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How Can a Kitting Operation Move Inventory and Control Costs?

Geoff Whiting

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A disorganized kitting operation can interrupt warehouse processes, make it easy to lose inventory, and drive up costs even as your organization is trying to reduce them. The potential gains are at risk when you lack space, processes, and tools to keep kitting workflows smooth and contained.

Companies often decide what items to bundle and kit based on sales trends, turnover rate, storage time, and quantity. After leadership makes that call, it’s up to you in operations and the warehouse to oversee the kitting operation. If these tasks are growing more complex, trusting a 3PL to handle the day-to-day volume can help keep costs and errors from spiraling out of control. Whether you’re considering kitting as a special project, like an upcoming holiday, or regularly bundling multiple products in-house as orders scale, here are the benefits of considering an outsourced partner like Red Stag Fulfillment.

kitting operation takes multiple items with individual SKUs and creates a kit with a new SKU

5 areas where a kitting operation targets your goals

Operations leads and warehouse managers have specific goals designed to ease their workflows and improve capabilities that lead to happier customers. You’re measuring that happiness with actionable KPIs, such as reductions in returns or reverse logistics costs related to damage and shrinkage, alongside traditional material spending and labor utilization needs. An improved kitting operation can help you achieve these and other goals with tangible improvements you can bring to leadership. Let’s look at a few of those areas.

Addresses slow-moving inventory

slow moving inventory can be sped up using kitting operation processes

A core eCommerce benefit of a kitting operation is avoiding having slow-moving inventory that drives up storage costs over time. These slow-moving costs decrease item revenue. Holding those SKUs also means you’ve got less physical space for profitable items with a quick turnaround time. Adding slow-moving items to your kits can help them sell faster, limiting the decline of their profitability.

Inside kits, they also avoid becoming obsolete inventory. Those are goods companies tend to donate or destroy for financial and potential tax benefits associated with the loss. That’s if they can’t find a liquidator, which also comes with a loss.

Not sure if this covers your goods? Here’s a quick primer on auditing slow-moving inventory.

Improves operational efficiency

Kitting can boost efficiency and effectiveness by streamlining the picking and packing process. You can store items that go into kits together. That tactic enables faster picking, while consistent packing instructions take all the guesswork out at the packing station. If the kit is pre-made or assembled earlier, the packing station verifies the weight and prints the correct shipping label, making the process even faster.

Sometimes, you can create many kits before they need to ship — such as subscription boxes with a cut-off date. This lets your warehouse or partner focus labor on creating those kits without interruption, reducing the time to build each kit. Then, everything ships on a specific date. It’s easier to plan labor, create staging space, and move these items through packing stations to loading carrier trailers.

Lowers labor costs with a kitting operation

The other side of the coin for improving warehouse speed and efficiency is that you’re spending less on labor per product and parcel. Kits make picking and packing faster. Prior assembly or storing kitted items together reduces the amount of walking any pickers do, and packers are opening fewer boxes and adding less in-fill, if any.

You’re saving time on each order by minimizing its relative workload. Internally, that means you can do more with fewer people. You can then lower labor costs or shift labor to growth-oriented projects for a better ROI. When you’ve got a partner 3PL, it can mean paying for fewer labor hours and other expenses than storing and shipping all those SKUs out individually.

Controls shipping time and expense

It’s easy to see how kits can improve warehouse effectiveness by tackling pick and pack times and labor. This can translate into improved shipping efforts as well. Faster pick and pack mean your team can manage more orders per day, optimizing any carrier trailer you have at your dock. You’ve got more leeway to get orders out on time, reducing the likelihood you’ll need to expedite an order to have it reach a customer.

An effective kitting operation can translate into immediate savings if your operations currently run behind or you pay for expensive carrier options.

Operationally, kitting can also improve something we take very seriously: order accuracy. Kits that pickers scan as they’re created and again when labels are applied are less likely to be wrong. Fewer errors translate into happier customers and fewer returns. This can reduce your overall shipping expense by mitigating some return logistics costs and cutting out the expense of shipping a corrected item to a customer.

