For purchasers, component kitting services hold out the promise of reducing costs and speeding up manufacturing. But without the right foundations, this apparently straightforward activity can fail to deliver its full potential. Paragon Electronic Components managing director, Graham Smith, looks at some solutions Kitting makes sense for manufacturers, including OEMs seeking efficiency improvements as well as contract manufacturers looking to deliver the best price and fastest turnaround for their customers. Among the benefits, many hidden costs associated with acquiring the components for a given product build can be eliminated by outsourcing activities such as purchasing, inventory management, warehousing, pre-production processes and invoice processing. Within these lie numerous costly actions, such as vendor management, dealing with MOQs or shortage buying, inspection and put-away, invoice validation, warehouse space and equipment and component preparation. The costs to dispose of packaging materials are also becoming an appreciable factor.
To deliver the maximum savings for manufacturers, a kitting service should be capable of delivering 100 per cent complete kits, to the factory floor, at the time they are needed. This includes ensuring all components are assured to be genuine, defect-free, and fully compliant with relevant regulations such as RoHS. All preparation, such as cropping and pre-forming of leads, device programming and reeling in correct quantities should also be completed. Customers should also be able to specify supply of PCBs as part of the kit if required.
To realise this vision, component suppliers are critically dependent upon a number of elements. These include implementing suitable procedures, maintaining broad-based partnerships with suppliers of electronic components and ancillaries such as fixings and enclosures, and a high level of component knowledge among staff. Only with these elements in place can a kitting service truly deliver complete, assembly ready kits at the optimum point in time, to help OEMs meet their own customers demands and also free up working capital previously tied up in component stock and part-finished assemblies.
Component knowledge and robust procedures are called upon throughout delivery of the service. Correctly interpreting the customers BOM at the very beginning, for example, is essential to generate a robust and usable reference document for the project. This includes verifying that the manufacturers part numbers are valid, checking components lifecycle status, confirming each components RoHS status and identifying any problem parts. Identifying problem parts is a crucial activity, so that suitable alternatives can be agreed or protective procedures put in place.
Alongside these pillars of kitting, procedures, people and partnerships, the software systems employed must be able to deal with the very particular demands that managing a commercial kitting service imposes. To develop and maintain a suitable system, to the required level of capability, demands considerable ongoing investment.
Systems as a pillar of kitting
Some of the key requirements of business systems for kitting providers are to include built-in safeguards against errors in ordering. Systems that rely on manual purchasing procedures are particularly vulnerable to these types of problems. Another aspect that challenges many standard ERP software systems is that customer requirements can be extremely specific and individual, for example in relation to managing additional processes such as lead forming, reel sizes and device programming.
Moreover, as the number of BOMs being managed increases, the complexity of the challenges facing the kitting-service provider increases exponentially. Managing one or a handful of BOMs can be accommodated relatively easily within a conventional distribution-systems environment, for example. Satisfying the individual requirements of large numbers of BOMs, on the other hand, can quickly over-tax the abilities of a system designed for a relatively small number of repetitive, uniform activities such as buying, receiving and shipping catalogue products.
Navigating part numbering systems and performing functions such as converting between internal stock codes and OEM part references is tough for any type of buying activity. For a kitting service, the system must be capable of translating between the internal component reference, the customers ordering code, and the original vendors part number if it is to adequately co-ordinate all of the purchasing, preparation, despatch and billing functions. Not only must the system be able to handle different part numbers for each component, but the documentation relevant to each organisation must also reflect the correct references. Purchase orders, despatch notes and customer documentation for each component must be accurate and consistent throughout.
Often, kitting is offered as a value-added service from a component distributor. Given the distributors role as a consolidator of components from diverse sources, offering kitting makes sense on the surface. But there are a number of challenges particularly for franchised distributors. Realistically, it is impossible to fulfil an entire BOM through franchise partners alone, for example, yet out-of-franchise sourcing is often problematical. These challenges also become progressively tougher with increasing numbers of customer BOMs.
For this reason, even major pan-European distributors typically only offer kitting for part of any given BOM. This leaves the end customer to marry up the distributors kit with the remaining parts, which must be sourced independently. As a result, OEMs are often obliged to maintain higher than necessary in-house purchasing, goods-in, bought ledger, warehousing and component preparation competencies – even though one of the major objectives of engaging a kitting service is to save time and costs by reducing these activities. To configure a kitting service that delivers maximum value for customers, flexible, adaptable trading links are required. This demands a level of adaptability within systems and procedures that many types of distributors cannot achieve. Smaller, independent distributors, on the other hand, frequently do not have the buying power necessary to secure the most competitive prices for their customers.
Electronic Data Interchange (EDI) is another key capability of a kitting-focused system where the volume of component lines and purchase orders is extremely high. Where many companies, particularly smaller business, rely on manual placement of purchase orders, ordering using EDI is many times faster and also protects against sources of human error such as part number inaccuracies or over-ordering. Automatic, overnight placement of orders ensures utmost speed, frees up buying staff to perform other value-added functions, and also automates maintenance of contracts with major suppliers, for example by monitoring ordering schedules. Hence, EDI is a key aspect of a competent systems foundation for a modern kitting service capable of sustaining links with a wide variety of supplier partners. These partnerships will include a broad variety of component manufacturers and franchised distributors, suppliers of specialist electronic products, independent distributors, and suppliers of mechanical components such as fixings, or custom metalwork.
Software for component management
Many large companies that offer kitting as an adjunct to more straightforward component buying and selling services run their operations on sophisticated systems from top-tier software suppliers. There is no doubting the quality of these tools as a means of guiding best practice and automating functions such as information sharing and resource allocation. Best practices are well established and templates are well developed for distribution and OEM type enterprises using well-known business-management or manufacturing-management software.
However, many of the finer points of kitting outlined in this article do not fit well into either an OEM or distribution model. In the same way that businesses turn to application-specific software to manage specialist activities, realising 100% kitting as a true component management service demands highly targeted systems capabilities.
Suitable systems are typically not available off the shelf. However, configuring an in-house software platform dedicated to kitting also demands considerable investment in software development, as well as long-term commitment to evolve its capabilities as market conditions and customer requirements become progressively more complex and individualised.
As an example, Paragon Electronics has developed in-house software, the Paragon Information Management System (PIMS). This is explicitly to support supply chain management and kitting as a total component management (TCM) service. As such, it builds-in responses to challenges such as customer-specific demands, component referencing, traceability and scalability, and is evolving continuously in response to ongoing changes in component markets and end-user requirements.
In combination with the need for outstanding in-house procurement, wide-ranging supply partnerships, component-engineering competencies and established best practices across the business, application-optimised software such as PIMS is critical to delivering the business benefits that modern manufacturers expect and need from a kitting service.