What Is Inventory Kitting? How Does a Business Do Kitting?
April 8, 2022
One of the biggest determining factors of a successful e-commerce business is the quality of its order fulfillment. One simple strategy to solve order fulfillment and other inventory issues is inventory kitting. If you are new to the world of order processing and fulfillment, or want to further streamline your operations and ensure that your inventory continues to move and drive revenue, you need to know about kitting inventory.
What Is Kitting?
Kitting is the inventory technique of assembling, storing, and selling multiple Stock Keeping Units (SKU) as a single unit. Kitting inventory aims to efficiently manage production, logistics, and order fulfillment processes.
The technique is already used in manufacturing and logistics. Only now has the process reached fulfillment centers.
Here is an excellent example to understand what kitting inventory is:
A lifestyle business has multiple skincare products on offer, such as moisturizers, face masks, and foot creams. Then the company decides to sell an additional item that comprises multiple skincare products. This new item is counted as a single SKU and sold as one—a “kit.”
In logistics, this process translates into compiling multiple products into one kit to reach the customer.
How is kitting different from bundling?
There is a lot of confusion among business owners due to the interchangeable use of these terms.
Both kitting and bundling are units with multiple items in them. The difference lies in the purpose of putting the items together.
In kitting, only complementary or related products are assembled to form a unit. On the other hand, bundling does not specify any mechanism applied to the grouping process.
Most order fulfillment processes still employ bundling as their primary technique. Kitting is a relatively newer technique that utilizes a customer-first approach.
Methods of Product Kitting
There are many different ways businesses can leverage kitting—it largely depends on the reason for carrying out the process.
Kitting involves combining multiple products (required in the production of a single unit) to streamline the production process.
A good example is putting together tools used in manufacturing products into a single kit for delivery at the point of use.
Logistics kitting involves compiling multiple products into one kit to streamline processes that require multiple kits. This type of kitting makes inventory move more quickly, but the kitting isn’t done for sales purposes.
Order Fulfillment Kitting
Order fulfillment kitting involves offering pre-assembled products in a single kit. Such kitting aims to make order fulfillment faster and resolve customer issues regarding the accumulation of items. In this case, items are often bought together and used for the same task.
Order fulfillment kitting can be of two types:
These warehouse kits contain pre-determined items stored at a single physical location and are sold as a single sales unit.
Customized Combo Kits
Customized combo kits are also stored at the same physical location. The only difference here is that the products are received and stored as independent products at the warehouse. Upon receipt of a combo order, these products are combined to build a single kit and processed in an order as their own SKU.
Benefits of Inventory Kitting for Businesses
Kitting inventory brings a ton of benefits for businesses and consumers alike. It significantly reduces the waste of time, money, and raw materials used in inventory, manufacturing and business operations.
Here are some other benefits of kitting for businesses:
- Improved efficiency in inventory organization by reducing the total number of managed SKUs
- Better workforce efficiency by reducing human error as warehouse kits come prepackaged and by reducing pick, pack and ship times
- Higher sales by boosting average order value and by urging customers to spend more and increasing customer engagement
- Improved product exposure by opening avenues to new marketing channels and cross-selling on current channels
- Reduced waste by pushing out dead stock
How Does a Business Do Kitting?
Kitting for Manufacturing/Inventory Management
A company kitting for manufacturing begins the process once production is complete. At this point, the company gathers related products and puts them in a kit.
At the inventory level, the process is largely similar. However, the items for kitting are chosen based on their use in the assembly of a single product on a different part of the production line.
Once the items that would go into a kit are decided, the next step involves assigning SKU numbers to the newly assembled kits and adding them to your inventory management system. SKUs are not universal, so it is up to a business to integrate them.
The benefits of using the right SKU numbering method are:
- Faster delivery
- Boost efficiency of order changes or design revisions
- Optimized inventory stocking
- Streamlined communication between design and manufacturing teams
We recommend a numbering scheme that is part number and part description. These are especially useful in assigning SKUs to products used in assembly lines. The description can identify the part of the process the kit is to be used for, and the number can identify the products inside.
SKUs can also use descriptions to identify whether the kit is intended to be used internally or externally. If you think kitting is complicated, you’re probably using the wrong SKU numbering system.
After all your processes are in place, the final step is to ship the kits. For external kits, you would often need to kick off marketing and/or sales tasks around the new kits.
Kitting for Order Fulfillment
Businesses can also use inventory kitting for more efficient order fulfillment processes.
Products for fulfillment kits can be selected based on a theme, color, or other shared qualities that will be easy to market to your target audience. Here are a few ways to choose products for a kit:
- Products that sell together
- Complementary products
- Products purchased in multiples
- Accessories purchased with products
The SKU assignment considerations and processes for production kitting also apply to fulfillment kitting. You could put in a few measurement metrics to assess the impact of your kits on fulfillment such as the number of customer returns in a month because of missing parts in shipments or average time to fill for orders above a certain number of items.
A company may be required to break kits into individual items. This process is called de-kitting. It is common when there is a shortage or overstock of units and unit returns. Defective kits may have to be de-kitted before reassembling.
The de-kitting process is managed from the same assembly location they were kitted and can be de-kitted for stocking or order fulfillment depending on the purpose.
De-kitting is easier with inventory management system tracking the kit contents. If you plan on using de-kitting as a strategy, please consider using reusable packaging methods and materials in order to reduce waste, and labor and material costs.
Considerations for a Business About to Make Its First Kit
- Make sure to follow the sequential order of the kitting process
- Take the time to create a foolproof SKU numbering system
- Prepare a kitting lead to guide the team involved in processes related to the new kits
- Follow up on the quality of the kits assembled
- Use data gained from kitting to optimize other parts of your business operations
- Learn from mistakes and fix loopholes in processes
What Are the Costs of Inventory Kitting?
Inventory kitting does add to a business’s expenses; it also offsets a multitude of these expenses in other ways.
For example, kitting requires additional labor input in assembly processes and inventory management. However, it also reduces labor input in the tracking and fulfillment processes.
Here are some costs that your business can bring down by incorporating kitting:
- Warehouse storage costs for holding multiple products individually (storage space, labor, insurance)
- Damaged and spoiled goods costs
- Packing costs (due to the reduced number of packaging materials needed)
- Shipping costs (as fewer packages are involved)
- Total order fulfillment costs
Along with these costs, companies must adhere to certain packaging standards when switching to kitting. Check some of these guidelines for good packaging.
Is Kitting Right for Small Businesses?
Before adopting kitting for your business, an important thing to remember is to ask what problems it solves.
According to one evaluation study, there are five problems kitting intends to solve. These include:
- Space-related problems
- Quality-related problems
- Issues arising from the inflexibility of assembly areas
- Issues related to the handling of materials
- Information and support-related problems
Kitting can be a powerful tool for businesses looking to optimize manufacturing, inventory management, or order fulfillment processes. With adequate planning and a few metrics in place for your business, a higher level of operational and financial excellence could be just around the corner.
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