Applying MCT in Both Manufacturing and Non-Manufacturing Contexts

Historically, the acronym MCT comes from the phrase “Manufacturing Critical-path Time.” Although in this book we are concerned with MCT only in the context of manufacturing, in actual fact the scope of MCT extends beyond manufacturing. MCT has been used in several contexts, including in office operations such as quoting and engineering; in new product introduction; in supply chains; in healthcare operations; and in insurance companies.

Thus, we have found it best to just use the acronym MCT (pronounced “em-see-tee”) as a metric. For example, in looking at the process for making quotations, we can use the term “MCT-quoting” to label the metric for the time to make the quotations. Similarly, we could use “MCT-hiring” to denote the metric for the time it takes to hire new employees, and so on.

Need for MCT Definition

Why is a precise definition needed for a seemingly obvious concept such as lead time? There are three main reasons:

1. “Lead time” can mean different things. Consider a supplier of bearings that stocks its standard bearings in distribution centers (DCs) around the U.S. The lead time for this supplier could be either (i) the lead time seen by U.S. customers, typically three days for the bearings to be picked from the DC and arrive at the customer’s site; or (ii) the lead time to make a fresh batch of bearings, typically 85 days from starting the first process to arrival at the DC. Now suppose the supplier receives an order for custom bearings (not stocked at a DC). There are two more possible lead times: (iii) the lead time quoted by the sales department; and (iv) the lead time actually achieved by the supplier in delivering these custom bearings. We could continue with examples of other “lead times.” There is clearly need for a standard, because you can’t have a goal of reducing something until you can agree on how to measure it.

2. Traditional definitions of lead time focus only on the result. A typical definition of lead time is: “The time from when an order is transmitted by a customer until the order is received by that customer”—but this focuses only on a result. It does not give any indication of how order fulfillment is achieved and specifically does not capture waste in the process of how that lead time is achieved.

3. MCT quantifies enterprise-wide waste. Other improvement methods identify individual instances of waste, such as: producing defective parts, or a worker needing to walk around the factory to find a missing tool. However, such wastes measure the micro impact of operational problems—they do not give insight into macro system-wide waste. As will be shown in this appendix, MCT does indeed provide insight into enterprise-wide waste. Later sections will also show that MCT extends naturally to an organization’s supply chain, and thus also provides insight into waste in the extended enterprise.

In summary, MCT provides management with a precisely defined metric that gives a unified measure of system-wide waste in a single number. Thus, examining the before-and-after MCT values for an improvement project makes it clear whether improvements have been achieved.

MCT Definition and Application

This is the central concept in this appendix, so it is highlighted here.

Key terms in this definition are now explained briefly.

• typical amount The purpose of MCT is to highlight the biggest opportunities for improvement. For effective use of MCT, don’t get bogged down with trying to determine details; limit the scope of the MCT analysis and keep data gathering simple.

• calendar time Customers view delivery in terms of a specific calendar date, and don’t care which days your organization is or is not working. MCT measures in real time, not working time, and keeps the focus on the calendar date.

• customer submits an order This should be when the clock starts as far as the customer is concerned.

• through the critical path This requires the following rules to be observed:

  1. All necessary activities must be completed “from scratch”—for example, if components need to be fabricated, then pre-built stocks of these items cannot be used to reduce the MCT value; you must include the time to make the components.

  2. Include all the normal queuing, waiting, and move delays that jobs incur—do not use values for rush (hot) jobs.

  3. Time spent by material at any stage, including all inventory holding points, must be added into the MCT value.

  4. If there are multiple paths involved, e.g., where components must be completed, or sub-tasks must be performed before a main task, then MCT is the value for the longest path from start to finish.

• the first end-item Even though the customer might have ordered a batch of parts, this sharpens the focus on delivery of the first end-item. Here, end-item should be interpreted as the first usable set of items for the customer. Example: the customer needs to mount a support strut on a machine, and the supplier provides the strut and two mounting brackets for this operation. For the customer to complete one assembly operation they must receive one strut and two mounting brackets. Hence, this set is the “first usable set of items.”

