Moving stock out of your warehouse and into customers’ hands as quickly as possible is essential for keeping cash flowing through your business. An often overlooked way to simplify and optimize inventory management is kitting.
Kitting provides added value to your customers, all while improving the efficiency of your warehousing operations, reducing packaging and shipping expenses, and increasing sales revenue. For retail and ecommerce businesses, incorporating kitting into your order fulfillment process is a cost-saving strategy that can reap long-term financial rewards.
What is kitting?
Kitting is a technique used in fulfillment operations where related or complementary products are strategically grouped and sold as a single item or kit. The individual items are sold under a single SKU as part of the kit, which is its unique SKU from those assigned to the products when sold on their own.
Instead of having pickers find single items in the warehouse and put them together while packing orders to be shipped, kitting streamlines the order process by already having products together as a single package. This can save time for retailers who need to maintain high standards by packing and shipping customer orders as quickly as possible.
Kitting vs. bundling
Despite being used interchangeably, there are differences between kitting and bundling that business owners should be aware of. While both refer to multiple products being sold together, kits are pre-assembled to be sold under a single SKU. Bundles may use the same SKU, but this is only sometimes the case.
Product bundling typically refers to short-term discounted offers or promotions where products are grouped to give customers a lower price when the products are ordered simultaneously.
On the order fulfillment side of bundling, individual products are still stored as separate items in the warehouse. The individual components of the bundle must be collected and packed together as a single package, as any non-bundled order would be.
Completed kits are sold under a new SKU unique to the kit, not the products contained within the kit. The single products that make up the kit usually must be bought together.
As a kit is a new product in the business’s inventory system, kits are usually comprised of related items or more useful to a customer when sold together. This is known as product kitting in ecommerce fulfillment services. Subscription boxes are an example of pre-packaged kits sold as a single unit.
Types of kitting
Kitting can take place at any point in the supply chain. This could be before it gets to your business and is still with the product manufacturer, or you could incorporate kitting into the assembly process once it reaches your warehouse.
Material or manufacturing kitting
Before the finished products are sent to the merchant for sale, a manufacturer may assemble the kits beforehand.
Material kitting is where the manufacturer groups individual items of completed inventory into a kit as a step on the assembly line, then sends the single package to the merchant. The merchant doesn’t need to do any additional assembly before shipping a sold kit to a customer upon purchase.
Warehouse kitting
The most commonly used kitting service is warehouse kitting. Finished products arrive at a merchant’s warehouse as separate items, then a team of workers assembles kits from the products before storing them on shelves. Once a customer orders a kit, the new single box can be pulled from storage and shipped.
On-demand kitting
More like bundling, on-demand kitting allows customers to assemble their own kits during checkout. Items may or may not retain their original SKUs during the sale, as customers choose which items to include within their kit and items packaged during fulfillment.
Benefits of kitting
The greatest benefits of kitting come in the time and money savings that assembling items as a single package ahead of time can provide. This is particularly true for businesses working with third-party logistics for their fulfillment and assembly services.
Optimize warehouse space and reduce costs
Individual products can take up significant storage space when stored item by item. Combining products into kits can save on storage packaging, freeing up space in your warehouse for additional inventory and saving you money on storage fees.
Your warehouse management system should catalog your kits as items with unique SKUs. Grouping these items in your system and the storage facility can help prevent inventory loss and the associated costs, thanks to kits enabling greater organization of products on shelves.
Reduce shipping and packaging costs
Items packaged and shipped individually are generally more expensive than a single, larger box containing multiple items. Kitting is a cost-effective approach to lowering shipping costs for customers or the business if you offer free shipping.
Not only does the reduced packaging save money on the shipping side, but it also saves your business upfront. You’ll need to store fewer small, individual-item shipping materials and can replace many of these with kit packaging instead.
Packing materials like shipping labels, filler, and tape will also go further with kits than individual items, ultimately saving you money on these over the year.
Improve speed, efficiency, and accuracy in packing and shipping
For your warehouse team, picking kits takes much less time than picking individual items from all across your storage facility. Not only does this save time, but it also saves on long-term labor costs—productivity increases when workers’ time is reduced on picking each order. This means more orders can be fulfilled in a day or week without hiring additional team members.
Simplifying the packing process also reduces errors. As items will all be together as a single kit, the risk of picking the wrong items or missing something from an order is minimized.
Increase sales
Kits are a great way to boost your average order value (AOV), as customers are more likely to feel like they’re getting a deal when ordering groups of pre-packaged items.
The perceived value or convenience of kits often makes customers order these instead of one or two individual products. As a result, you can strategically build enticing kits for customers, curating products that will deliver a greater return on investment.
Thanks to a streamlined picking and packing process, increased efficiency also leads to greater customer satisfaction. They’ll receive their orders sooner, making them more likely to return to make additional purchases with your business.
Managing the kitting process
Every business’s kitting process will look different depending on what you sell and the warehousing practices you have in place. But for most companies, a standard kitting workflow would be:
- Determining the products that go into each kit and who will assemble the kit
- Assigning a new, unique SKU for every kit type
- Gathering the individual products and assembling the kit
- Making the kit available for customers to purchase
Keeping track of assembled kits in your inventory management system is essential for ensuring that all inventory is accounted for. Working with a 3PL provider and software platforms like QuickBooks Enterprise can help automate much of the order fulfillment process, making it easy to keep track of inventory in stock and minimizing the risk of errors.
4 Kitting best practices
While kitting can make your business operations more efficient, there’s still room for error if your workflow isn’t configured correctly. By keeping some key best practices in mind, your kitting process will become more accurate and generate additional revenue for your company.
1. Review data on past orders
To assemble a kit that appeals to customers, you must know which items are popular with your audience.
Conduct inventory analysis and review sales data from the past year, paying particular attention to any orders that repeatedly feature similar or complementary items. Any individual products that are routinely ordered together are great candidates for a kit.
2. Create clear signage for assembled kits
You likely have hundreds, maybe even thousands, of items in your warehouse. One of the top benefits of kitting is making your packing and shipping process more straightforward and efficient. But that only works if your pickers and packers know where everything is and can find the right parts quickly.
Be sure to clearly label all kits with their unique SKU and the products they contain, especially if you have several kits with overlapping product components. Not only will this keep your storage space more organized, but it will eliminate frustration during customer order fulfillment.
3. Streamline your kit assembly process
A structured system will keep your operations running smoothly if you still use a manual picking and packing process.
Ensure that products on shelves match your inventory management data, including where products are located in your warehouse. Consider looking into automated systems that can help with repetitive tasks, freeing up your workers for other tasks and reducing the risk of errors.
4. Keep track of inventory levels
If you’re not tracking inventory levels, both for individual products and kits, you could quickly run out of items. This leads to frustration for the customer, along with delays in the production and shipping process.
Knowing how much of every product you currently have in stock also lets you predict future demand, especially if you plan to add more kits to your product line. You can also reduce inventory waste by minimizing surplus and slow-moving products on shelves, saving money and storage space.
How QuickBooks Enterprise supports inventory kitting
QuickBooks Enterprise offers real-time visibility into your available inventory and the ability to create new kits with their own SKUs to differentiate these from your existing product lineup.
Support your warehouse team with accurate inventory tracking, featuring four levels of inventory categorization and the ability to transfer inventory from one location in your storage facility to another.
From a central dashboard, QuickBooks Enterprise allows you to clearly see new orders as they come in and group them into similar batches, making kit-picking even simpler and more efficient. And with greater efficiency in place, your growing business will soon be bringing in more revenue and saving you money across your product operations.
