How Kanban & Vendor Managed Inventory Can Work Together

Many engineering companies are implementing the Kanban method of inventory management in order to become more lean, and therefore more efficient in their stock management. However, Kanban is just the beginning. Kanban can work with vendor managed inventory (VMI) to provide an even more lean inventory system. We’ll explain why…

If you’re new to Kanban, this is a just-in-time inventory management system that aims to ensure a regular cycle of stock supply based on usage requirements. This is usually done using a 2 or 3 bin stock rotating system where stock is split between the bins, once the first one is used, this triggers the purchaser to re-order stock while the second stock bin us being used. This provides a buffer for stock supply so it is unlikely you’ll experience any stock-outs.

The benefits of the Kanban system are:

• Improved visibility of stock
• Low capital requirements due to lower stock holding
• Increases efficiency and reduces waste

The issue with only using Kanban is that in only acquiring stock as needed, this creates more frequent purchase orders, and therefore increases the costs associated with processing purchase orders:

• Time in placing an order
• Cost of purchasing products in smaller quantities
• Shipping costs
• Time in processing the stock when it arrives
• Administration/finance time in processing paperwork prior to payment

This is where VMI comes in.

VMI is where a supplier allows you to hold stock in your workshop and draw from it when needed. This stock is owned by the supplier and only charged for once you use it. This is not to be confused with consignment stock, with VMI the supplier manages the entire process, ensuring the stock is kept tidy, and regularly replenished so you never run out.

The benefits of VMI are:

• Reduces waste – time & cash
• Improved cashflow – only charged for what you use
• Stock is always available – no more downtime
• Reduced quantity of purchase orders – less processing time (supplier manages and replenishes stock)
• Less shipping – including the costs associated with delivery and handling
• Less administration – time associated with processing paperwork

The 3 main reasons more and more engineers are switching to VMI are:

1. Time savings – it’s often surprising how much time is taken up in monitoring stock levels, placing orders, replenishing, and administration of purchase orders.
2. Improved cash flow - stock is owned by the vendor and only charged for once it has been drawn.
3. Supply on demand – stock is always on hand to keep production moving.

The main concern some engineering workshops have regarding VMI is lack of control over stock use, leading to increased consumable usage, and therefore increased costs. This is rarely the case, because the control still lies with the managers of the company. It can be as open or closed to staff access as they like. In fact, in most instances consumable increases only occur due to production volume increasing.

Kanban and VMI can work hand in hand to provide an even leaner stock supply system. This is done by implementing VMI so stock is always available. No additional waste. The stock can then be drawn from VMI and put into your Kanban system.

If you’d like to know more about VMI and how it can work alongside Kanban in your workshop, give us a call. Euromarc’s QuickStock VMI solution is rapidly growing as more and more engineers look to reduce costs and increased production value.