In a world of almost instant turnaround between your purchase order and receiving your goods, time has become an even more valuable measurement of customer fulfillment. However jargon-packed that statement is, it hints at a very simple concept: We like to get our goods and services as promptly as possible. This is where lead time and cycle time come into play.
Cycle time vs lead time – what are these exactly, and how does the relationship between the two affect customers’ satisfaction at the end of their journey?
It all has to do with data science. It’s about measuring how productively a business is fulfilling customer orders, and interpreting these measurements in a way to help fuel insights and increase overall efficiency.
This guide will look at these two important metrics in more detail to highlight just how important they are for understanding productivity and improving business processes. Beyond this, we’ll dive into the difference between lead time and cycle time, how your business can calculate both, and how these calculations can help boost your overall productivity.
Cycle Time vs Lead Time: What’s the Difference?
Before we can fully shed light on how to interpret and adapt our lead times and cycle times, we first need to fully understand what these two terms mean, and how they relate to each other:
Lead time can be defined as the time from which an order is placed, or from which a new task appears within a workflow, to when the order is shipped, or to when a task is complete and exits the workflow.
Cycle time is housed within lead time and indicates the “in-process” time it takes to create an order, or the time taken to actually produce something. Cycle time indicates the time that someone is actually working on an order.
So, lead time can be best described as the entire time span it takes to complete a task, from the moment a task enters the work system to the point it gets completed. It’s the time it takes for the input to move through all operations. Cycle time is the time it takes within this larger process to complete the task that will help fulfill lead time.
Another way to think about this is in terms of “system lead time” (lead time) and “customer lead time” (cycle time). For example, say you place an order for a pizza. The second you place the order, the lead time begins and lasts until that pizza makes its delicious way to your door.
However, cycle time only kicks in when the cook actually starts making the order and only lasts until it’s done being made. Lead time accounts for the whole process. That includes the time it takes before cycle time kicks in, and the time it takes for you to receive your cheesy goodness.
Why Is Lead and Cycle Time Important?
Being able to determine lead time and cycle time can help businesses gain invaluable insight into the relationship between an order being placed (or a task entering the workflow) and an order being completed. But what does this tell you, really?
Most fundamentally, measuring these times in relation to each other can help you understand the dynamics of your workflow. These times are key metrics when it comes to measuring productivity, and productivity directly affects the customers you serve and their overall user experience.
Based on the cycle time of a process, you can calculate the amount of time it takes to create your goods / services and the worth of the process based on how much value that step actually adds to the whole product. This information can be particularly helpful to decide the worth of individual processes and to highlight any inefficient process that might be slowing things down.
This means that they’re key metrics to consider if you want to increase this productivity, your overall efficiency, and ultimately create an atmosphere of excellent customer CX. So, in essence, the connection between lead time, cycle time, and customer satisfaction is as direct as it gets.
How to Calculate Lead Time
Lead time, or the overall time it takes between request and purchase and you enjoy your new product, is straightforward to calculate:
In this formula:
- Lt = Lead time
- Od = Order delivered date
- Or = Order received date
For example, say a customer places an order on September 2nd, 2021, and then receives the order on September 22nd, 2021. The calculation to determine lead time would look like this:
As you can see, a business only needs to know the time / date the order was received and the time / date the client received the requested order to calculate lead time. The calculated lead time is the time from order to dispatch.
How to Calculate Cycle Time
Calculating cycle time, then, requires knowing your production time and how much of something is produced in this time. It’s calculated by taking the total production time divided by the units produced:
Where:
- Ct = Cycle time
- Pt = Net production time
- Pu = Units produced during net production time
So, for example, if a factory can produce 1,200 parts of something in 120 minutes, the cycle time calculation would look like this:
As you can see, cycle time depends on the time increment (in this case minutes) you decide to focus on. Reducing cycle time is one of many ways to keep operations on a steady, manageable schedule and a key strategy to increase customer satisfaction.
Tips for Decreasing Cycle and Lead Times
There are all kinds of ways to make your cycle times and lead times shed light on how you can improve business processes. The best thing is, you don’t have to become a mathematician to use cycle and lead time analysis to your advantage.
1. Invest in project management software
Calculating the lead time and cycle time of any project doesn’t have to be daunting. In fact, it’s easy if you have access to the right project management software that can compile all the information necessary to make these calculations.
Beyond this, having a long-term plan and schedule baseline, created with online scheduling software, keeps you and your team on track to achieve your objectives. It gives you constant insight into project development as well as areas where improvement may be needed.
2. Automate your processes
There’s no denying that one of the best ways to cut down on cycle time and lead time is to automate those processes that affect them. Automation in today’s world of business and commerce doesn’t necessarily mean investing in robotic arms. There are many ways to automate processes that take up more time than you might think.
Identifying those processes that can be automated for maximum efficiency and understanding the breadth of automation’s reach in today’s market is key to making it work for your business. Some examples of automation include:
- BPO automation – the process of delegating one or more IT-intensive business processes to an external provider that, in turn, owns, administrates and manages said processes based on defined and measurable performance metrics.
- HR automation – the process of automating HR procedures to help with onboarding, compliance, employee engagement, and even the validation of HR decisions with spot-on analytics.
3. Ditch the code to boost software efficiency
By adopting what’s referred to as a no code / low code methodology, it becomes a lot easier to adapt software and shave precious seconds, minutes, or hours off your cycle time and lead time. Simply, no code or low code uses very little coding, if any, to develop the software crucial for business functions.
Software development can be a time-consuming challenge, and traditional development can be a lengthy process involving multiple steps. These can include manual coding, modeling architecture, testing multiple prototypes, deploying the software, and making ongoing enhancements. This can all impact the time it takes to change software and improve timing.
But, a no code low code platform can accelerate software development while eliminating several steps found in traditional development. Simply eliminating these steps makes this type of software more adaptable when it does need to be changed.
Cycle Time vs Lead Time: The Bottom Line
The benefits of harnessing, controlling, and reducing both lead and cycle times are immense for any business. But fully acknowledging exactly what these metrics mean is necessary for planning and improving your overall performance. With a bit of insight and a bit of technological help, your business will drop the time and boost that all-important customer satisfaction.
This post is contributed to actiTIME by Tammy Wood, the Director of Technical SEO at Automation Anywhere, an intelligent automation ecosystem that encompasses robotic process automation, marketing automation, and more.
