Calculating Lead Times in a Value Stream Map

I was asked a question recently about the lead time calculations in a Value Stream Map. The question was specifically how the lead time is calculated.

There are two ways, that I have seen, of calculating lead times for value stream mapping. They both produce different results.

1) The first one is the one in “Learning to See”. Here the lead time is calculated as follows. Lead Time = Inventory/Daily Demand. There is no relationship with the consumption rate at the subsequent station. If the WIP is 1000 and the daily demand is 100, the lead time is 10 days. The assumption is that the inventory will be used up in only 10 days. This produces an inflated value for lead time and is not the true current state.

2) Calculation of Lead Time based on Little’s Law. To me, this is more realistic. Here the lead time is calculated as follows. Lead Time = WIP * Cycle Time of subsequent station. I know there is a lot of confusion regarding this.  Think of lead time calculation as the future tense. With the same example above, if the WIP is 1000 and cycle time at the station is 60 seconds, the lead time is 60000 seconds or 1000 minutes. Assuming 460 minutes in a day, this equates to 2.17 days (1000/460). In other words, lead time calculation is based on consumption rate.

The only thing to keep in mind with the second calculation is with the inventory we have at the last stage (Finished Goods). The lead time for this will be calculated as Inventory/Daily Requirement. This is because the customer is going to consume this at the rate of daily requirement.

In the end, please note that, “By overanalyzing the tool, don’t overlook the purpose of the tool.”

Keep on learning…

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6 thoughts on “Calculating Lead Times in a Value Stream Map

  1. I believe the issue of Lead Time is very far from standard in terms of understanding in the lean community. Lead Time is a function of Takt Rate not Cycle Time. Understanding Throughput Time (Cycle x WIP), your calculation, has no value. It simply tells us we are overproducing. All companies that stay in business are overproducing. Takt rate X WIP tells us how far from perfection (One Piece Flow) we are. Lead Time has no value in terms of understanding the reality of how long it takes to delivery because most organizations are not FIFO or do not have their entire system as a FIFO lane. Lead Time therefore can be considered an organizational thermometer telling us the health of the system from a lean perspective.

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    • Hi Tom,

      It is interesting that the comment contains lean community and overproduction in the same paragraph. 🙂

      We may be saying the same thing in some regards. Takt time is the ideal situation where as cycle time is the current situation. Ideally, they should be same to achieve one piece flow. My view of cycle time in the post is – the amount of time the unit stayed in the station. A balanced station has enough operators to meet the takt time. Just enough capacity to produce the correct quantity.
      -Harish

      Hope that made sense.

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    • Hello, the takt time gives us the total time required for one piece over all the work cells to meet our demand. Please correct me if i am wrong. I have a query – if it is the total time for one piece required across all the work cells, why is it used in calculating the lead time for each of the inventory triangles between work cells. Wouldn’t it give an inflated value too?

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      • Hi Sushant,
        Loosely stating takt time is the time at one station and not over all the stations. If the takt time is 2 min, it means that a widget comes out every 2 min at the end of the line. The total cycle time could be 10 min ( which means that we need 5 stations on the line). Please let me know if I misinterpreted your definition of takt time.
        -Harish

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  2. Hi Harish,

    So we calculate the takt time based on the demand and the available time to us (right?). The way you said that the takt time is the time every piece or product should take to process at one workstation. So for example, we have an available time of 8 hours in a shift and the demand is 32 pieces (for that shift). Which means we need to produce 4 pieces every hour. Suppose their are 5 workstations. The time the first four pieces come out of the 5th workstation will then be 5 hours right? Then at the 6th hour, the second batch of four pieces come out. In this way, we will be left with 16 pieces at the end of the shift and not 32. This is the calculation which i am confused with. Can you help me out with this one?

    Sushant

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