"Pile them high, sell them cheap”
If you’re operating in the retail sector, you would’ve surely come across this famous quote. It means buying in bulk at lower costs and selling more volume at discounted prices. So even if you’re selling at thin margins, sales volume would make up for it.
Today, businesses — online & offline retailers, distributors, or manufacturers — are desperately looking for every opportunity to maximise revenues and minimise costs.
So if you’re also looking at ways to optimise your sales and costs, kitting can help.
In this guide, you’ll learn everything you need to know about product and material kitting.
What is Kitting?
Kitting is an inventory tactic where related products or components — otherwise sold separately — are bundled together and sold as a kit. Kitting technique is used increasingly as the eCommerce stores are growing.
Kitting can be done with two different approaches. They are:
- Pre-packed kits: As the name suggests, these kits are prepared in advance. You can create them as soon as you receive inventory in your warehouse. With this approach, you can prepare your kits in bulk quantities. So this method is ideal if you receive kit orders in high volume.
- Just-in-time kitting: It’s also known as an on-demand kitting process. Here, the warehouse staff bundles the products at the time of picking and packing. when a kit order is generated in the system. In other words, the kits are prepared after customers order them online. This gives you flexibility in managing your inventory. And this method is more suitable for low-volume orders.
Kitting can be done for finished products as well as raw materials or components. Let’s understand both.
Product kitting can be done at various stages of the product life-cycle and order fulfilment process. To put it simply, you can prepare product kits during the manufacturing process if your supplier provides that service.
Alternatively, you can create the kits when you receive inventory or while sorting and shelving products. Other than that, you can prepare kits as you receive the orders. Basically, it depends on the volume of kit orders on your online store.
Here’s how BarkBox bundles up the goodies in their monthly subscription boxes considering how dogs like to have fun.
Some other examples of product kits are:
- Multi-pack of the same product
- Shaving accessories in a single kit
- Gaming kit that includes keyboard, headphones, mouse, mouse-pad, etc.
- Multiple cosmetic products in a kit
- Art kit with brushes of different sizes, colours, canvas, etc.
Benefits of Product Kitting
Here are some of the benefits of product kitting for your eCommerce business.
The selling price for the product kit is usually less than the total of the individual retail prices of the products in the kit. Discounts and benefits have a psychological effect on the customers. So customers buy the entire kit for the price advantage even if they don’t need all the products bundled in a kit.
As a result, the average order value (AOV) for your e-store increases. This has a direct impact on overall revenue. Thus, product kitting helps you increase your AOV and eCommerce sales.
Reduced Labor Costs
For instance, there are five products in a kit. If you had to pick and pack these five orders separately, you’d pay picking and packing charges for each individual order.
On the other hand, for a kit of five products, you’ll pay for picking and packing only once. So selling kits increases your revenue and reduces your labour costs.
Reduced Shipping Costs
The shipping costs you’d pay for transporting five separate orders would be significantly more than shipping a single kit containing five items. Even though the package weight is a factor, it’ll cost you much less.
For example, the shipping quote for a parcel weighing 2 kgs, from Sydney to Melbourne is $14.66.
So if you ship five such packages, it would cost you $14.66 x 5 = $73.3.
Now let’s check how much it would cost to ship a kit or bundle containing five items.
You’ll pay only $32.54 for shipping a kit. Thus, you’d save $40.76 on your shipping costs on this transaction.
Additionally, your packaging costs would also go down since you can pack multiple items in a single package.
Enhanced Post-Purchase Value
Product kits provide you with many opportunities to enhance your customers’ post-purchase experience. For instance, you can include a free sample of your newly launched product in a kit so that customers can try them.
While your shoppers would love such free surprises, it’s a marketing opportunity for your business. Thus, it’s mutually beneficial.
Moreover, well-articulated product kits can provide a great unboxing experience to your customers and influencers. As per a study, 72% of customers said they watch unboxing videos to learn more about products and 61% were convinced to buy after watching videos.
So you can consider partnering with influencers to create unboxing videos for your product kits and use them in your marketing campaigns.
