2023 Guide on Ecommerce Fulfillment Kitting, Product Assembly, and Shipping Subscription Boxes

Kitting and assembly is one part of an ecommerce fulfillment strategy that can create value for your business, but is often overlooked or misunderstood. Since most 3PLs don’t offer kitting or high-touch services, it’s important to find a specialized partner or understand the process to gain the most efficiency and value-add to your business.

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Quick! Let’s imagine if your customers order one product on average for $30, what if there was a way to increase the average order to $50+? While including an additional product and without significantly increasing costs? That’s where kitting and assembly comes into play.

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As experienced ecommerce business owners know, unit economics and gross margins are of utmost importance to brands. That’s why it’s important to understand the kitting process, the true costs, and effective strategies involved in kitting and assembly - especially if you’re a subscription box based business looking to scale affordably and rapidly. 

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Table of Contents

1. Kitting strategy to increase customer LTV
2. What is kitting (with examples)
3. Kitting vs bundling
4. Does my business need kitting (advantages and disadvantages)
5. How does the kitting and assembly process work
6. Kitting fees and costs
7. Finding the right fulfillment partner for kitting

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Kitting - Ecommerce Fulfillment Strategy to Increase Customer Life Time Value (LTV)

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When fast-growing eCommerce businesses get to the point where the order fulfillment and shipping process can no longer be managed by themselves, they partner with a third party logistics (3PL) provider or fulfillment company to help make scaling easier.

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By handling some or all of the post-manufacturing process for ecommerce brands, fulfillment partners can help businesses scale. However, only a select few fulfillment partners offer much more than the traditional pick, pack and storage.

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Value-add 3PLs, such as Atomix, can turn a traditional fulfillment strategy  into a revenue-generating operation. When we emphasize “traditional” - some might think of in-house operations out of a spare garage, a 3PL that uses off-shelf, outdated technology or a 3PL located down the street from your business or more simply they just don’t have the desire, drive or flexibility to accommodate your true needs. 

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A great example is the kitting and product assembly aspect of ecommerce fulfillment. So let’s dive in!

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What is Kitting?

Kitting is the assembly of separate pieces into a single offering and is most often pre-built in batches. The point of creating kits is to have a ready-to-ship set for once a customer placed an order to expedite the retail fulfillment process.

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Unlike a regular order, where you can’t predict what all a customer will order before they complete a purchase, kitting is used when a certain combination is known ahead of time.

The simplest definition for kitting is:

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"The process of combining multiple SKUs into one SKU, to be stored in the warehouse and sold on your website as a single unit, or a kit." 

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Kitting is an essential element of ecommerce fulfillment - especially for subscription based businesses. It is the assembly of separate pieces into a single offering and is most often pre-built in batches. Unlike a regular order, where you cannot predict what all customers will order before they checkout, kitting can be used when a certain combination is known ahead of time. 

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So, if you want to increase efficiencies in your supply chain, the option to add a kitting process flow to your fulfillment operation can be critical.

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Traditional 3PL services include warehousing, pick and pack order fulfillment and shipping. However, fulfillment centers that specialize in high-touch kitting are a value-added segment of your supply chain. 

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The need for kitting and assembly services may come from one of the following:

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• the way a product was manufactured or shipped, or

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• You’re running an upcoming promotion that requires an offering to be packaged a certain way in bulk.

Ultimately, kitting gives the flexibility to do more for your customers - by increasing the quantity of sellable SKUs and product offerings, by reducing customer churn with new offerings, and enabling an overall better customer experience. If you haven’t added kitting to your ecommerce fulfillment strategy, it’s time to consider it!

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Example Types of Kitting

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Gift

‍A pre-packaged gift box of selected or curated items

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Sub Box

‍A subscription box that contains different items each month

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Ghost SKU

‍One or more different SKUs that are sold as a “Ghost (or virtual) Bundle” online, but stored separately in the warehouse 

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Multiple Quantity

‍Several units of the same SKU, prepackaged and sold at a volume discount

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Ecommerce business types that often need kitting:

• Cosmetic brands

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• Beauty and bath products

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• Supplements

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• Product samples

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• Electronics

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• Subscription boxes

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Bonus tip - It’s important to remember kitting isn’t for every business. Consulting with a 3PL can be valuable to understand if kitting and assembly services make sense for your business. At times, manufacturers can help with the kitting process in a more cost-effective manner than a 3PL.

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Does my business need kitting? (Advantages vs. Disadvantages)

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The decision to use order kitting services for your ecommerce business will depend on a variety of factors, including the type of products you sell, the size and complexity of your orders, and your overall fulfillment strategy. 

