This post continues a series of blog posts on Measures by exploring Cycle Time.
Cycle Time is one of my favorite measures. It is at the heart of Lean and forms a basis for improvement that is typically at the center of good customer experience and process agility. In my opinion, any process not tracking this measure cannot be meaningfully improved.
Cycle Time is defined as the total duration for a process to complete. This includes all time from a customer’s perspective to transform inputs to outputs including wait, process, transport, inspect, and other value add and non-value add time.
Cycle Time (CT) is easily measured for any process. You could measure it directly by starting a clock when a work item enters a process and timing until the process is completely finished with an end product. Of course, you’d have to allow for different exception paths that may take longer than the happy path on some repetitions of the process. The neat thing however, is that on average, Cycle Time can be calculated using two other readily available metrics. Cycle time is equal to the work in process (WIP = work that has started the process, but is not yet finished) divided by the capacity (Exits = output of the process over a period of time.) That is:
CT = WIP / Exits.
Consider a bank line. There are 10 people in line in front of you for the teller. You notice that one person is finishing on average every 2 minutes. How long will you wait in line – what is your bank line cycle time? WIP = 10 people in line. Exits = 1 person/2 minutes = 0.5 person /minute.
CT = WIP/Exits = 10 person / (0.5 person/ minutes) = 20 minutes
Want cycle time to improve? Reduce the WIP. If 5 people leave the bank line, you’ll wait half as long. Same process, half the CT. Or, improve the process capacity. With a second teller working, the Exits increase to 1 person/minute and again you wait half the time. Best yet, make the single teller twice as productive. Again, Exits double and CT is cut in half.
These same concepts apply easily to processes improvement. Usually, we can control the WIP in a process. Pull or Kanban systems are set up to do just this. Once the established WIP level is reached, no new inventory enters the process until another item exits. Generally, work should stay in its most unprocessed form until there is demand and capacity for it. Why is this important? When WIP is reduced all kinds of good things happen:
- Reduced Investment. WIP represents an investment that has not yet paid off. Reduce WIP, and you reduce the capital needed to run a process. Or, for service processes, think of reducing the investment in unbillable work “laying” around the office.
- Less Waiting. WIP that is waiting to be worked on is potentially wasted. Specifications and demand can change and WIP can get damaged and decay causing rework, excess and waste. Even for items that don’t need preserved, it is helpful to think of WIP has rotting any time it is in a queue.
- Less Storage. If WIP is not in the process, it does not need to be stored on the floor, in warehouses, or in file cabinets and desks.
- Easier Logistics. Unless you’re a long haul railroad, it is easier to schedule and move smaller loads.
- More Focus. If work gets stuck in the process, it is much easier to find the bottle neck or constraint and take corrective actions.
In general, WIP should be reduced to just enough to cover the bottle neck activity. Consider our 3 step loan approval process of: Capture, Approve, Fund. If Approve can process only 10 loans a day while Capture and Fund can do 20 per day, marketing should generate demand for only 10 loans per day to meet a 1 day cycle time. Any more, and the cycle time will increase to over 1 day. Want to be able to handle more loans each day at the same CT – you’ll need to improve capacity (Exits) at the bottleneck. To process 20 loans at 1 day cycle time, you’ll need to double Approval processors or make them twice as efficient (normally using a Lean technique to focus on value add or Six Sigma technique to reduce errors and variability.) The Capture and Fund processors already have that capacity.
Looking at improvement from another perspective, as cycle times are reduced, capacity (Exits) increases proportionally. That is Exits = WIP/CT. A fifty percent reduction in cycle time at the same load means capacity has doubled.
Measure and focus on Cycle Time improvement to maintain customer satisfaction, reduce costs and improve capacity.