What is kitting? The Benefits of Kitting & Kitting Definition
Kitting is a common way to improve warehouse processes and inventory management. But what is kitting and what are its benefits?
In warehouses, kitting is an effective method of optimizing customer demands, warehouse space, and fulfillment costs. Kitting is particularly helpful when customers often order products together since it allows you to create bundles before order processing.
Because there are so many benefits to the process, knowing how kitting works and its potential advantages is crucial. Gaining even a basic understanding of kitting will help you determine if it may help in your supply chain process.
What is kitting? Kitting Definition
Kiting is the process of gathering and combining a collection of goods or SKUs together to create a new SKU. You can think of kitting as a type of assembly process. However kitting differs from assembly in that the product itself is not usually altered or changed. Rather, SKUs combine into the same box.
Why do companies use kitting?
Companies use kitting processes to enhance their fulfillment operations by reducing lead time, cost, and mistakes. These enhancements lead to a more efficient fulfillment process which in turn increases company profit and customer satisfaction.
Kits (individual kitted items) are often built during the fulfillment & warehouse phase of the supply chain. However, kits are also built during the manufacturing phase. The further up the chain that kits are built, the more savings the product company may realize.
What are some examples of kitting?
Some examples of kitting include gift boxes, subscription boxes, and custom made items. Subscription boxes, for example, are an increasingly popular method of utilizing the advantages of kitting. In this example, customers order recurring combinations of products which ship on regular intervals. The fulfillment warehouse kits these products ahead of time according to the total (or forecasted) volume of subscription box orders.
A good real-world example of kitting is Philips Hue light bulbs. People rarely need only a single light bulb. Usually, they purchase them in groups of 3 or 4 (or more). Knowing this, Philips created bundles of 3 bulbs together that customers can purchase. This is most likely driven by the natural advantages from the kitting process.
In addition to this, Philips may also discount the bundled (kitted) SKUs to incentivize customers to purchase a larger quantity. If they find most customers need 4 bulbs, they may adjust the kit size to accommodate or incentivize more sales. For example, if most customers buy 4 bulbs, they may kit 3 so the fourth is purchased at regular price. All these decisions about kit sizes come from market research and cost savings. This way they maintain good margin but also top-line revenue.
Product Kitting Process Steps
The steps for the product kitting process is very simple. The steps you follow may vary slightly depending on your industry or product type. However, the follow process should give you a good idea of the steps involved in building kits.
- Determine What Products To Kit Together
Before you can begin assembling products into kits, you must determine which products actually need kitting. To do this, talk with your marketing or sales teams and put together a list of historical sales data. Once this data is assembled, your teams can analyze the data and decide which products may benefit from kitting together.
- Establish the Kitting Workflow
Now that you know what products are able to kit together, you can start developing the actual step-by-step process. During this step, you should write down each step with as much detail as possible. Be aware, the process may vary from one kit to another. Therefore, you may need to write a unique process for each individual kitted SKU.
- Create a New SKU for Each Kit
Since each bundle of items needs identification, you must assign them a SKU. As you perform the kitting process, move inventory from the original separate SKUs into the new SKU that you create.
- Store and Ship Kits
After creating the number of required kits, you can focus on storing and fulfilling. Your ecommerce store or order entry system must have the unique kit SKUs setup in their systems. Otherwise, your fulfillment process won’t know to use that kitted SKU.
How do I know what items to kit together?
Make sure to involve other stakeholders in your company when deciding on kitting. Together, you should look at how often you sell separate items in the same order. This is your greatest indicator as to what items may serve well as kits.
You may also decide that bundling certain items together may enable a marketing or sales promotion. In this way, your product, sales, and marketing teams work together to create a forecast along with the bundle promotion. Once you have this strategy laid out, engage your manufacturing provider to build kits before moving into the fulfillment phase.
What are the benefits of kitting?
Kitting provides many benefits including significant savings in time and money. Below are 6 ways kitting can benefit your business. However there are certainly more benefits not part of this list.
Increased SKUs and AOV
This is especially helpful for ecommerce because it grants retailers additional SKUs. These SKUs may combine individual products into larger movement of total units. In other words, customers tend to make larger purchases when offered more SKUs.
As discussed in the Philips Hue example, it is possible to create a discount for kitted items. By doing so, you may gain more revenue and lower your overall shipping costs while still increasing sales volume. Because kitting is done in advance, that enables warehouse managers a better chance of obtaining orders in the first place. This results in an increased average order value (AOV).
Reduced Packaging Costs
Kitting helps to reduce costs for packaging materials. Normally, items pack individually into standard-sized containers. When it’s time for packing, and shipping, they combine into a larger container or ship in their own larger-sized container. This requires more packaging materials than if a larger number of kits build into their own SKU.
