What is inbound logistics?
If you’re a manufacturer, you likely know the answer. But there may be more to it than you realize. See, there’s a big difference between handling inbound logistics yourself and outsourcing it to a trusted North Carolina third-party logistics (3PL) provider that knows the manufacturing industry. In this article, we’ll take a closer look at the outsourcing model and the ways it can drive efficiency in your inbound logistics supply chain.
What is inbound logistics?
Inbound logistics refers to the supply chain operations that lead up to the creation of the finished product. This includes the procurement and delivery of the parts used to build the finished product. Outbound logistics, on the other hand, refers to the operations that bring your finished product out to the marketplace.
By handling inbound logistics yourself, you’re allocating time, money and resources away from your primary goals of increasing factory output and driving sales. Many of these logistics services can be performed just as effectively – or likely more effectively – by a 3PL that specializes in inbound and manufacturing logistics.
3PL inbound logistics services
Following are some of the key services that 3PLs can perform on your behalf so that you can focus on your core manufacturing operations.
Right now, your buyers probably spend a good percentage of their time negotiating with, and procuring goods from, makers of boxes, nuts, bolts, and other consumable parts and materials. While necessary, these activities do little to improve factory output. Third-party procurement services from a 3PL can help.
The way it works is simple: the 3PL procures the materials, stores them, manages the inventory, and invoices you only for the parts you need, when you need them. Naturally, the 3PL would build inventory financing costs into the overall cost of the service, and there would need to be a contractual agreement that guaranteed purchased materials would be used.
By allowing your 3PL provider to purchase non-strategic materials on your behalf, you’ll reap the following rewards:
- Keep your cash longer.
By invoicing you only as parts are used, your 3PL allows you to preserve your capital.
- Reduce your inventory and speed up the cash cycle.
By outsourcing purchasing to a 3PL, you’ll no longer have to “over-buy” to make sure the factory has the raw materials it needs to operate.
- Pay less for supplies.
Your 3PL may be purchasing for multiple customers to achieve economies of scale that you wouldn’t otherwise have on your own.
- Free up floor space taken up by non-strategic parts.
Instead of being a storage warehouse for boxes of parts and materials, your floor space could be used for production only, thereby increasing throughout. When you need these materials, your 3PL will deliver them just in time.
- Free up buyer time to work with tier 1 & tier 2 suppliers.
By reducing time buyers spend with non-strategic suppliers, you’ll free them up to work on more important, larger contracts.
For many manufacturers, pre-assembly of component parts is also required during the production process. This assembly can take up a lot of time (as well as inventory space and manpower). To save a good chunk of this time – and, with it, a good chunk of money – many manufacturers utilize 3PL kitting services.
Kitting, as performed by a 3PL, is the act of taking the individual parts of a product, compiling them together in a “kit,” and then delivering that kit to the production operation for assembly.
You might ask, “what’s the big deal? Why don’t manufacturers just kit their own parts?”
Imagine that you are a manufacturer. You have 2,000 units that need to be assembled in a day, and you have 15 associates to perform this task. How much time would it take each employee to not only perform his or her assembly functions but also search for and compile all of the parts for 133 products (2,000 items divided by 15 associates = 133 items each) prior to assembly? For most companies, the answer is simply “too long” (aka “too costly”).
With kitting services, you remove this wasted time and streamline the entire process. Your associates receive neatly arranged kits containing all of the component parts required for a particular stage in the assembly process. No searching for parts or pre-assembly work required. Your production operation runs simpler, cleaner, and much quicker.
Just in time (JIT) delivery
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) delivery 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, or they can be custom kits that are pre-assembled by a 3PL at a nearby location and delivered as needed.
3PLs that specialize in just in time arrangements with manufacturers lean on their warehouse management systems (WMS) to streamline the process. For example, if a 3PL stores raw materials for a manufacturer, it will be notified by the WMS whenever an order is placed requiring those materials. The 3PL can then immediately supply the manufacturer so that the final product can be produced.
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 production. 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.
Vendor-managed inventory (VMI)
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.”
Importantly, 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.
Putting it all together: a case study
A large manufacturer of safety products for the aerospace industry approached Kanban Logistics with a need to free up some floor space in its North Carolina manufacturing plant. Upon realizing the extent of Kanban’s capabilities, however, that simple request for warehousing space expanded into a request for a comprehensive inbound logistics solution, including inventory management, kitting, packaging and transportation.
- Kanban stores all parts used in the final product and provides the exact number of parts required for each day’s production run.
- Kanban creates kits for end customers and ships them directly, saving the manufacturer the time, space and costs of building kits at the factory. Quality assurance is performed by members of the client’s quality team, who maintain an office within Kanban’s facility.
- Flat boxes are assembled, and specialized foam inserts are placed in the boxes at the Kanban warehouse, then shipped to the factory. As units are completed, workers simply insert them into the ready boxes and seal them, freeing up significant space and labor.
- Finished units are sent back to Kanban for storage and order fulfillment. Kanban maintains the required hazmat certifications to handle the product and arranges outbound transportation using the client’s pre-approved carriers.
Finding the right 3PL for your inbound logistics operation
Some plant managers are simply more comfortable having raw materials on site. But today’s visibility tools allow a real-time view of inventory, whether on site, in the 3PL warehouse or in-transit. You don’t have to physically see the inventory to know it’s there. By partnering with a 3PL that specializes in logistics within the manufacturing industry, you can enjoy the efficiencies that come with outsourcing while ensuring that the operations run just as smoothly as if you managed them yourself.
And, of course, 3PLs can also augment your operations with traditional logistics services such as warehousing and final delivery of finished products.
Some 3PLs will go the extra mile to ensure that their operations are as buttoned up and precise as manufacturers demand. A 3PL with ISO 9001 certification assures its customers that every operational aspect will adhere to stringent quality standards – whether it’s in the warehouse, on the way to a customer, or anywhere in between.
If you’re looking for an ISO-certified 3PL with demonstrated expertise in inbound logistics, look no further than Kanban Logistics. We have over 1 million square feet of space in Eastern North Carolina to service manufacturers in a wide variety of industries – from baking to aerospace. To learn more about our manufacturing and inbound logistics services, contact us today.