Cycle time and velocity.
The time to respond to customer order is referred to as responsiveness. Cycle time and velocity are two operational measures of responsive-ness. Cycle time is the length of time it takes to produce a unit of output from the finished goods inventory (Finishing point of the cycle). Another definition of cycle time is dock-to-dock time. Dock-to-dock time is the number of days between the time materials are received at the receiving dock and the time the finished good is shipped from the shipping dock. In a lean firm, there is no finished goods inventory-goods are shipped when finished. Thus, cycle time is the time required to produce a product (time/units produced). Velocity is the number of units of out-put that can be produced in a given period of time (units produced/time).
Incentives can be used to encourage operational managers to reduce manufacturing cycle time or to increase velocity, thus improving delivery performance. A natural way to accomplish this objective is to tie product costs to cycle time and reward operational managers for reducing product costs For example, in a lean firm, cell conversion costs can be assigned to products on the basis of the theoretical productive time available for a period (in minutes)m a value-added cost per minute can be computed.
Value-added cost per minute = cell conversion costs/Minutes available
To obtain the conversion cost per unit, the value-added cost per minute is multiplied by the actual cycle time used to produce the units during the period. By comparing the unit cost computed using the actual cycle time, a manager can assess the potential for improvement. Note that the more time it takes a product to move through the cell, the greater the unit product costing encourages operational managers and cell workers to find ways to decrease cycle time or increase velocity.