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SAP Distribution Blog

Step 6: Inventory in a Kitting and Assembly Environment

Posted by Gary Feldman on December 20, 2016

Some people consider kitting and assembly to be the same thing, but for this blog:

  • Kitting is the packaging of multiple discrete items together at time of delivery. The listing of items is often called a sales bill of materials.
  • Assembly is the combination of multiple discrete items together as a production process. The listing of items is often called a manufacturing bill of materials.

Adding Value with Kitting and Assembly

Many distributors find that they can add value for their customers by performing a kitting or assembly function as part of their warehouse activities. Some examples include:

  • Kitting as bringing items that are sold in a bundle together and shipping them at a “bundled” price.
  • Assembly may include white labeling, where a distributor sells the same item in different packaging and/or labeling for one or more customers.

Warehouse Operations

In both of these circumstances and countless others, the warehouse operations can become significantly complicated by:

  • Adding the assembly function to a formerly simple pick, pack, and ship operation
  • The need to determine whether a stock of assemblies is required
  • The need to forecast demand for the single item and one or more kits
  • Determining whether or not you should stage, or “reserve,” items to be kitted
  • Determining whether or not you should store the assemblies or component assemblies in a separate area of the warehouse
  • Deciding where to perform the assembly. (If in a kit, will it be part of the normal packaging process or do you need a separate assembly area?)

On-Demand webinar Why put new systems in the old way?

The answers to these questions, of course, depend on the volume and nature of your kitting and assembly activities as well as the flexibility and skills of your employees. As a business owner, the objective of adding kitting and assembly to warehouse operations is to increase sales/margin or ward off a competitor. Once you can kit, assembly opportunities will become more evident and your kitting operations will likely expand.

Dynamic Needs

bill of materialsFurther complicating the situation is that your kits are likely to be dynamic over time; a kit may survive, but a component may be replaced by a newer version. Given the dynamic nature of the market and the opportunity to grow your business by providing more and varied assembly services, you’ll want a system that can support different functions to support your new capability.

  • Assembly and disassembly – At some point, you’ll need to break kits apart into their component items because a bill of material has changed, been discontinued, or because you need to sell a component.
  • Where-used reporting – If an item is bad, or is being replaced by a new component, it’s important to know where the item was or is being used.
  • Add, change, or remove components – Not only do you need to be able to find an item, you may want to change the bills of material that contain the item.
  • Production orders – If you’re assembling to stock because you have a blanket PO or a large assembly job for future delivery, you need to have some form of an instruction sheet for your team to know what to pick, pack, and assemble.

With SAPDistribution, you not only have kitting, assembly, and production order capabilities in your system, you also have a powerful materials resource planning (MRP) function to help you order the correct amount of stock for your regular and kit sales.

We'll cover the MRP and its uses and benefits in step 8 of the series, but if you have further questions, please contact us.

Topics: Grow Your Business

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