Kitting
To kiT or noT To kiT?
There are two sides to every story. Here are some points to consider when weighing up the pros and cons of kitting
Its clear the decision tomove towards kitting has to be right for the individual, but inmany cases companies spend around 20 per cent of the value of their inventory on storage, handling and admin. After implementing a kitting programme, this is reduced, while improving delivery and cost performance. So what are the views of the people thatmatter?
Advantages froma buyer's perspective include: • Reduced purchasing overhead • Reduced vendor list and associated costs ofmanaging a large supply chain, with one PO and one invoice
• Reduced shipping cost • Inventory reduction • 'Piggy backing' on the kitting company's larger spend • Special deals facilitated by the kitting company's relationships
with franchised distributors and OEMs
• Having only complete kits delivered • Operating a Kanban systemso the supply chain is lined up for 'just in time delivery
• Having consignment stock on site, with no delivery issues and invoices issued when drawn fromstores
Disadvantages froma buyer's perspective include: • Losing sight of themarket • Losing existing personal vendor relationships • Losing an element of control over the wider supply chain • Introducing an extra cost, in the formof the kitting company’s margin, which for contractmanufacturers can be difficult to justify to customers
• Difficult to revert to a direct spendmodel
Advantages froma kitting house perspective include: • Having 'captive' clients to work with • The ability to sell value added services to clients • Visibility of client’s orders and forecasts • E-commerce technology helps to reduce the total cost of doing business via consignment stocking with real time stock control and effective admin processing
Disadvantages froma kitting house perspective include: • Difficult tomake amargin that covers theminimumadmin cost on low value kits.Work with clients on prototype and production at the same time for economy of scale
• Lots of smaller kits are 'resource hungry' tomanage • Kitting houses are always in competition with the direct spend model resulting inmargin erosion
Remember, kitting houses provide a range of services, fromthe supply of kits to component preformand even supplying electronic sub-assemblies. Indeed,many CEMs choose to use specialist kitting houses to eliminate supply chain stress.
For any customer, there are some significant benefits relating to
reduced purchasing activity, with just one part number required to order and fewer invoices as a result. Goods receipt is also simplified, saving time by booking one item, rather than hundreds and eliminating time wasted looking formaterial. Finally, parts kitting will streamline suppliermanagement by reducing the number of suppliers required.
For buyers who can think outside the box, it’s the cost reduction
and not the price reduction thatmakes it work. Companies can achieve substantial savings as detailed above, yet retain high product quality and product availability as well as that all important improved cashflow.
www.colmworthelectronics.co.uk 22 | September 2011
www.electronics-sourcing.co.uk
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