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Kitting might be the strategic move to add a boost to sales. For example, when you offer clients the option to purchase kits, you encourage them to buy more (in bulk), which they receive a discount and you, as the ecommerce owner, are rewarded with an increased average order value (AOV) and reduced shipping costs.

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Benefits

• Reduce packaging, distribution and shipping costs

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• Improved customer experience

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• Increase supply chain efficiency and inventory management 

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• Save time from inhouse kitting and increase operational efficiency

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• Off-load slow-moving inventory

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• Boost average order size and revenue

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Reduce packaging, distribution and shipping costs

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• By bundling multiple items into a single package, you may be able to save on shipping costs. This can be especially beneficial if you sell products that are large or heavy, as shipping individual items may be more expensive.

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• You can cut distribution costs drastically by kitting. Begin by analyzing your customer's buying behaviors to understand what products are or are not being bought together.

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• Kitting is best suited for items customers buy together. For instance, if your business deals in men’s apparel, you might notice customers often order a suit jacket and a dress shirt together. You can preassemble all the items as a kit and sell and ship them as one unit.

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• If items are bought separately, you’ll need wrapping, a box, and a packing slip for each item. You’ll also need sufficient infill in each box to avoid denting, chipping, or breaking during shipment. Kitting is better for your wallet and the environment.

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• Kitting also makes the order weigh less due to efficient packing, lowering shipping costs. It even lowers pick-and-pack labor costs, because the items are all together. Talk about a good deal.

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Increase customer satisfaction with improved customer experience

• Kitting can make it easier for customers to receive and unpack their orders, especially if they have purchased multiple items or if the items they have ordered require assembly. This can lead to a better overall customer experience and potentially lead to increased customer loyalty.

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• During the busy holiday season, kitting can be a massive relief to buyers who have limited time for shopping.

• For instance, if your regular client needs a range of bath products, bundling them in a kit saves them time and the burden of research. Your business expertise will help you to include all the essential items in one kit. Your client can then find what they need right away.

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Increase supply chain efficiency and inventory management 

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• Streamlined fulfillment process: Kitting can help streamline the fulfillment process by reducing the number of packages that need to be prepared and shipped. This can save time and labor costs and make it easier to track and manage orders.

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• Improved inventory management: Kitting services can help businesses manage their inventory more effectively by ensuring that they have all the necessary parts and materials on hand when they are needed. This can help reduce the risk of stockouts and other fulfillment delays.

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Save time from inhouse kitting and increase operational efficiency

• Increased efficiency: By outsourcing the kitting process to a third-party provider, ecommerce businesses can free up time and resources to focus on other areas of their operations. This can lead to increased efficiency and potentially allow businesses to scale more quickly.

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• Kitting makes your inventory management more streamlined and organized.

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• For instance, when employees can assemble an order, kitting reduces the stress of locating all the necessities. The assembly process is critical to gain efficiencies and save money. As opposed to individually picking and packing each bundle, doing the process in bulk with all items organized and barcoded, it helps significantly. Thus, space can be repurposed for other vital operations.

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• If your business is larger scale, the organized working environment helps lower labor costs because your employees are not walking long distances in the warehouse [ADD POD BLOG EFFICIENCIES - reduced walking space] - which is the most inefficient part of warehouse operations. Further, the freed up space helps delay the need for expensive expansions. 

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Offload slow-moving inventory

• Kitting is an excellent way of getting rid of slow-moving stock. Just add any products you need to offload into a kit with fast-moving goods and watch the inventory disappear.

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• If you would like customers to try a new product, kitting is a natural way to get them to do so. Bundle popular products with the one you need to introduce to your buyers. It is the most comfortable and cheapest method of introducing something new to your patrons.

Disadvantages

There are a few potential disadvantages to using kitting in a manufacturing or production setting:

1. Increased upfront costs

Setting up a kitting operation can require significant upfront investment in equipment, materials, and labor. This can be a disadvantage for businesses that are working with tight budgets or that are unsure about the demand for their products.

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2. Complexity

‍Kitting can be a complex process, especially for businesses that produce a wide range of products or that have a high volume of orders. Managing the various components and materials that are included in each kit can be time-consuming and require careful planning and organization.

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3. Limited flexibility

‍ Once a kit has been assembled, it can be difficult to make changes or substitutions. This can be a disadvantage if a business needs to make last-minute changes to an order or if it needs to accommodate special requests from customers.

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4. Risk of errors

‍There is a risk of errors occurring during the kitting process, such as selecting the wrong items or packaging them in a way that does not protect them adequately. This can lead to delays, increased costs, and customer dissatisfaction.

