Kitting
Kitting houses provide a wide range of services from the supply of kits of parts to component perform and electronic sub-assembly. Some manufacturing companies choose to use specialist kitting houses to cater for their materials requirements.
There are clearly both advantages and disadvantages for seller and buyer in this relationship.
From a Buyers point of view advantages include:-
- Reduced purchasing overhead
- Reduced vendors and associated costs of managing a large supply chain
- Inventory reduction
- The possibility of 'piggy backing' the kitting companies larger spend
- The possibility of taking advantage of any specials deals the kitting company has as a result of its relationships with franchised distributors and OEMs
- Having only complete kits delivered
From a Buyers point of view disadvantages include:-
- Losing sight of market pricing and knowledge
- Losing existing personal vendor relationships
- Losing an element of control over the supply chain
- Introducing an extra cost (the kitting companies margin) to the business which for contract manufacturers in particular is sometimes difficult to justify to their customers.
- Difficult to revert to a direct spend model because all expertise, knowledge and systems have been lost.
From a Sellers point of view advantages include:-
- Having a 'captive' customer who is totally reliant for their materials
- The ability to sell value added services to clients
- Visibility of clients orders/forecasts
- E-commerce adoption - The need to work together to reduce the total cost of doing business
From a Sellers point of view disadvantages include:-
- Kitting tends to be suited to smaller companies which have neither the resource or expertise to manage their supply chain
- As a result of the above, kitting houses tend to have lots of smaller accounts which are 'resource hungry' to manage
- They are always in competition with the direct spend model resulting in margin erosion