• is delivered MCT ends when the order is delivered to the customer’s point of receipt. This can be interpreted as needed for different business contexts, as shown below. In the specific case where you are analyzing the supply of components to a customer, MCT must include all logistics times (it is important to quantify the impact that logistics time has on a firm’s ability to respond to customers).

Detailed explanations of all the above concepts along with calculation rules and tips for calculation can be found in the MCT Quick Reference Guide (see “For Further Reading”).

Preview of MCT Map, Gray Space, and White Space

An MCT analysis is typically conducted for a portion of an enterprise—a subset that has been targeted for improvement. The initial goal is to produce an MCT Map for that subset and to calculate the corresponding value of MCT. It will be shown that the MCT Map provides a high-level picture of opportunities for improvement, and the MCT (value) provides a benchmark to gauge subsequent improvements. This section defines some terminology related to MCT Maps.

Figure A.1 shows an MCT Map for an order from receipt at a company until the order is loaded onto a truck for shipping. The flow in Figure A.1 is from left to right and the representation is intuitive, as seen in the figure. In this example, sales activities and processes prior to receipt of order are not shown; also not shown are any processes used in shipping and logistics after the order leaves the company. This illustrates that the scope of an MCT Map is typically limited to a subset of an enterprise, as required for the goals of a specific project. In Figure A.1, the MCT for this subset is 14 days (= 2 + 9 + 3).

Figure A.1Example of an MCT Map.

• Gray Space This illustrates the total time when something is actually happening to an order: for example, someone is working on it, or it is being machined, or it is in an oven. This total time is shown by the rectangles with the shaded gray. These are customarily placed at the end of the operations for which this time occurs. For instance, the order spends nine days in Fabrication Operations, and the Gray Space can be seen at the end of this nine-day segment. Note: while Gray Space might resemble the term “touch time” used in other approaches, it is not the same! There are specific rules for calculating the amount of the Gray Space: more details can be found in the MCT Quick Reference Guide.

• White Space This illustrates the remaining time spent by the order in a particular area; this is the time when nothing is happening to the order! This is customarily placed before the Gray Space for the same area. Looking at the Fabrication Operations again, you can see the White Space preceding the Gray Space.

The Business Case for MCT

While everyone has heard that “time is money,” time (as measured by the MCT metric) is actually a lot more money than most managers realize! Long MCTs add layer upon layer of overhead and indirect costs, much more than managers anticipate. Industry projects have shown that reducing MCTs results not only in quick response to customers, but also in lower costs and improvements in other metrics.

This happens because MCT is a strong indicator of enterprise-wide waste. Consider an extreme situation: if all the MCTs in your organization were reduced by 90%, what are all the activities, resources, and systems that are in place today that could be reduced, simplified or eliminated altogether? Also, what are the new opportunities that might be available to your business? Stop here for a moment and make a list of answers to these two questions for your organization; then read further.

Activities/resources that could be reduced or eliminated include planning, forecasting, warehousing, inventories, expediting of late jobs, rescheduling, and more. If these items could be reduced or even eliminated if your MCTs were shorter, they represent “waste” in your enterprise because of long MCTs. New opportunities from short MCTs could include increasing sales through rapid delivery of existing products, and gaining market share through rapid introduction of new products. Again, these opportunities are being missed (or “wasted”) today, because of long MCTs.

Does reducing MCT really help to trim down these “wastes”? Experience with hundreds of projects has shown that the waste reduction is substantial, and the resulting improvement in performance metrics is very significant. These results have been documented in conference presentations, industry publications, and books. Following are some examples (see “For Further Reading” for additional references).

MCT Maps Help Visualize Data for Complex Operations

An MCT map is a powerful way to communicate insights from an MCT analysis. The MCT map can also help with getting buy-in from management and employees on improvement opportunities.

