Raw material inventory management can be tricky. That’s why we’ve created this article for ambitious manufacturers, big or small, looking to optimize their inventory.
What is a Bill of Materials
A bill of materials (BOM) is an inventory of the raw materials, sub-assemblies, intermediate assemblies, sub-components, parts, and the quantities of each needed to manufacture a product.
A Bill of Materials has varied applications and is sometimes also referred to as a Production Recipe or Assembly Component List.
Bill of materials are meant to be followed to the letter and are considered a core element of any efficient manufacturing operation.
This is because a bill of materials details the what, how, and where to:
- Purchasing materials;
- Materials needed; and
- Operational steps for manufacturing goods.
Regardless of where your business operates in the manufacturing industry, all manufacturers get started by creating their BOMs.
How to Create a Bill of Materials?
Creating a bill of materials is vital for production management to ensure consistency and quality throughout the manufacturing process.
Despite the awesome benefits of using BOMs, it cannot be denied that you have to spend a bit of time putting them together at first.
But at the very least, you can think of it as an exercise to really get to know your product, and even the chance to know your margins too.
Single-Level Bill of Materials
A single-level bill of materials structure (BOM) is a simple list to produce a product, consisting of only one level of children in components, assemblies, and material.
Although simplicity can sometimes be best, a single-level BOM is not suitable for more complex products.
Another key factor to consider is that if an issue arises with a product, such as a quality concern, you would not be able to identify which material in the production process needs to be replaced, or amended.
If you are producing more complex items such as a laptop, you will need to opt for a multi-level BOM.
This type of BOM can provide you with the specific relationship between various materials, assemblies, and sub-assemblies.
Multi-Level Bill of Materials
A multi-level BOM also referred to as an indented BOM, is an intricate bill of materials that lists the components, assemblies, and parts required to make a product.
It provides a display of all items that are in parent-children relationships. When an item is a sub-component for example, all its components including finished parts and raw materials are also exhibited.
It’s similar to a single-level BOM but provides a greater layer of detail and specificity on all parts involved in the production of the product. It displays further details such as the quantity of required materials and is indented to illustrate the relationship between various materials, assemblies, and sub-assemblies.
Structure of a Multi Level BOM
The structure of a multi level BOM resembles a family tree and maps out all components and sub-assemblies for a product.
Each BOM level will detail all the components that are directly or indirectly used in the production of a parent item.
The purchased parts and raw materials can also be found within a BOM level, which will look something like a BOM tree.
Importance and Purpose of Multi Level BOM
If you want to get your operation set-up with the smoothest production flow possible, there’s a lot you need to do, as to not bog down your production later.
The purpose of having your multi level BOM ready is:
- Overview of Assemblies: To have greater details and specificity on the parent and sub-assemblies in the product, and their exact relationship between the sub-assemblies and the finished product; and
- Prevent Errors when Dealing with Sub-Assemblies: If your manufacturing business is scaling, it becomes necessary to breakdown your products into sub-assemblies, and those into smaller sub-assemblies and components, and so on, which will be essential in preventing errors and help accurately tracking parts.
As you can already see, it is important to know what is a sub-assembly if you’re going to get more control over your multi level BOMs.
Is Excel the Best Option to Manage Multi Level BOMs
It is possible to save and keep a multi level BOM spreadsheet. A spreadsheet may seem like the obvious choice to manage your multi level bill of materials, but is it the best?
1. Prone to Errors
From copy/paste errors to more complex macro and script issues, BOMs kept in inefficient Excel spreadsheets can easily be plagued with issues and will need to be constantly updated manually, which will take up a lot of your resources. Not only does it waste time, but it can also mean that key business decisions are being made based on inaccurate data.
2. Difficult to Add Variants
It is difficult to add in your potential product variants. When a product has multiple variants, it can be complicated to manage in Excel as the number of resolved BOM’s will grow exponentially with the number of variants, very quickly becoming impossible to manage.
3. Calculating Costs and Quantities
Calculating totals in Excel may seem simple, and it is for flat or single-level BOMs. However, when dealing with multi level BOMs it is more complicated. Calculating costs and quantities for multi level BOMs requires extensive setups, complex formulas, and VLOOKUPs – to name just a few. This takes valuable time away from other important tasks and with increased complexity, it can result in errors.
4. Creating a Multi Level (Indented) BOM is Complicated
Creating a multi level BOM in Excel is not impossible but can be complicated. You need to be able to find a way to indicate a level of hierarchy across parts and sub-assemblies. The reason that this is so difficult is that:
If you need to add or remove any parts from your existing multi level BOM, you can easily make human errors. For example, are you inserting the new value in the right places, or if removing a sub-assembly have you accidentally deleted all the associated parts as well? Small mistakes can lead to huge errors if you are making a business decision based on incorrect data.
