 160 hours (4 weeks at 40 hours/week)
• Units Completed: 1000 units
• Cycle Time = 160 hours / 1000 units = 0.16 hours/unit

So the cycle time was 0.16 hours per unit.

Why Track Cycle Time?

There are several key benefits for tracking cycle time:

• Identify bottleneck processes – Long cycle times indicate inefficient processes that should be targeted for improvement.

• Increase throughput – Shortening cycle times allows more units to be completed in the same amount of time.

• Consistent production – Standardized cycle times provide predictable and consistent output.

• Improved customer quotes – Understanding cycle times for tasks leads to more accurate estimates and quotes.

• Optimize resource usage – Managing cycle times ensures resources are fully utilized without waste.

• Competitive advantage – Faster cycle times means greater responsiveness and efficiency.

Overall, monitoring cycle time provides critical data on the speed, efficiency, and predictability of internal processes. It is a key operational metric.

Lead Time vs. Cycle Time Example

Let’s look at an example to demonstrate the difference between lead time and cycle time:

A custom furniture company receives an order for a handcrafted dining table. This order has the following timeline:

• Customer places order on May 1st
• Design finalized on May 5th (2 days cycle time)
• Materials arrive on May 8th
• Table is built from May 9th – May 21st (10 days cycle time)
• Table is shipped to customer on May 23rd
• Customer receives order on May 27th

Lead time is 27 days. This is the total time from order placed to delivery.

Cycle time is 2 days for the design process + 10 days for the production process = 12 days total. This only includes the active work time.

This example illustrates that cycle time focuses on the manufacturing steps while lead time includes logistics and admin processes beyond active production.

When to Use Lead Time vs. Cycle Time

• Use lead time when measuring and quoting overall time to delivery orders to customers. Lead time provides the customer experience perspective.

• Use cycle time to benchmark, optimize, and improve internal processes. Cycle time gives visibility into process speed and efficiency.

• Focus on reducing lead time to increase competitiveness and customer satisfaction.

• Focus on reducing cycle time to increase throughput, productivity, and quality.

Key Takeaways

• Lead time measures total order-to-delivery time. Cycle time measures only the active production/work time.

• Lead time provides customer/order fulfillment perspective. Cycle time focuses on internal process efficiency.

• When quoting orders or setting expectations, focus on lead time. When optimizing production, focus on cycle time.

• Reducing lead time improves customer satisfaction and competitiveness. Reducing cycle time boosts efficiency and throughput.

• Tracking both metrics provides insights into overall operations and identifies improvement opportunities.

Understanding the core difference between lead time vs. cycle time allows companies to gather the right data for decision making and process improvement. While related, they measure different dimensions of performance. Companies should leverage both lead time and cycle time analytics to enhance the customer experience while driving operational excellence.