We now show how to make an MCT Map for a more complex operation, along with the insights that this map provides. Madison Ventilation Products (MVP), a hypothetical company, is engaging in improvement projects. For one of the projects, the improvement team decides to focus on the product line “MVP Industrial Fans,” including the main fabrication/assembly operations and the first-level supply chain for three purchased items. Following are the results of data gathering. Refer to Figure A.2, starting at the top-right corner. Incoming orders are processed through Office Operations, which take an average of nine days, of which one day is working time. We will use the abbreviation [9(1) days] from here on, to denote [total (working) days]. (All data have been converted to calendar days here). The supplied components are Forgings [36(3) days], Sheet Metal [9(1) days], and Motors [29(3) days]. Incoming material for these items is stored in a warehouse (WH) for 13, 4, and 11 days, respectively. In-house operations involve fabricating Fan Blades [14(1) days] and Enclosures [9(1) days]. These are placed in a staging area (Stg.) where they wait [3 and 2 days], before going through Assembly [3(0.5) days]. Completed Fans are stored in a Finished Goods area [13 days], then Packed [1(0.25) day] and Shipped [2(2) days] to the Customer.

Figure A.2Process map for MVP industrial fans.

Figure A.3 shows the MCT Map for MVP Industrial Fans. To understand the MCT Map, start with Figure A.2 and trace the three paths going counter-clockwise from the Customer and back to the Customer. Next, trace each of these paths starting from the left side of the MCT Map in Figure A.3 and follow each of the bars for the components. Note that Office Operations are common to each path and are repeated in each bar. The vertical line indicates that these components are supplied to Assembly (it helps visualize the bill-of-materials). On each path, working times are shown as Gray Space and the remaining times as White Space. The MCT Metric for MVP Industrial Fans is derived from the longest path and equals 94 days. To see this, trace these numbers in Figure A.2 for the path with Forgings: 9 + 36 + 13 + 14 + 3 + 3 + 13 + 1 + 2 = 94. As explained earlier, the MCT Map does not need to cover details for the whole company, it can be used to look at a subset of the operations; here, this map is for MVP Industrial Fans only.

Figure A.3MCT map for MVP industrial fans.

Comparison with Value Stream Mapping (VSM)

Value Stream Mapping (VSM) is a popular tool used for improvement projects. However, in the initial project stages, MCT Mapping has several advantages over VSM:

• An MCT Map is simpler, and provides an easy-to-see, high-level view of the operation: compare the example of a Value Stream Map in Figure A.4 with the MCT Map in Figure A.3.

• An MCT Map represents time proportionally. In the VSM in Figure A.4 it is not easy to pick out the largest segments of time, while in the MCT Map these segments jump out at you. So, the MCT Map helps to target the largest opportunities (White Space).

• An MCT Map visually highlights the large amounts of White Space versus the small amounts of Gray Space, emphasizing the need to focus on the White Space.

• An MCT Map identifies the critical path, ensuring that improvements are targeted at processes that will make a significant difference. Note: the scale (X-axis) goes from right to left for a reason: you can easily read off the lengths of the other paths to know when another path might become critical.

Figure A.4Example of Value Stream Map (VSM).

Note, however, that the two approaches are not contradictory; in fact, they can be complementary. You should begin with MCT Mapping because it shows you the forest before you look at the trees. But once you determine that you need to focus on an area, you could develop a detailed VSM for that area. Or, if you already have a VSM, you can convert the data to quickly make an MCT Map (see “For Further Reading”); this will help you get insights into where to focus your project.

Using MCT in Supply Management and in Other Industries

Modern approaches to supply management emphasize not only supplier performance but also supplier improvement, so it is important to have metrics that support both these aspects. Surprisingly, the traditional metrics are not as effective as one might think! When added as a metric for suppliers, MCT can complement the long-standing trinity of supply management metrics of Quality, Cost, and Delivery (QCD), and assist with strategic supply management initiatives (see “For Further Reading”). Suppliers with long MCTs should be encouraged to engage in activities to reduce their MCT. These MCT reductions will result in higher quality, lower cost, and improved on-time delivery; all of these will benefit the customer as well.

