Study Shows Reduction in Cycle Time by 25% Doubles Productivity & Reduces Cost by 20%

Posted by on Oct 10, 2012 in Continuous Improvement, Lean, Lean Six Sigma | 0 comments

In their 1990 book, Competing Against Time: How Time-based Competition Is Reshaping Global Markets, George Stalk and Thomas Hout investigated reducing time as a means of securing a competitive advantage.  In summary, they offer four rules of responsiveness:

  • 1/4-2-20 rule:  If time is compressed in a process by one-quarter, labor productivity doubles, and costs are reduced by 20 percent.
  • 3/3 rule:  The time lost in most processes is equally attributed to three sources:
    • Waiting for the completion of a unit of work, either for the product itself or for a required component that is not yet available.
    • Waiting for physical or intellectual rework to be completed, and
    • Waiting for a management decision to send work to the next step.
  • .05 to 5 rule:  Studies show that value is created in only .05 to 5 percent of the total time employed in a process.
  • 3 X 2 rule:  When time is compressed in an organization’s processes to be at least 50 percent faster than the competition, growth at three times the industry’s average is likely, and profits of two times the industry average are possible.
Other benefits of reducing cycle time cited in their book include:
  • Price premiums:  Customers perceive products and services provided in less time as more valuable.
  • Reduced risk:  By producing products and services faster, companies can rely on shorter forecasts, which are likely to be more accurate than longer range forecasts.
  • Increased market share:  Consumers tend to have more confidence in responsive suppliers and tend to reward them with their business.

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