Strategic lead-times and their implications on financial performance

Abstract: The overall goal for manufacturing companies is to earn profit and increase shareholders’ value. To ensure that companies in fact are profitable, managers usually evaluate the company’s resources based on both financial and operational performance, to analyse if the resources are contributing with a financial return. One of the most critical resources and competitive advantages that manufacturing companies have is time. Time, however, is an intangible resource and challenging to measure financially. There are, therefore, few practical instruments available to support managers’ decisions when it comes to linking lead-time with financial performance, assisting managers to prioritize the lead-times that are of strategic value (i.e. strategic lead-times). The purpose of this research was, therefore, to analyse strategic lead-times within new product development, purchasing, and production, as well as the implications that strategic lead-times have on manufacturing companies’ financial performance. To fulfil this purpose, the following two research objectives were formulated: (1) to analyse strategic lead-times within new product development, purchasing, and production, and (2) to analyse the implications of strategic lead-times on manufacturing companies’ financial performance.The research presented in this thesis has been conducted within a research project (KOPtimera). To fulfil the research objectives and the research purpose, a combination of conceptual analytical research and case study research was used, utilizing a number of data collection techniques: literature reviews, interviews, focus groups, workshops, document studies, and observations.In general, it is concluded that strategic lead-times, as defined in the research, have high implications for manufacturing companies’ financial performance and that the length of the strategic lead-times will impact who owns the risk in the manufacturing system, who controls the system and where variants are possible to create. The research further presents the implications that strategic lead-times have on financial performance, as well as indicates that it is possible to evaluate lead-time performance through financial performance, using readily available and accepted financial performance measures. Based on the implications identified, also a framework (the FinaSt framework) was developed. This FinaSt framework takes into consideration that not only the extension, but also the existence of strategic lead-times has implications for manufacturing companies’ financial performance, and that these implications can be either direct or indirect.The results contribute to the literature focused on valuing lead-times and provide useful knowledge for managers, allowing them to gain a better understanding for strategic lead-times’ implications on manufacturing companies’ financial performance, thus allowing for better decision support when evaluating supply chain designs and prioritizing alternatives based on profitability (i.e. return on investment).