Definition
Delivery Cycle time is considered to be a highly important metric when it comes to internal business performance. It is described as the amount of time from when the order is received to when the order is finally shipped.
This tends to be an important factor for businesses, as well as the customers, because timely order processing is a feat that almost every business, as well as customer tends to appreciate.
In the same manner, it can also be seen that shorter delivery cycle times can potentially act as a competitive advantage for the company, and in most cases, it tends to be critical for their survival and sustenance.
Formula
Delivery Cycle Time is calculated using the following formula:
Delivery Cycle time = Wait Time + Throughput Time
Throughput Time is referred to as the time which is taken to prepare the product, and finalize it, so that it is ready to be dispatched. Throughput time is calculated using the following formula:
Throughput time = Processing Time + Quality Inspection Time + Queue Time + Moving Time
How to calculate Delivery Cycle Time?
Calculation of Delivery Cycle Time is illustrated via the following example:
Feliz Inc. needs to determine if their delivery cycle time has improved in comparison to the last quarter. Last quarter, the delivery cycle time was 20 days. For the current quarter, the have the following details available:
Wait time: 9
Quality Inspection Time: 0.3
Processing Time: 3
Moving Time: 0.7
Queue Time: 4
In order to calculate the delivery cycle time, there is a need to calculate the throughput time first. Throughput time is calculated using the following formula:
Throughput Time = Processing Time (3) + Quality Inspection Time (0.3) + Queue Time (4) + Moving Time (0.7)
Therefore, throughput time in the current quarter is 8.
Now, in order to calculate the delivery cycle time, the following formula is used:
Delivery Cycle time = Wait Time (9) + Throughput Time 8)
Therefore, delivery cycle time now is 17 days.
In comparison to the last quarter, delivery cycle time has reduced by 3 days, and therefore, the delivery cycle efficiency for Feliz Inc. is said to have improved.
Advantages
Delivery Cycle Time is a highly important metric that directly reflects how the company handles and processes orders, once a sale is made. Therefore, this important metric should be analyzed properly, because it holds the following upsides, from the perspective of the company:
- Delivery Cycle Time is considered to be an efficiency related metric. It shows how quickly the company responds, to fulfill orders. In the case where the company has a shorter delivery time as compared to other players in the market, it can be marketed as a unique selling proposition, which gives company a competitive edge on numerous grounds.
- Delivery Cycle Time can be broken down into several different components. In case of variance, it can easily be identified which production aspect went wrong, and how can it subsequently be fixed in the next cycle.
- Shorter delivery cycles might also mean shorter cash conversion cycles for the company. It means that the turnover would be higher, since processing is fast, and hence, cash would be converted at a faster pace too.
Disadvantages
On the contrary, if delivery cycle time is not managed properly, it poses a number of threats for the company. Some of the following examples are:
- Longer delivery times disincentives sales. It gives the customers and clients time to think over their purchase, and they might look for alternates that can fulfill the orders relatively quickly.
- Poorly managed delivery cycle times might also take an uncalled for toll on the product quality. If crucial components within the throughput time are compromised upon (for example, processing time, or inspection time), it might eventually lead to quality degradation, that would be detrimental for the business in the longer run.
How to improve Delivery Cycle Time?
However, there is no doubt to the fact that delivery cycle time is a metric that should continually be improved over the course of time.
As a matter of fact, it is important to ensure that those areas within the formula are identified, which can make the process efficient, without compromising on quality. These may include the following:
- Focusing on areas that prolong the waiting time within the company. This can be done by reducing waiting time before the order is received, and the time when it starts to get processed.
- Adopting a Just-In-Time Policy – In cases where the company waits for inventory stock-ups, they can ensure that they are able to adopt Just-In-Time policies to ensure that there are no delays because of inventory mismanagement.