Improved Warehouse Efficiency
Besides the costs and revenue advantages, product kits also have operational benefits. They include:
- Pre-packed product kits save time during picking and packing.
- Since pickers only have to collect a single kit as compared to multiple products, picking errors are less likely to happen.
- Packaging a kit requires less time than packing multiple products. So your pick-pack-ship process would be faster.
- You can bundle up your low-performing inventories with popular products in a kit. Thus, it helps you get rid of dead stock.
Challenges of Product Kitting
While there are no significant drawbacks of product kitting, there’s a possibility of inventory management related challenges.
Here are the two main challenges that may arise:
- If the demand forecasting for the product kits goes wrong, a lot of inventory may get stuck. As a result, it’ll occupy larger storage space till they get sold.
- If you want to create product kits at scale, you’d need to stock all the items of a kit in equal quantities. Stock-outs of one or two items can lead to a longer waiting time in creating the kits. Also, you can’t replace the missing items with other products, they have to match what you show on your e-store.
The Process of Product Kitting
Now, let’s understand the step-by-step process of product kitting.
- First, you need to check the existing product kits available in your niche and come up with an idea to offer a better kit than your competitors. Then take a look into your existing inventory and check if all the items you want to bundle together are a part of your product line. If needed, procure the missing items.
- Assign a new SKU to the kit and display it as a single item on your eCommerce store. This will help you analyse the sales trends for product kits.
- Depending on demand predictions, you can either pre-kit them while you receive inventory or after you receive the order online.
- When you receive an order, pick, pack, and ship the kit and delight your customer.
With that, let’s move on to material kitting.
Material kitting is more applicable to manufacturers and raw material wholesalers. It’s a material management strategy that involves creating pre-packaged and pre-labelled raw materials or components. It helps you increase the efficiency of your manufacturing and assembling process.
Similar to product kitting, material kits are created by bundling different parts or materials that are used together into one package. And just like product kits, material kits can also be pre-packed or packed on-demand when ordered.
Some examples of material kits include:
- Manufacturing use case: All raw materials or components needed to manufacture or assemble a product packed in a package. In manufacturing units, these kits can be pre-packed in the materials department and then pass on to the assembly line.
- Retail use case: DIY bed sets, wardrobes, etc. from IKEA.
Benefits of Material Kitting
Here are some of the key benefits of implementing material kitting in your manufacturing process.
Faster Assembly Process
When you provide pre-packed material kits to assembly line workers, they don’t have to look for the right parts at the time of assembling. This can save their time and the assembly process becomes much faster.
Moreover, the material kits are pre-packed. So they contain all the parts that workers may need. Thus, production doesn’t stop due to stock-outs of components.
Reduction of Manufacturing Errors
Since all the correct parts are pre-packed in material kits, it’s very unlikely that assembly staff would pick any wrong components. Thus, your manufacturing errors can be reduced significantly.
This would also save time during the quality check processes because fewer errors would reduce the iterations between the quality control department and the assembly line.
Material kits occupy less space in the warehouse than individual components. So you can optimise your storage space and save on warehousing costs.
At the same time, pre-packed kits have everything that assembly workers would need, so they won’t gather around material departments. Instead, they’d get everything they need, delivered to them right at the assembly. This would also declutter their working space in the assembly line.
Challenges of Material Kitting
The primary challenges associated with material kitting are:
- If there are too many parts and components that make a material kit, there are chances of placing wrong parts or missing them altogether. Thus, assembly workers and so the production can get stuck.
- Creating material kits at scale would require you to purchase a lot of different inventories in bulk. Thus, your upfront costs on inventory would be high. However, with bulk buying your average inventory cost would come down. Also, you’d need large warehousing space to store the inventory. So warehouse costs would also increase.
The Process of Material Kitting
Material kitting is a little tricky process since you may need to package a lot of big and small components into a kit. Missing one or two of them can be a disaster.
Just imagine, in retail space, a customer ordered a DIY bed set and the kit is missing the screws and bolts.
So you’d need to create a checklist first. List down every single component needed to make a final product. This checklist should be pasted in the material department at each workstation so that staff can clearly see it while preparing kits. Also, one more paper copy should be provided for each kit for the staff to tick the boxes as they put each part in the kit.
