CYCLE TIME



Cycle Time 497
Photo by: Kheng Guan Toh

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.

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.

Cycle time is best illustrated by a few examples. In marketing, time-to-market cycle time is the critical measure of success in the fashion, apparel, and technology industries. Companies that cannot get products to market quickly may get completely washed out. 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. The repercussions for this are found is the staging of enormous amounts of work-in-process inventories. The actual "hands-on" production time in both cases is about the same. However, since the United States produces in large batch quantities, it effectively produces hundreds and thousands of cars at the same time. As a result, there is a lot of inventory staging and related work space requirements. This example illustrates the direct relationship between cycle time and inventory.

Another example of cycle time is order-processing time. Unfortunately, in far too many factories the paperwork time to process an order is longer than product production time. Order processing time starts when a phone call or fax initiates the order, and ends when the order is sent to production scheduling. This cycle time includes all paperwork-related steps, such as credit verification and order form completion.

In finance, performance measures such as cash-to-cash cycle time reflect a company's cash performance. This is the amount of time it takes from the time money is spent on a customer's product for the purchase of components until the "cash" is recovered from the customer in the form of a payment. In the computer industry the industry average cash-to-cash cycle time is 106 working days. For "best-in-class" companies this cash-to-cash cycle time is 21 working days, and for Dell Inc. it is a negative seven days. This example illustrates that the average computer company needs to finance its inventory investment for 106 days, whereas Dell has the advantage of being able to utilize its customers' cash to earn interest. Dell can then use this advantage to offer price incentives that the other computer manufacturers cannot.

A variant use of the term "cycle time" is found in industrial engineering. In this specific example, cycle time has a number of meanings—depending on the situation in which the term is used and the industry to which it is applied. It generally is considered to be a manufacturing term applied to an environment where a series of activities or tasks (each with a predetermined completion time known as task time) are performed in a specified sequence known as a "precedence relationship." However, the term can be used in the service sector if the rendering of the service requires a sequential series of tasks. As these tasks are completed at each operation or workstation, the product is passed on to the next workstation in the sequence until the product is complete and can be defined as a finished good.

The predetermined task times govern the range of possible cycle times. The minimum cycle time is equal to the longest task time in the series of tasks required to produce the product, while the maximum cycle time is equal to the sum of all the task times required for a finished good. For example, consider a product that requires five sequential tasks to manufacture. Task one takes 10 minutes to complete; task two, 12 minutes; task three, 20 minutes; task four, 8 minutes; and task five, 10 minutes. The minimum cycle time for this product would be 20 minutes (the longest time). Any cycle time less than 20 minutes would not allow the product to be made, because task three could not be completed. The maximum cycle time would be 60 minutes, or the sum of all task times in the sequence. This implies a range of possible cycle times of 20 to 55 minutes. However, the maximum cycle time would really only be feasible if there was no waste or non-value-added time in the process, such as delays between tasks. Some people refer to the sum of the task times as throughput time or the time required to move a product completely through the system.

However, in its more general usage cycle time is how long it takes for material to enter and exit a production facility. Depending on the industry, this definition is appropriate with slight modifications. For example, in the automobile collision repair industry cycle time refers to the time a car enters the facility for repair until the repair is completed.

SEE ALSO: Operations Management ; Operations Scheduling

Gerhard Plenert

FURTHER READING:

Blackstone, John H. Capacity Management. Cincinnati, OH: South-Western Publishing Co., 1989.

Cox, James F., III, and John H. Blackstone, Jr., eds. APICS Dictionary, 9th ed. Falls Church, VA: American Production and Inventory Control Society Inc., 1998.

Plenert, Gerhard J. International Operations Management, Copenhagen, Denmark: Copenhagen Business School Press, 2002.

Stevenson, William J. Production/Operations Management, 6th ed. Boston: Irwin/McGraw-Hill, 1999.



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