TIME BASED COMPETITION THROUGHPUT / OPERATION CYCLE

INTRODUCTION Time has become a key success measure in business. Oftentimes, it is more important than other performance measures. For example, in marketing a product's success or failure often depends on "time-to-market," or how quickly a new product becomes available to the customer. One of many cycle time measures used in management, cycle time is the measure of a business cycle from beginning to end. Production cycle time refers to production activities, such as the total time required to produce a product. Order processing cycle time is used in the front office to determine the total time required to process an order. From a financial perspective, terms like cash-to-cash cycle time describe the amount of time a company takes to recover its financial investment. From a management perspective, cycle time is used to evaluate performance in all aspects of a business.

Introduction. Contd... Cycle time has become the key measurement tool for the performance of a number of leading edge management concepts, including supply chain management (SCM), just-in-time (JIT) management, enterprise resources planning (ERP), theory of constraints management, and lean management. Cycle time improvements in any of these areas have been linked to reduced costs, reduced inventories, and increased capacity. The resource areas that are measured by cycle time include the measurement of financial flow, materials flow, and information flow. In each case, a delay or failure of any of these measures would indicate a failure of the entire business process.

Time to market Time-to-market is the measure of time from idea inception through idea development, design and engineering, pilot, and finally production and customer availability. For example, the United States led the world in the idea phase of automotive air bag development. However, a slow design and engineering process enabled the Japanese to generally offer airbags in their vehicles several years before the United States. Another example of cycle time is the production cycle time. This is the time from when an order is released on the production floor until completion and shipment to the customer. For the American automobile manufacturer this time is measured in weeks and, in some cases, months. For Toyota this time is approximately four hours.

Throughput (Manufacturing Cycle) Time A Measure of Internal Business Process Performance: Throughput time or manufacturing cycle time is an important measure of internal business process performance. Performance measures are found on the balanced scorecards of the companies. Examples of the some performance measures can be found on characteristics of balanced scorecard page. Most of the performance measures are self explanatory. However, three are not - delivery cycle time, throughput time, and manufacturing cycle efficiency (MCE). On this page, Throughput time or manufacturing cycle time is defined, explained and calculated.

Definition and Explanation: The amount of time required to turn raw materials into completed product is called throughput time, or Manufacturing cycle time. The relation between the delivery cycle time and the throughput time is illustrated below:

Delivery Cycle Time and Throughput (Manufacturing Cycle) Time

Explanation The throughput time or manufacturing cycle time is made up of process time, inspection time, move time, and queue time. Process time is the amount of time work is actually done on the product. Inspection time is the amount of time spent ensuring that the product is not defective. Move time is the time required to move materials or partially completed products from workstation to workstation. Queue time is the amount of time a product spends waiting to be worked on, to be moved, to be inspected or to be shipped.

Formula: Throughput time = Process time + Inspection time + move time + Queue time

Example Calculation of Throughput Time or Manufacturing Cycle Time: Novex Company keeps careful track of the time relating to orders and their production. During the most recent quarter, the following average times were recorded for each unit or order: Wait time 17.0 Inspection time 0.4 Process time 2.0 Move time 0.6 Queue time 5.0 Goods are shipped as soon as production is completed. Required: Calculate the throughput time or manufacturing cycle time.

Solution: *Throughput time = Process time + Inspection time + move time + Queue time =2.0 days + 0.4 days + 0.6 days + 5.0 days = 8.0 days

DELIVERY CYCLE TIME The amount of time from when an order is received from a customer to when the completed order is shipped is called delivery cycle time. This time is clearly a key concern to many customers, who would like the delivery cycle time to be as short as possible. Cutting the delivery cycle time may give a company a key competitive advantage - and may be necessary for survival. Consequently, many companies would include this performance measure on their balanced scorecard.

Formula and Example: Example - Calculation of Delivery Cycle Time: Delivery Cycle Time = Wait time + Throughput time Example - Calculation of Delivery Cycle Time: Novex Company keeps careful track of the time relating to orders and their production. During the most recent quarter, the following average times were recorded for each unit or order: Wait time 17.0 Inspection time 0.4 Process time 2.0 Move time 0.6 Queue time 5.0 Goods are shipped as soon as production is completed. Required: Calculate the delivery cycle time.

Solution: Delivery Cycle Efficiency = Wait time + Through = 17.0 days + 8.0 days* = 25.0 days Throughput time = Process time + Inspection time + move time + Queue time =2.0 days + 0.4 days + 0.6 days + 5.0 days = 8.0 days

Manufacturing Cycle Efficiency (MCE) Value added time as a percentage of throughput time is called manufacturing cycle efficiency. Through concerted efforts to eliminate the non-value added activities such as inspecting, moving, and queuing, some companies have reduced their throughput time to only a fraction of previous levels. In turn, this has helped to reduce the delivery cycle time from months to only weeks or hours. Throughput time, which is considered to be a key measure in delivery performance, can be put into better perspective by computing the manufacturing cycle efficiency (MCE).

Formula: MCE = Value-added time / Throughput time If the MCE is less than 1, then non-value added time is present in the production process. An MCE of 0.5, for example, would mean that half of the total production time consisted of inspection, moving, and similar non-value-added activities. In many manufacturing companies, it is less than 0.1 (10%), which means that 90% of the time a unit is in process is spent on activities that do not add value to the product. By monitoring the MCE, companies are able to reduce non-value-added activities and thus get products into the hands of customers more quickly and at a lower cost.

Example Calculation of Manufacturing Cycle Efficiency: Novex Company keeps careful track of the time relating to orders and their production. During the most recent quarter, the following average times were recorded for each unit or order: Wait time 17.0 Inspection time 0.4 Process time 2.0 Move time 0.6 Queue time 5.0 Goods are shipped as soon as production is completed. Required: Calculate manufacturing cycle efficiency.

Solution: MCE = Value-added time / Throughput time MCE = 2.0 days* / 8.0 days** = 0.25 Only process time (2.0 days) represents value-added time Throughput time = Process time + Inspection time + move time + Queue time = 2.0 days + 0.4 days + 0.6 days + 5.0 days = 8.0 days