E-commerce

E-commerce: Inventory Kitting/Bundling

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As I have previously mentioned e-commerce best practices in posts such as E-commerce Product Listings: The Basics, I wanted to further expand on the many procedures one can use to both simplify selling online products and increase revenue.

Background

Today, I wanted to discuss another significant portion of e-commerce, kitting. Also known as product bundling, inventory kitting is the method of packaging, grouping, and selling typically-separate items/products together. When, for example, a customer purchases an item such as an electronic device that requires a specific battery and cord, the items will be included in the e-commerce system and will package them together. Kitting also allows customers to purchase gift boxes/sets, which will enable them to buy all the items without having to add each product that they contain on their own. Kitting also opens up many different styles and options for selling products, such as discounted sets, cross-sell promotions, and exclusive deals. Without inventory kitting, e-commerce professionals would have a difficult time making the shopping experience an enjoyable and straightforward process for the customer.

Benefits

Thanks to kitting, average order values rise dramatically, increasing revenue by automatically linking additional items for customers to purchase. Many e-commerce store’s worst enemy is trying to get rid of unwanted or outdated inventory; instead of collecting dust and not generating income, kitting allows you to automatically select these items to be included in the sale of newer products. My favorite benefit of kitting involves its ability to effectively track and maintain stock levels, as multiple-linked products can be viewed and stored with ease. Coupled with the improved flexibility and convenience that kitting offers both customers and e-commerce professionals, kitting should be introduced into your online business as soon as possible.

Explanation

So, you may be wondering how this all works? Well, it is pretty simple.

Pack Sizes: Craft Beer Cans

For example, let’s say you create your own craft beer in your garage and even with your wife’s constant suggestions to stop doing it due to the smell, your company starts to generate a sufficient income. Now, instead of dealing with only local companies, your son suggests you create a website to handle e-commerce. Within a few months of the orders coming in, you realize that only selling a 12-pack of your precious beer limits both your customer’s options and your potential for additional products to list (customers love choices).

How do you make new products to sell with only one type of beer? Pack size variants. As you are already selling products online, you should have some form of a SKU (Stock Keeping Unit) created for your products. A SKU is an alphanumeric identification of a product. SKUs are used for tracking inventories, purchases, and record keeping.

Although in this example there is only one specific type of beer, there are several other products that need to be kitted to the liquid in the beer itself, such as the can and packaging. While the customer will not be able to purchase these items on their own, creating their Part Number SKUs will allow you to keep track of inventory and simplify buying new items. Products belonging to the Part Number Product SKU Category are identified as being any product that is created with the Part Number being the focus of the listing. A listing designed for a Part Number SKU focuses on the Part Number associated with the product.

By now, we have a SKU for the liquid beer and Part Number SKU’s for the physical can and packaging needed to ship it. By kitting the same Parent SKU to each one of these items, each item will be inventoried as a package. While Parent SKUs are not listed on marketplaces for customers to directly purchase, they are a critical component of an inventory system.

Parent SKUs:

Allow Receiving Departments to quickly identify which products are coming in.

Allow Inventory Departments to quickly identify which products are going out.

Control on-hand inventory levels.

Are an essential component of product kitting assignments.

Depending on which program or website you use for your business’s e-commerce, the methods of kiting vary (but only by the specific process, not the general idea). Merely create your different types of SKU’s then create a new SKU for the kitted/bundled item. Next, simply assign other items as part of the new kitted/bundled item. Now, when you or the customer tries to sell or purchase the kitted item, it will only be in stock if each part included with the item is available.

Managing Kitting

By now, you have learned that product kitting combines both packing processes with precise inventory tracking; the next logical lesson would be how to handle the management and logistics of kitted items.

In-House

For the craft beer example, in-house kitting would be the suggested method due to the smaller company size. For in-house kitting, the process is done on the fly, as well as assembling made-to-order/pre-packaged kits in batches. Through an e-commerce program/website or a simple spreadsheet, you would create a Parent SKU (let’s say a 6-pack of craft beer), and kit/bundle the Part Number SKUs (can and packaging). Next, by viewing your inventory management system/spreadsheet, you would find the location of each item, combine them to make the beer, then ship it out (while reducing the inventory stock of the Parent SKU which will also reduce the kitted Product SKU’s respectively).

Fulfillment Center

A few months go by, and your craft beer business is expanding rapidly. While you could hire more employees and rent a larger location (your wife will probably love it), another option would be to use a fulfillment center to handle your inventory management, order packing, and shipping tasks (as well as kitting). Some of the highest-rated fulfillment companies are Amazon and RedStag Fulfillment. Even if you still desire to handle daily order fulfillment in your garage, a fulfillment company can still receive your stock that you do not have the room for at the time, pre-pack your kits, and ship everything. When choosing a fulfillment center, remember to ensure that your company’s specific needs are addressed. Anything from product size/weight, number of orders shipped, and locations delivered significantly influence which company will be the most optimal for your business.

Product Manufacturers & Vendors

Now your craft beer business is a few years old, and orders and income are skyrocketing. You introduce new flavors, products such as branded shirts and bottle openers, and even implement a social media team to spread your company’s influence; many of these new products will not be made in-house and will be bought from an outside product manufacturer or vendor. In this method, the vendor can handle kitting for you and can even pack custom sets, provide custom packaging, and will often be cheaper than having your in-house employees do it (if not dealing with imported goods.)

Summary

By learning what kitting/bundling is, what it can do for your online business, and how to perform and optimize the method, you will be well on your way to turning that garage craft beer business (or whatever you choose to sell) into a lucrative company. Not only will profits increase, stress decrease, and tracking and managing reach levels not known before, you will be able to keep up with rising trends and evolve how you reach, sell, and turn a one-time buyer into a loyal customer. Hope it helps!

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Categories: E-commerce

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