Time Metrics Explained: Lead Time vs. Cycle Time vs. Takt Time Mike Kulakov, December 3, 2019 Table of Contents hide What is Takt Time? Takt Time real-life example What is Cycle Time? Cycle Time real-life example What is Lead Time? Lead Time real-life example Explanation video How do Takt, Cycle and Lead Time work together? How can Everhour help you? Ever wondered what is the definition of takt time vs. cycle time vs. lead time? These are individual time metric concepts that work together to help you to monitor and evaluate how efficiently your team spent their time on a particular project or activity, and if it was good for your business. But improving internal times, isn’t the only bottom line. It boosts customer satisfaction too, which can lead to higher profits – up to 60% in fact! In this article we’ll demystify the terms and show you exactly how to calculate them so that you can improve your company’s productivity and potentially increase profits. What is Takt Time? The takt time definition is calculated by how fast and efficiently you or your company needs to work to meet the requirements of your client or project. Essentially, the takt time calculation is the basis for matching supply and demand within your company. Takt time can be said to be “high” or “low” as the term itself “takt” is a German word meaning pulse. That means, if client or project demand is high, takt should also be high; if demand is low, takt may be low. Why do you need to measure takt? Firstly, measuring this time within your project allows you to adjust production/output to meet needs without running into overproduction, wasting resources, or underproduction, not having enough to fulfill an order. What if my product isn’t physical? Takt isn’t tied to physical products. Even if you’re not working with something material, failing to take account of takt means you could be overworking your employees. This leads to burnout, lowers morale by having them do monkey jobs, and even wastes your own resources or staff that you don’t necessarily require. What benefits can I get by measuring takt? Because takt sets the optimal pulse at which your company operates, there are numerous benefits you can observe, such as:Ensuring production matches demandAbility to provide your clients with more accurate delivery estimatesKnowing how many staff and resources you need at any timeBetter able to predict downtime and opportunities for trainingMore accurate financial management Takt Time real-life example Using this simple takt time formula, you can evaluate the rate your company needs to work to productively fulfill client demand: Takt Time = Available Work Time / Client Demand To get your Available Work Time, you can use Everhour to evaluate how much time your team spends productively working towards an activity in any given period. Then just divide that by Client Demand – the overall work that needs to be done within a similar time period. Sounds complicated? Here’s what it could look like in real life: Let’s say you operate a creative agency, and your client requires 3 new pieces of video content completed next month. You have 2 employees dedicated to this project whose productivity time (minus breaks, etc.) is 30 hours per week. Using the formula, we get: TT (80) = AWT (240) / CD (3) This means that for every 80 hours of work, you need to create 1 video. What is Cycle Time? Now that we got takt time under wraps, it’s time to look at the definition of cycle time. Cycle time is essentially, as it says on the tin, the time it takes to complete one production cycle from beginning to end. For example, if you work in a software development environment, this may mean the time from the beginning of coding to the release of the software. You can measure the cycle time of your end-to-end development process or a subset of the process that’s important to you. If you work in a traditional production environment, this could mean how long it takes to produce an item, such as one cup, one bed, one door, etc. Why do I need to calculate cycle time? Calculating cycle time gives you an overall idea of how long it really takes to get work done. What’s the difference – takt time vs. cycle time? While both are essential when it comes to productivity, these two metrics focus on different aspects. Takt accounts for the rate that needs to be achieved to meet demand, while Cycle focuses on the measurement of work done. Why is this important? If your takt time shows your company’s demand is high, but your cycle time is low, you will need to take steps to raise it in order to meet demand, or risk losing customers. Cycle Time real-life example Using this simple cycle time formula, you can calculate how long it takes to complete one production cycle: Cycle Time (CT) = Net Production Time (NPT) / Units Produced (UP) Let’s go back to that creative agency. Say your team worked 264 hours to create 3 videos. Here’s how that would look using cycle time: CT (88h) = NPT (264h) / UP (3 videos) This means it took your team 88 hours per video. Since your takt time equals 80 hours, your team isn’t keeping up with demand. You should do something about it. For example try to optimize – use a different software, pre-made templates or faster script writing technique – or assigning more staff. Read more Klipfolio’s Case: How We Started Measuring the Development Cycle Time What is Lead Time? We’ve covered takt time and cycle time, now let’s move on and look at the definition of lead time: Lead time is your business’ bottom line; it’s the time it takes for one unit or one sale to make it from the order being received to its final payment. When a client enters your business looking for a sale quote, your estimate to them will consider your lead time in order to give them a result in an acceptable waiting time. Why is lead time important? Lead time helps define how long it takes from getting an order to final sale. If your lead time is high – aka exceeds your cycle time by a lot – you’re left with a lot of unused products in your company or time wasted by your employees. Alternatively, if your lead time is much less than cycle time; this means you’re not meeting demand, and your customers are unlikely to be satisfied. What’s the difference – lead time vs. cycle time? The main difference between these two metrics is the amount of time they take into account. Lead time accounts for the entire order receiving, production, and sales process, whereas Cycle time focuses on production time alone. What other differences are there? Cycle time is more internally focused, looking at how long you actually need to produce an item. On the hand, lead time examines your clients’ waiting times overall. Lead Time real-life example Let’s say a client enters your business looking for a bulk order of shoes – 10,000 pairs to put in its retail stores in October for the Christmas season. It takes 1 week to get all the parts and 2 weeks to assemble 10,000 units, so your company has a lead time of about one month. That means that you must get the order from the client no later than September 1 in order to make the delivery on time. Explanation video How do Takt, Cycle and Lead Time work together? Now that we’ve got the calculations out of the way, you’re probably wondering, what is the connection between these three time metrics? How do they work together? Individually they are each extremely helpful in helping you to get to know your business a little better from the inside out. But when combined, they show a fuller picture of how efficiently your company is operating. If your takt time is high, in order to meet demand, you’ll need to increase your cycle time. By knowing your lead time, you can predict how long processing an order takes for your clients – aka wait time. All this together indicates how satisfied your customers are likely to be. By keeping all these times in check, you can improve the efficiency of your business and boost client satisfaction. How can Everhour help you? Everhour is an integratable time tracking solution to help you manage your time and business more efficiently. When you need to calculate your cycle, lead, or takt time, you can do so via Everhour’s software or using our integrations with popular project management tools – Asana, Trello, Basecamp, Jira, GitHub to name a few – that lets you monitor working time and productiveness effectively. Depending on your type of business, you may choose to use: Online timesheet software This is perfect if you want to more efficiently monitor your working time or if you’re looking to upgrade and optimize your current processes, saving time and money. Free time card calculator This lets you manually calculate how much time your employees spent actually working. Questions? Get in touch with us at firstname.lastname@example.org. We will be happy to consult you on how Everhour can help you boost productivity in your company. Mike Kulakov IT entrepreneur, executive and a former engineer. Responsible for company growth as well as the team’s motivation. Big fan of playing tennis, snowboarding, traveling, reading books, and (of course) I live and breathe our product.