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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

Materials Management Topics




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Guide Written by Paul Wilson

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