Kitting versus Work orders with Bills of Materials

This article is focused on Inventory Software functionality.

Work Orders.

Work Orders with Bills of Materials is common functionality in software focused on manufacturing. Though manufacturing software functionality can vary significantly, Work Orders and Bills of Materials is pretty standard.

The basic process is you set up Bills of Materials for all manufactured items. A Bill of Materials contains a line for each item used to manufacture the product. Each line has an Item Number and a Quantity Per (there may be other data elements, but item and quantity per are the bare minimum). Then, you create a work order (production order) to manufacture a quantity of an item. Next, you run a program to generate the materials list for the work order; this program uses the bill of materials combined with the quantity you intend to produce to create a materials list that has the required quantity of each item on the bill of materials. The materials list looks like the bill of materials, but it’s actually a separate entity created for that specific work order. You can make changes to a materials list after it is generated, and it has no effect on the bill of materials.

When you run the program to generate the materials list, it will also likely generate a routing for the work order. Routings are beyond the scope of this article, so I’m just mentioning it since you may run into it in software documentation.

When the materials list was generated, it may have allocated inventory for the items on it. The materials list is used to issue (deduct) the inventory. There are numerous ways to actually issue that inventory to the work order, including direct issue, preflush, and backflush. The work order is also used to put the manufactured item into stock through a work-order completion transaction.

I talked about work orders in relation to manufacturing, but they are also used for things like light assembly and, of course, Kits. Any time you need to deduct components or raw materials to produce another item, you can use work orders with bills of materials.

So what is Kitting?

While not universally true, the term “Kitting”, when used to describe software functionality, is typically referring to a streamlined process for producing something made up of other things as part of the Sales Order Process.

The main point here is to have an easy way to make something out of other things on the fly after a sales order is created without all the extra steps required for a work order. This facilitates a manufacturing strategy known as “Postponement”.

The kitting process also requires bills of materials to be set up. However, these are probably not the same BOMs used in the work-order process. The Kitting functionality is typically completely separate from manufacturing functionality; therefore, it would use separate BOMs that are set up specifically for kitting.,

Next, when you create a sales order for a Kitting item, it will use the BOM to calculate the quantity required for each component and incorporate that into the sales order. If you produce a pick list for the sales order, it will have all the non-kitting items on it, but also have the components for the kit. All items will be allocated based on your allocation rules.

Now, you pick your sales order items, including your kit components, and have everything you need to ship. If you need the items for the kit assembled or packaged together, you would need to do that, but when you’re done, the order is ready to ship.

The normal process you use to complete the sales order will deduct the kit components along with the non-kit items on the sales order. That’s it.

Why use Kitting instead of Work orders?

The main reason is a more streamlined process with fewer steps. Manufacturing processes tend to be cumbersome, with numerous steps that need to be performed. The Sales Order Kitting process doesn’t require any more interaction with the computer system than a normal sales order. You still may have additional work related to the physical kit, but you are not doing any additional transactions or handling any additional paperwork.

Prior to Kitting functionality, you would create a sales order that had a “kit” item on it. If you had some built-in automation, the sales order would automatically create a work order for the kit; otherwise, you’d have to manually create one. You would then print the sales order and the work order. This would result in two separate pick lists, one for the sales order and one for the kit components. You would then complete the kit and have to complete the work order in a manufacturing screen. After that, you can process the sales order through its normal process.
If you have something you can produce quickly as part of the sales order process, Kitting is the way to go.

Why use Work orders instead of Kitting?

Work orders have a lot more functionality than Kitting. If you have outside operations, want to track labor and/or machine time, want to issue materials at various points in the manufacturing process, account for scrap, as well as a bunch of other stuff that is expected in manufacturing software, you probably are not going to be able to do it with kitting.

If you want to use MRP for the planning of those component items, it may not work with Kitting BOMs. If you want to make some kits for stock and put them on the shelf, you’ll need a work order for that. In fact, if you sometimes want to make the item for stock, and sometimes want to do it on the fly with kitting functionality, your system may have trouble with that.

Manufacturing software is complicated, and the whole point of kitting functionality is to avoid using the manufacturing software to do it.

An example of a kitting item.

Let’s say you are an e-commerce business selling school supplies. You may want to set up kits for each combination of school and grade. Then, when a customer wants all the supplies for a 3rd grader at Green Elementary School, you just enter that item, and all the supplies are added to the pick list. This “postponement” option will allow you to operate with less inventory than if you assembled the kits and stocked them complete on the shelf in advance. That’s because when you make-to-stock, you are tying up components to specific finished kits, rather than leaving the option open to which kit they are used in until you receive the actual orders. For example, every kit probably has number two pencils in it; if you premade a bunch of kits for 4th graders at Green Elementary School, and they weren’t selling that well, you will have a bunch of number two pencils in those kits that you can’t use for the kits that are selling.

The downside of postponement is that you have to do all the work during the processing of the sales orders. In the case of school supplies, you likely get all your orders in a very small window. If you simply don’t have the labor available to process them in a timely manner, make-to-stock may be the better option, even though you may end up with more inventory. Make-to-stock would require using work orders, and you would need to be good at forecasting the demand for the kits, though you still may not choose to make them all in advance, just to give you a little more flexibility with those number two pencils.