The following items can be combined or used to create the following:
Health Kit = Rag + Alcohol
Shiv = Blade + Binding
Molotov Cocktail = Rag + Alcohol
Nail Bomb = Blade + Explosive
Smoke Bomb = Blade + Explosive
Melee Weapon Modification = Melee Weapon + Blade + Binding
It (initially) takes two seconds to craft these upgrades.
The Nail Bat grants one instant-kill bar, which appears underneath the (four) smaller bars, which indicate how many regular slashes you have left. More importantly, this instant-kill attack is also a stealthy attack; nearby enemies are not alarmed when you use your upgraded melee weapon.
A Runner typically takes four slashes, or one normal Wooden Stick. The Lead Pipe has nine regular bars and allows you to take down two Runners (and have one bar left).