It is a prime example of how good supplier relationships are vital to an efficient manufacturing supply chain.
Commonly used as a method for improving efficiency and minimizing cost by third party logistics companies, a Just-in-time (JIT) inventory strategy is one of the primary benefits provided by Manufacturing Support Services companies.
JIT requires tight coordination between production and vendors for it to work right. Under JIT, raw materials, parts, and components are ordered and delivered just as they are needed for producing finished goods. The concept can extend further up the supply chain to include sub-assembled parts as well.
In simple terms, the JIT inventory management technique reduces inventories of raw materials, work in progress, and finished good to almost zero.
The parts do not arrive earlier or after they are required; but they arrive just as they are needed.
3PL’s use JIT as a strategy to provide several specific benefits to their clients beyond just cost reduction and enhanced efficiency.These additional benefits are realized through:
- Having little or no inventory levels means that holding costs (such as warehouse space) and carrying costs are minimized.
- Funds that used to be tied up in inventory are freed up and can be used elsewhere.
- Space previously used for holding inventory can be used for more productive uses.
- Under JIT, production setup time is reduced resulting to quicker response time to client’s needs. Also, greater output potential is realized when firms switch to JIT.
- Obsolescence rate is decreased since raw materials and goods are not held for long. Further, risks such as damage of inventory by fire or theft are eliminated.
When a company works with a 3PL for manufacturing support services, there is clearly the expectation of value and a positive ROI. JIT is often the “lowest hanging fruit” and first process to implement in this type of arrangement.
Through proper planning and well managed supplier relationships, efficient JIT inventory management is an attainable goal for any manufacturer.