Manage costs but boost sales

Your 3PL or other warehouse partner should offer a kitting operation and service when you outsource fulfillment. If they perform the kit assembly, you’ll likely have a kitting fee associated with the unique combination to prepare your items and create a new SKU for tracking and analytics purposes. However, that fee unlocks some potential savings and supports your sales.

Shipping one parcel and paying the kitting fee is typically a lower cost than paying to ship two parcels. In many instances, items you kit would not necessarily be purchased simultaneously if only sold individually. Most companies focus on up-sell and cross-sell opportunities. Here, additional goods typically are purchased after the first product is in the customer’s hands.

Pushing the additional sale via kit removes shipping and labor costs for the additional parcel while empowering your sales to sell more goods and generate higher revenue. When the kitting operation is smooth and dependable, it empowers your company to improve sales and margins while giving you a better understanding and control of your inventory.

Here’s a little something to help you dive deeper into potential savings on parcel consolidation and DIM weight considerations.

Who manages your kitting operation?

Many of the operational benefits you can achieve through kitting depend on your warehouse setup and who performs the kitting. For most eCommerce operations, kitting occurs in one of three locations: your own warehouse, the point of manufacturing, or at a partner 3PL location. Let’s take a quick look at each.

In-house efforts work early

subscription box

Kitting in your own space enables you to save on space and labor, better allocating your efforts for high-selling opportunities. You may be able to perform it alongside traditional fulfillment, though this can introduce new requirements for packaging, boxes, tape, and similar materials.

If kitting is your core operation, such as running a subscription box business where items change each month, you’ll slowly erode the labor benefits because of scale. Companies also face workflow challenges as they allocate more space to staging and packing, plus changing how products are picked.

Manufacturers can simplify kitting operation processes

manufacturing plant assembly

Manufacturing partners can provide some kitting processes, especially if you’re selling related goods. This might be as simple as packaging shampoo and conditioner together in two-packs. In this case, the manufacturer must make all kitted products.

This is a conversation worth having with your manufacturing partners. Kits may give you a more popular SKU while saving the manufacturer. Kitting operations can streamline their inventory, shipping, and inventory control — the same benefits identified above for you.

3PLs expand reach and options

material kitting

3PLs like Red Stag Fulfillment have specific areas for kitting operations designed to improve the process. Your 3PL should offer a full-service kitting setup that speeds up assembly. 3PL processes also have smart SKU storage nearby and can dynamically adjust inventory levels. That way, a single inventory is flexible enough for kitting and any standard order fulfillment. 3PL agreements, like zero-shrinkage commitments, generally protect your products and help reduce the chance of damage or loss that would prevent an entire kit from being assembled and shipped. 3PLs can also un-kit as needed, allowing you to optimize inventory utilization and overall spending.

As your kits scale, 3PLs often offer deeper discounts with carriers. That may reduce your shipping costs per kit, allowing you to sell more on the same budget. 3PLs are designed for scalability in every area. So, from storage through pick and pack to last-mile fulfillment, we create the potential for compounding gains.

Ask about our kitting operation

Red Stag Fulfillment offers a robust kitting operation for our partners. We work with their operational leads to identify best practices and savings for your kit. That means leveraging state-of-the-art warehouse and inventory management tools, carrier selection services, and practices to minimize packaging and labor utilization costs.

Add those capabilities with a 99.993% order accuracy rate in 2021, and you can be sure that your orders move quickly and efficiently to your customers, no matter your scale. Are you considering outsourcing your kitting operation because of growth? We’ve got you covered there too. Red Stag achieved a 99.997% inventory accuracy for all items in and passing through our facilities in December 2021. That was a record-setting time for volume among our partners and eCommerce in general.

Contact us today to learn what Red Stag offers operations leaders who could benefit from a more reliable kitting operation.

Questions about kitting? Ask a Red Stag Fulfillment expert.

Red Stag Fulfillment is a 3PL founded by ecommerce operators, and built for scaling businesses.

A team of fulfillment fanatics who care about our clients’ businesses like their own. We see things from our customers’ perspective, and have the guarantees to prove it.

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