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Overall, the decision to use kitting in a manufacturing or production setting should be carefully evaluated based on the specific needs and goals of the business. While kitting may be worth considering if you sell products that are made up of multiple components or if you are looking for ways to reduce shipping costs and improve the customer experience, it is important to carefully consider the potential disadvantages and ensure that the business has the resources and capabilities in place to manage the process effectively.

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Kitting Process vs Bundling Process

Read our in-depth blog on bundling here

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Ecommerce merchants and business owners often confuse the nuances of kits and bundles.

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Kits, as detailed in a blog here, essentially is the process of combining multiple SKUs into one SKU, that is pre-packaged and stored at the warehouse.

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While bundling, is most often a marketing strategy to sell multiple SKUs together (as a “Ghost or Virtual SKU”) that is picked and packed together at the time of the order (e.g. not pre-built or packaged together).

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How does the kitting and assembly process work

When evaluating the option to use kitting fulfillment services for your ecommerce business, there are a few things to keep in mind:

1. Product Selection‍

What products will be packaged together? And why?

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2. Find Fulfillment Partner

‍What fulfillment providers or 3PLs have experience and are a reputable partner to go with? (Further detail below.)

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3. Inventory Shipment

‍How will the 3PL receive your product? Ensure the proper product information and packaging specifications.

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4. Gathering of Items

‍The 3PL fulfillment provider gathers all the items that are included in the kit, making sure to select the correct quantities and versions of each item.

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5.Packaging of Items

‍The fulfillment provider packages the items in a way that protects them during shipping and makes them easy to access and use. This may involve using boxes, bags, or other types of packaging materials.

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6. Labeling of Kits

‍The provider labels the kit with the appropriate shipping and tracking information, as well as any other relevant instructions or information.

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7. Order Processing

‍The kitting provider receives orders from customers and uses this information to determine which items need to be included in the kit.

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8. Shipping Kits

‍Once the kit is complete, it is shipped to the customer using the appropriate shipping method.

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Depending on the specific needs of the business, kitting services may also involve additional activities such as customizing the kits based on the specific needs of the customer or providing assembly instructions for products that require assembly.

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Kitting & Assembly Fees

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Fulfillment providers typically charge a fee for their services which depends on the following criteria:

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1. SKU Quantity

‍How many SKUs are being kitted together?

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2. Kit Quantity‍

How many total Kits are being kitted?

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3. Complexity

‍Experienced 3PLs provide a time analysis or time study. E.G. the more complex processes will take more time and result in higher costs.

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Fees can range anywhere from $.20 per item (at Atomix, refer to our pricing) to a few dollars, depending on complexity.

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After kits are constructed, storage fees are applied as well. However, storage fees are reduced as well from the SKUs being moved from individual items to kits.

It's important to carefully review the fees associated with kitting in ecommerce 3PL and understand how they will impact the overall cost of using these services. This will help you make an informed decision about whether kitting is a cost-effective solution for your business.

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How to Find the Right Fulfillment Partner for Kitting Services

Using a 3PL for kitting and fulfillment services can help improve your customer experience, take stress of owning the fulfillment operations and ultimately, save your business time and money. Before jumping into kitting services, speak with a shipping expert to guide you through the process, or read the steps below to find the most reputable partner.

There are a few steps you can take to find a kitting fulfillment partner for your business:

1. Determine your specific needs

‍Before you begin searching for a kitting fulfillment partner, it's important to have a clear understanding of your specific needs and goals. This will help you narrow down your search and identify partners that are a good fit for your business.

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2. Research potential partners

‍There are many different companies that offer kitting fulfillment services, and a select few that are exceptional or specialize in kitting so it's important to do your research and compare the options available. Look for companies that have experience working with businesses similar to yours and that offer the services and capabilities you need.

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3. Get quotes and compare prices‍

Once you have identified a few potential partners, reach out to them to get quotes and compare prices. Be sure to ask about any additional fees or charges that may not be included in the initial quote.

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4. Review the terms and conditions

‍Carefully review the terms and conditions of any potential kitting fulfillment partners to ensure that they align with your needs and expectations. Look for any hidden fees or restrictions that could impact your business.

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Consider the company's reputation‍

It's important to work with a kitting fulfillment partner that has a good reputation in the industry. Look for companies that have a track record of delivering high-quality services and that have positive reviews from other businesses.

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If you’re an ecommerce brand looking for kitting options for your products, reach out to our team! We will provide you with the best options for your products, guaranteed to provide overall satisfaction for your customers!

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