MCT should also be a factor in sourcing decisions. A supplier with short MCT should be given some preference over one with a long MCT, even if the latter has lower cost. This is because a supplier with long MCT results in a number of hidden costs, both in its own operation as well as in the customer’s operation. Since MCT includes logistics time, this also implies giving preference to local suppliers over those that are half-way around the world.

Although MCT originated in manufacturing, it can be applied in other industries. MCT Maps have been used for insights into Healthcare operations, for example, Patient flow through an Emergency Room (ER), and in the Insurance Industry, for example, to illustrate the flow for Claims Processing.

Motivating Teams to Drive MCT Reduction

Earlier in this appendix, we described how reducing MCT has resulted in manifold benefits at companies. Hence, as part of their continuous improvement programs, organizations should encourage their teams to reduce MCT. An MCT-based metric that helps motivate MCT reduction is the QRM Number, defined as follows:

$$QRMNumber=100\times (BasePeriodMCT\text{/}CurrentPeriodMCT)$$

The two quantities on the right side of the equation denote the average MCT measured over an initial (base) period and the average MCT achieved during the current performance period. (The acronym QRM comes from Quick Response Manufacturing; see Appendix B.)

Using the QRM Number has several advantages over using the raw MCT values for teams, as illustrated by an example. Suppose an improvement team starts with an average MCT of 12 days. During the next three evaluation periods it reduces this to 10 days, then 8 days, and finally to 7 days. Table A.1 shows the values of both MCT and the QRM Number, along with the calculation details.

The advantages of using the QRM Number over the “raw” MCT values for the purpose of motivating teams are:

1. Reducing MCT results in an increasing QRM Number. Figure A.5 graphs a team’s progress over time as measured by both raw MCT and the QRM Number. Improvements by the team result in the MCT curve going down, but the QRM Number curve going up. Literature on motivation shows that people react more favorably to a graph going up than to one going down. Thus, the QRM Number graph better motivates the desired behavior (MCT reduction).

2. Equal reductions of lead time in the future result in larger increases in the QRM Number. The team reduced MCT by two days in the second period, and again by two days in the third period (equal improvements in MCT). However, the team was rewarded by a 20 “point” increase in QRM Number in the second period but 30 points in the third period. This makes sense because (i) proportionally, there is a larger reduction in the third period, but also (ii) at first it is easy for teams to find a lot of “low-hanging fruit,” but then it gets harder to find ideas for improvement. This remark leads to the next advantage.

3. As MCT reduction gets increasingly difficult, the QRM Number continues to motivate teams. Figure A.5 shows that while the MCT graph starts to flatten out, the QRM Number graph continues to rise significantly, thus motivating the team to keep improving. Table A.1 shows that although the team got 20 points for the second-period improvement of two days, it actually gets more points (21) for the fourth-period improvement of just one day!

4. The QRM Number provides a single measure that can be used throughout the organization regardless of the type of work. For example, if an organization has improvement teams working in various office operations as well as several shop floor areas, the progress of all the teams can be easily compared by tracking their QRM Numbers.

Figure A.5Graphs of MCT and QRM Number for a team.

The QRM Number can also be used in Supply Management initiatives as described in the previous section. Using the QRM Number for suppliers helps to support supplier improvement projects using a time-based metric.

Summary: MCT Map and Metric Provide Clear Goal

Improvement projects can lose focus because they have multiple goals such as targets for cost, quality, efficiency, on-time delivery, and so on. These goals might conflict, and thus drive teams in different directions. In contrast, the MCT Map and MCT Metric supply a clear goal for a project: the MCT Metric provides a single number, and the goal is simply to reduce this number to a target derived from opportunities seen in the MCT Map. The justification for using this simple and unified goal was provided in the earlier section on “The Business Case for MCT”—namely, when MCT is reduced, key performance metrics improve.