Why Kitting Can Help Cut Order Fulfillment Costs

Nov 13, 2012 10:43 PM  By

Any time merchants can cut costs, they’re in a better position. They can either lower their prices, allowing them to be more competitive, or they can pocket the savings and earn higher margins.

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For merchants, cost cutting is even more important heading into the holidays, as it provides greater flexibility during a time when the competition is fierce. Here’s one way that merchants may be able save big money this holiday season: kitting.

What is kitting?
In the world of order fulfillment, “kitting” is referred to as the bundling of individual items into ready-to-ship packages, and it’s a term that is often used interchangeably with “assembly,” which can mean to group two or more finished products together.

Below are a couple of examples of kits that could be built. The first is a kit that bundles two of the same item, and could be assembled all year round, regardless of the season. The second combines two different items and corresponds with a holiday promotion.

Let’s say you sell an acne treatment solution online. When your customers purchase one bottle, you offer a second bottle at half price, and many of your customers take advantage of this. In this case, it would be wise to build a kit that includes two bottles of the solution. We’ll get into the benefits of doing so below.

As a second example, one that’s more relevant to the holidays, let’s say you’re a toy seller that expects big sales on a new children’s learning tablet. As a special holiday promotion, when customers purchase a tablet, you’re going to throw in a carrying case at no charge. Here it also makes sense to build a kit, one that includes the tablet and case.

What are the benefits of kitting?

Cheaper order fulfillment
It is faster and cheaper to build kits in bulk, as opposed to doing so each time an individual order comes in. If you do your own fulfillment, kitting will save you time. If you outsource your order fulfillment, it will save you money, because instead of being charged a pick/pack fee for each individual item, the kit will count as one SKU. By kitting items, you will also save time and money by pre-printing shipping labels in batches, as opposed to weighing and labeling each individual order.

Cheaper shipping
Merchants that kit items can further cut costs with better packaging. Let’s use the merchant that sells tablets as an example. With a custom box, one that can hold the tablet and carrying case with little filler, the merchant may cut down on the actual and/or dimensional weight of each order, allowing for cheaper shipping.

Fewer mistakes
When items are pre-kitted, there is also less risk that the wrong items, or the wrong quantities of items, will get picked, packed and shipped to your end customers.

What are the drawbacks to kitting?
There are several benefits to kitting, but there can also be drawbacks, and the main one is the potential added expense for merchants to keep and maintain a greater amount of inventory.

Let’s use the seller of acne treatment as an example. While many of his customers take advantage of his half off deal on the second bottle, not all of them do. What this means is that not only does this merchant have to keep enough inventory on hand for the pre-assembled kits, he also has to keep added inventory on hand for those who purchase one bottle at a time. For the merchant selling the tablet, she also has to keep additional carrying cases on hand, as some customers may order just the case.

Over time, as a merchant’s sales history accumulates and trends develop relative to purchases for pre-kitted items versus individual items, inventory management will become much easier and more efficient.

When should the kitting take place?
Items can be kitted at a couple different stages of the manufacturing and distribution process. It is common for merchants or their fulfillment houses to kit items after inventory has been received from suppliers.

In some cases, however, merchants also have the option to use their manufacturers or suppliers for kitting. This is most common in the cases of pre-assembling raw materials into a finished product, or when the finished goods being pre-kitted are produced or sold by the same vendor.

This holiday season, take a look at your order history, talk with your suppliers and vendors, and consider any promotions you plan on offering. You may find that some of your products are ripe for the kitting!

Stephen Bulger is marketing manager for eFulfillment Service.