The sorting function in Excel is incredibly useful, but it can also cause major problems. For example, sorting columns can mess up your key columns and delay your production process.
When manufacturing various products, they will often use the same parts. Managing multiple instances of a part across products across different levels of the BOM hierarchy can cause serious issues in Excel. For example, if you update the part number for a part for one product, will all instances of the part in the BOM be updated?
What to Include in a Bill of Materials
The parameters that you include in a bill of materials will depend on the product you are producing, but generally, a good bill of materials will include:
- Material Name: Every material, ingredient or sub-assembly should have a detailed, unique name in your bill of materials. This will allow the material to be easily identified.
- Variant code / SKU: This is a unique code for a material variant (also called SKU). This means that anyone involved in the production process can identify parts instantly.
- Description and notes: Bill of materials should include a clear, informative description of the material for those involved in the production process. You should also include any additional information that is needed for someone to clearly understand the BOM.
- Units of Measure: This is the unit that you use to measure the quantity of a product or material in your stock. For example, it may be pieces (pcs) or kilogram (kg).
- Quantity: The quantity of each material needed to produce a product must be specified. This allows the bill of materials to be an accurate purchasing asset, and to help with establishing safety stock stock and reorder points.
- Product Color: Specifying the product color will help to ensure there are no errors made by those using the bill of materials to create the finished product. Especially if you have a lot of color variants.
To make your manufacturing process even more effective, you may want to “enrich” the BOM structure with more parameters.
Slot these into your BOM as you see fit.
- Lead Time: The time between the initiation and completion of an assembly process;
- Scrap factor: The percentage of components and/or materials ruined during manufacturing operations;
- Quality criteria: Upfront defined measurable tests and test results to confirm that the quality objectives of an assembly process have been met;
- Done criteria: An upfront agreement of assembly steps and tasks that need to be completed to complete the assembly process; and
- Roll-up Cost: Calculates the standard cost based on the BOM and routings of assembling the product.
It all depends on the manufacturing process and what data you want to make use of. Each of these metrics can have great value for making business decisions.
Bill of Material Example to Get You Started
Understanding the varying complexities and types of bill of materials available to you can sometimes seem overwhelming and leave you wondering where to begin.
So, here’s a basic bill of materials example to show how you can get started.
Let’s go with making wooden doors, simple enough.
First thing is to list the items that go into making a door. You need:
- Hinges; and
Okay, I guess we’re done then. Time to go home?
Well not quite yet, there are a few more steps to go through. And the next is to determine how much of each item we need.
- Door Panel (x1 unit);
- Handle (x1 unit);
- Hinges (x2 unit); and
- Latch (x1 unit).
Brilliant, we know what we need and how much of it.
Next up: how much does it cost?
- Door Panel (x1 unit) $20;
- Handle (x1 unit) $6;
- Hinges (x2 unit) $2; and
- Latch (x1 unit) $2.
Total Cost: $30
So, that’s about as simple as a bill of materials, or product recipe, as you will ever find.
It’s not too hard to imagine how it could become more complex. If for example, we offered different door handles then it would make sense to build a configurable BOM.
But that should give an idea of how it works, so you can start building your own BOMs.
Types of Bill of Materials
There isn’t a one-size-fits-all when it comes to a bill of materials. There are many types of BOMs to choose from, so it helps to understand your options. We have put together a quick overview of some of the different types to help you decide what your business needs.
Manufacturing Bill of Materials (MBOM)
A manufacturing bill of materials displays the materials, assemblies, and sub-assemblies that are required to produce a finished product. It applies to the production process before completion of the finished goods.
Engineering Bill of Materials (EBOM)
An engineering bill of materials is different from a manufacturing BOM, as it defines the design of a finished product. It is often created based on a computer-aided design or CAD drawing, as is part of product lifecycle management.
Configurable Bill of Materials
A configurable bill of materials (CBOM) is a form of BOM used by industries that have multiple options and highly configurable products.
The CBOM is used to dynamically create products that a company sells, so they can easily be molded and shaped. The benefit of using CBOM structure is that it reduces the work-effort needed to maintain product structures.
The configurable BOM is most frequently driven by “configurator” software. The development of the CBOM is dependent on having a modular BOM structure in place.
BOMs that describe the sub-assemblies are referred to as modular BOMs.
Modular BOM structure provides the assemblies/sub-systems that can be selected to “configure” an end-item. So, this structure requires modular BOM as well.
The main reason why modular BOMs are used is that the job of maintaining the BOM is much simpler (given that the assembly list of the product is long and complex, and maintenance does not require a complete overhaul of the BOM each time).