Kitting reduces the dimensions of the package. It also reduces the costs of the packaging filler and packing tape materials. These costs can add up as your order demand scales up. It’s also true that a kitted package may be safer to ship than standard pick, pack, and ship. This is true when the kit packaging is a custom design for the items going into the bundle.
Reduced Storage Costs
Services like warehousing and distribution charge based on the volume or square feet of storage consumed by your inventory. Kitting items together has the potential of reducing the total amount of storage required to house those items. This is especially true if the SKUs have a lot of “air space” such as large cavities or open spaces. Other items can ship inside the larger cavities of the relative SKUs, reducing total storage consumption.
However, the opposite is also true. As you kit items together, it’s possible that the storage space required to house these items may increase. It depends largely on the types of kitted products.
Reduced Pick Pack and Ship Costs
When items bundle together one fell swoop, assembly lines and repeatable processes perform the kitting process. This reduces the cost to build these bundles compared to completing it at the order fulfillment phase.
Organization & Efficiency
When you combine multiple SKUs into a single one, you are reducing the total quantity of inventory on-hand. While the actual number of products doesn’t go down, the total number of items does. For example, bundling 3 identical light bulbs into a single 3-bulb SKU doesn’t change the number of bulbs you carry. Instead, it only changed the number of items required to manage.
Depending on what your warehousing practices are, this may help you become more organized and efficient. This is especially true as it relates to the picking process. If you have less total items to track, then you can devote zones to more employees. These employees can grow in efficiency for their areas due to improving awareness of product locations.
Faster Fulfillment Lead Times
Thanks to the fact that items are pre-bundled, kits will almost always fulfill faster than traditional pick & pack items. The reason is simple: there is a lot less picking and packing required to ship the same number of items. Because this already happened earlier in the supply chain, it doesn’t need to happen again.
Something else to consider is that kitting enables more automated process too. If you know those items will always ship together, you can build an automatic processing system around it. Not only that, but you can pre-print labels and other steps, because each box that leaves is exactly the same.
The Kitting Game Changer: Connecting Kitting to Manufacturing
One of the great joys of offering a turn-key supply chain is what happens when we connect these services together for a customer. It’s one of the benefits of overseeing each step in the process. This gives us the capability of making game-changing recommendations for reducing costs (sometimes wildly).
Kitting benefits become a force-multiplier when you have turn-key supply chain oversight. Recently, a customer came to us trying to independently manage manufacturing, importing, warehousing, and fulfillment. As we took over the supply chain, we immediately identified at least 3 ways to improve their costs. Most of these improvements were by the use of kitting and packing techniques. One included moving kitting to the mass production phase rather than doing warehouse kitting.
The changes that we suggested and ultimately implement will save our customer 100’s of thousands of dollars. We expect this to grow even more drastically as they scale their business. The catch is that only a company overseeing each supply chain phase can offer such value to a customer.
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Tips for Effectively Managing Kitting
Of course, kitting carries a lot of potential benefits for a product business. But how can you ensure the process is managed correctly? After all, any process is only as good as the management system or system of managers that employ it.
Start With a Test Project
Rather than jumping full speed into kitting, it may benefit you to start small. If you have identified potential SKU combinations that are marketable to your customers, initiate a trial run. During this trial run, you can closely monitor your kitting process before you scale it up. This allows you to identify potential pitfalls or holes in your process before they become big problems.
Implement a WMS System
Software is critical for effectively tracking inventory changes. This is especially true that the scale that kitting projects usually encompass. If you do not have a digital inventory management system, you must research this before attempting a large-scale kitting project. Otherwise, your project will not have good accuracy and you may cause issues elsewhere.
Ensure You Track Quality
One of the biggest mistakes in any project is failing to track the results. Before you start a kitting project, you must develop a system that returns all the required data about order accuracy. Without this data, it is nearly impossible to track down issues in the process. Make sure that your quality tracking system is in place before starting.
Empower Warehouse Management
For the most effective kitting process, elevate your warehouse managers. These managers should play a vital role not only in managing the process, but implementing it. By doing so, they will have a much greater appreciation and deeper understanding of the kitting process. This helps them to become more effective managers of that process.
Employ Kitting Services From Start to Finish
The advantage of AMS is our complete supply chain oversight. As detailed briefly above, this enables us to connect multiple points together and reduce your costs earlier in the chain. For example, performing kitting services during the manufacturing phase rather than a warehouse kitting process.
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Let AMS Build Your Supply Chain
With our turn-key supply chain, we are the best option for building your supply chain strategy. From finding the right manufacturing partner (whether that is us or another factory) importing, and fulfilling your product, we do it all under one roof.