During periods of growth, manufacturers of all sizes tend to come to the same realization: they’ve run out of space for equipment and people and need to expand.
But do they, really?
Frankly, no. That’s because way too much of their existing space is dedicated to storing and staging materials – not making products. To avoid the large amounts of scarce capital required for physical expansion, many manufacturers seek the benefits of just-in-time delivery systems and other inbound logistics solutions provided by third-party logistics (3PL) companies.
What is a “just in time” delivery system?
Historically, manufacturers utilized what’s now referred to as a “just in case” logistics model. With this model, every item that the manufacturing operation could require – from nuts and bolts to packaging materials – was kept on-hand by the manufacturer “just in case” it was needed. This took up (i.e., wasted) large amounts of storage space that was no longer available for production. It was also a very expensive way to operate since items had to be purchased well before they were used.
“Just in time” (JIT) is a lean manufacturing logistics strategy in which materials are kept off-site and delivered to the manufacturer precisely when they are needed (as determined by demand signals or a pre-determined schedule). These materials can be nuts, bolts, and packaging components as described above – or they can be custom kits that are pre-assembled by 3PL at a nearby location and delivered as needed.
The biggest benefit of a just-in-time delivery system is that the manufacturer’s need for on-hand inventory is greatly reduced – freeing up more space for core operations. The JIT approach also frees up associates to focus on assembly instead of non-value-adding work like unboxing parts or discarding garbage. Additionally, the manufacturer’s logistics costs can be significantly reduced as space and labor costs are typically lower at an off-site warehouse (such as that of a 3PL) than they would be at the manufacturing plant.
JIT as part of a 3PL manufacturing logistics operation
So, if the inventory is no longer with the manufacturer, where does it go? JIT is often a component of a larger 3PL inbound warehousing operation for the manufacturer. In this operation, the 3PL will take on the tasks of receiving and storing materials at its nearby warehouse(s), managing the inventory, and delivering products to the plant as needed.
With vendor-managed inventory (VMI), the supplier of the materials retains ownership of the inventory until it is delivered to the manufacturer. 3PLs routinely help to facilitate these arrangements – storing the materials on behalf of the supplier and then performing final delivery. 3PL systems give the supplier secure visibility to the warehouse management system to manage min/max levels.
VMI results in substantial cash flow improvements for the manufacturer who is not responsible for the materials until they arrive “just in time.”
VMI arrangements require precise management to work effectively. Many 3PLs are adept coordinators of VMI arrangements and have the WMS systems to enable this model.
If you are looking to improve the efficiency of your plant’s operation, contact Kanban Logistics today. Kanban specializes in logistics support for manufacturers and has worked extensively with aerospace, automotive, and other advanced manufacturing companies of all sizes.