If you’re sourcing such kits from a supplier, ensure they have the same checklists or other verification systems in place.
Once all the items are kept inside the kit, you need to seal and label them. Furthermore, generate a single SKU for the kit to make inventory management and tracking easier.
Tips to Implement Kitting in Your Business
Now that you know the ins and outs of product and material kitting, let’s discuss some tactics that can help you implement kitting seamlessly into your organisation.
Identify Potential Challenges
Before you create product or material kits, take the challenges that we discussed into account and plan your strategy accordingly.
For instance, generate accurate demand forecasts for kits so that you can optimise your inventory purchase. This would save you from the challenges of stock-outs or overstocking. While overstocking would lead to high storage costs, stock-outs can pile up your order backlog.
Also, ensure that you have adequate verification systems in place for material kitting so that parts or components are not missing.
Customise the Kits
Whether you’re creating product kits on your own or your 3PL partner does it for you, it’s always a good idea to customize the kits. Moreover, if you source the kits directly from manufacturers or distributors, still you can get them customized as per your requirements.
For material kits, ensure that you paste a label outside that mentions what materials or components are inside the kit.
Implement Continuous Improvement
There’s no one-size-fits-all when it comes to product and material kitting. As an online retailer, you may have to try multiple combinations of products and accessories to see what works (and what doesn’t) with your target market.
Similarly, in manufacturing processes, you may find areas of improvement once you implement material kitting. Here the key is to think proactively as to how you can improve your kits that would lead to more efficiency in the assembly line.
With time, you’ll be able to figure out the appropriate kitting hacks that work for your business.
Collaborate With Your Team
This tip is more applicable to kitting in manufacturing facilities. Since assembly line workers are the end-users of the material kits, consider taking their feedback about the kits.
Find out the challenges they face while using the kits and take their inputs on how they’d like the kits to be instead. This would help you customize your kits as per your team’s requirements. As a result, the assembly workers would be able to work with greater efficiency.
Go For a Kitting/Bundling Software
You can also automate your kitting process with the help of kitting tools. Most of the popular inventory management software have this feature as a part of the system.
Thus, as long as you’re using any professional inventory solution, you don’t need to purchase any additional software.
With these systems, you can easily track the inventory items and their stock levels so that you’d know whether you have all the products for the kit. Additionally, you can also analyse the data for different kitting options that you implement.
Now that you know the nitty-gritty of product and material kitting, it’s time to implement the same for your business.
The advantages of kitting far outweigh its limitations. So if you get it right, it can result in greater operational and financial efficiencies for your organisation.
Also, you may need to do multiple trials and errors before you crack the correct kitting code that fits your business. And continuous improvement is the key.
With that, happy kitting!
Frequently Asked Questions (FAQs)
What is the kitting process?
Kitting is the process where you bundle up various related products or materials which are usually sold separately. There are two types of kitting: Product kitting and material kitting.
While product kits are more popular in online and offline retail, material kitting caters to manufacturing processes.
What is kitting in warehouse operations?
Kitting can be done at various stages of the product life cycle. For example, during manufacturing, warehousing and storage, or just-in-time.
So when you choose to create kits when you receive inventory in your warehouse, it’s “kitting in the warehouse”.
How can I improve my kitting process?
First, you need to accurately estimate the demand for the product or material kits. This would give you a better idea of the resources you’d require. If you’re sourcing kits from suppliers or manufacturers, provide them with your customisation requirements.
For material kits in manufacturing facilities, take feedback from your assembly line workers and improve your kits accordingly.
What is material kitting?
Material kitting is predominantly used by manufacturers and raw material wholesalers. You can make a material kit by bundling different materials or components together that are needed to make a finished product.
It can help you increase the efficiency of your manufacturing and assembly processes.
What are the benefits of kitting?
Here are some of the benefits of product kits:
- Increased average order value (AOV) and sales
- Reduced labour costs
- Reduced shipping costs
- Efficient warehousing processes
At the same time, the benefits of material kitting include:
- Faster assembly processes
- Reduced manufacturing errors
- More space in warehouse and assembly line