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Production: Offering A Quoted Lead-Time Vs. Setting Due Dates

Very often, when working with organisations, we find some challenges around the decision to offer a due date or to offer a quoted lead-time as a standard. For example, you might offer a three-week lead-time for any new order – if you receive an order today, the customer can have a due date which is three weeks from today. The three-week lead-time is useful to you as a supplier because you will have calculated it to ensure you have enough of a lead-time to take, process, manufacture and deliver the order. A quoted lead-time is also useful because it means that you have a gauge for how fast the market expects you to deliver. It ensures you are not overachieving and setting false expectations for your customers. However, customers are not really interested in the lead-time; they are interested in the actual date when they can receive their order. So, very often suppliers find themselves facing the question of whether they should market a quoted lead-time or set a due date.

This topic becomes even more interesting when the company in question is looking to grow. That is, take on more sales, more customers, more orders and make more money (which is most companies!). If we follow the reasoning, quoting a three-week lead-time is fine while you are always able to meet it. However, if you are successfully winning more clients, and therefore orders, then in the same time periods you will have taken more and more business which increases your load on your capacity. If you continue to grow, the load will eventually increase to the point where you will have more than three-weeks’ orders already accepted. This means that the next order you win, having quoted a three-week lead-time, you are not likely to deliver on-time. So, this begs the question of whether lead-times are actually helpful, or whether you should you have a process that always gives you a good due date you can quote?

To quote a proper due date, you must be able to understand the load and the timings of the orders you have already accepted. That way, you can see if there are any gaps in capacity where you can reliably accept future orders, or whether you are already full over a horizon – which would mean the available capacity slot is X days into the future. If you can build a simple and visual mechanism that allows you to “see” how full you are, with the orders you have already accepted, then you can easily recognise when the next capacity slot is. For example, you might see that the next slot available is the 1st October. If you have a three-week lead time to complete an order, the next due date you can reliably quote would be the 1st October plus the three weeks – so the ex-works due date you would be able to reliably set in this example may be the 22nd October.

Quoted lead-times cannot coexist with a growing order book. If your business is operating according to a growth strategy, you need to be able to set good and reliable due dates. Describing the process isn’t difficult (we have done it in the paragraph above) but building a mechanism which can – approximately but correctly – visualise the load on Production and pinpoint where the next available slots for capacity are can be a challenge. But this is very, very useful for your Production and Sales departments; it will allow your business to quote reliable due dates, even with a growing order book.

Top tip – if your next available capacity slot lies within the market quoted lead-time, don’t give it away for free! Look at introducing premiums…

At Goldratt UK we work with organisations to help them achieve this. For further help setting reliable due dates (and then in ensuring you meet them!) get in touch at [email protected].

By Phil Snelgrove, Lauren Wiles