BOM Meaning in Manufacturing
Bill of Materials Definition
A BOM or Bill of Materials can be defined as a detailed list of components, materials and/or parts required to make a product. A BOM includes quantities and specifications of parts. It also contains a roadmap of the manufacturing process, which included detailed steps and resources, needed to manufacture the final product and also calculate the necessary lead time.
The two main types of BOMs i.e., BOMs for manufacturing and BOMs for engineering. However, there are several other types of BOMs generally categorized depending on the sector/industry in question.
What is BOM: BOM Meaning
To understand BOM in-depth, it’s important to discuss the elements of a BOM. They include;
- BOM Level: Complex products have different Bill of Materials levels. This element shows the right part and instructions for every component that makes up a product. A typical example would be a product like a fridge with different components like the fridge door, freezer, compressor, etc. Any other part is considered another level.
- Part number: Every component used to make a product must have a part number attached to it and listed in the BOM. Part numbers can be unique, with descriptions that help to set them apart. For instance, a fridge door may be part number FRG-001. Such a part number gives some information on what part it is. Such a part number is considered intelligent since the description assists in identifying the part. Most importantly, whoever creates an intelligent part number should have knowledge of every part.
- Part name: As the name suggests, this element names a particular part.
- Part phase: This element provides information on a part’s lifecycle. For instance, a part could be in the design phase (beginning) or production phase (middle). A part could also be in the end phase when a product is discontinued.
- Part description: This element offers more information about a part. If there are many similar parts required for manufacturing, this element will offer differentiating information. A typical example would be when making refrigerators that look similar but have different handles, sizes, and colors. Such information would be defined in the part description.
- Part quantity: The BOM also has a quantity element that states the quantity/amount of a part required. For instance, a fridge door may require multiple doorknobs. This information is captured under part quantity.
- Unit measurement: This element indicates the part measurement/s required when manufacturing certain products. For instance, if you have parts that must be measured when making a fridge, the unit measurement element indicates the precise measurement i.e., inches or feet of part length required.
- Procurement type: If manufacturing a product would require some parts to be made from scratch in-house, assembled by subcontractors, or bought from vendors, this element indicates the origin of such parts i.e., where they will come from.
- Reference designator: This applies to products with printed circuit boards. The reference designator contains the location information of every part within a circuit board assembly.
- BOM notes: This element contains any other information that is helpful to anyone reading the Bill of Materials. BOM notes can contain images of parts and suggestions when ordering parts.
What Does BOM Mean to Manufacturers?
BOM gives manufacturers lots of benefits. A Bill of Materials makes manufacturing processes more efficient and accurate. The list lays the ground for a detailed manufacturing plan that can be followed with ease. Well-defined BOMs will help manufacturers in many aspects of production, the most notable being on;
- Planning the purchase of raw materials
- Tracking and planning raw material requirements
- Budgeting for material costs
- Managing inventory
- Planning for material shortages
- Planning for expected and unexpected downtime
- Budget control
- Maintaining accurate records
- Identifying vulnerabilities in components
- Improving supply chain security
- Ensuring manufacturers run lead production
- Fostering continuous improvement
Bill of Goods vs. Bill of Materials
BOMs are sometimes confused with BOGs. A Bill of Goods (BOG) can be defined as the consignment or quantity of items for sale as orders or shipments. On the other hand, a Bill of Materials is a list of components required to manufacture a product. In simple terms, a Bill of Goods is composed of finished goods, while a Bill of Materials is composed of raw materials (components) required to make finished goods.
BOM Costs
Different information is required for a standard cost Bill of Materials calculation to be done. The data sources for calculating the standard cost of manufactured items include purchased item information, manufactured item information, operations resource information, route information, manufacturing overhead information, and costing version information. The operations resource information and route information used in standard cost BOM calculations include;
I. Hourly Costs
These are the costs associated with operations resources and expressed as cost factors assigned to setup and run time. Hourly costs must be identified for operations resources and resource groups. The costs are linked to a cost category applicable to a specific location/site or throughout a company.
II. Per Unit Costs
In some manufacturing processes, operations resource expenses per output unit are expressed as different cost categories for quantity. A typical example would be quantity-related costs reflecting individual rates for labor or a paint maker assigning operational costs per liter of paint.
III. Cost Group
The cost group assigned to any cost category offers cost segmentation when calculating the cost of manufactured items. For instance, a different cost group can be used for segmenting the calculated costs associated with labor and machines or runtime and setup time.
IV. Route Version
The route information used in standard BOM calculations included the route version assigned to manufactured items effective for a certain period and has an approved and active status. Route versions are site-specific and reflect quantity breakpoints in some instances.
V. Routing Operation Time
BOM cost calculations also include routing operation time specified for setup and runtime. Hourly time generally expressed for producing a parent item can be expressed per 100/1000 to cater for decimal precision issues.
Routing operation times for secondary resources are also included and have a similar operation number as the primary resource and similar routing operation time. For instance, operations require machines as primary resources and labor as secondary resources.
VI. Routing Operation Scrap %
BOM calculations also consider scrap and cumulative scrap percentages in multiple operations. This is with respect to required timelines for routing operations and required quantities for components linked to operation numbers.
VII. Cost Categories
Operations resource info on cost categories is inherited by operations and can be overridden. BOM cost calculations use cost category information specified in routing operations.
BOM Costing
How are BOM costs used to figure out the cost of producing a product? BOM calculations utilize data from many sources to come up with standard costing for manufacturing an item. The sources include information on items, indirect cost formulas, bills routings, and costing version.
Information used to calculate BOM costing includes but isn’t limited to; purchased item costs maintained in site-specific costing records. All cost records have effective dates, and BOM calculation dates determine the cost record to be used. For instance, BOM calculations with future calculation dates may use cost records with pending status and future effective dates.
The cost group assigned to purchased items also offers a base for cost segmentation when calculating the cost of manufactured items. Warning conditions embedded in an item’s BOM calculation group enable BOM calculations to factor potential problems. This applies to when there are outdated cost records, zero quantities, and zero costs in BOMs.
Bill of Materials Software
Inventory management is a critical part of successful manufacturing operations. The same applies to production. However, doing BOM calculations is a complex matter. Even if you attempt to use tools like excel, such tools aren’t ideal for real-time calculations. For this reason, you need good software.
Prudent manufacturers use BOM software for real-time production planning, raw materials management, and production scheduling. Manufacturers can take full control of their businesses by implementing D2C and B2B selling strategies. However, they need good software to manage critical aspects of their business. But what should you look for in BOM software. What features are the most critical for Bill of Materials software? Here are the key features of the best BOM software.
1. Real-time Master Planning
As mentioned, there are better ways (other than excel) to handle inventory. Spreadsheets are static. It’s also time-consuming to use them. Most importantly, there are prone to errors capable of destroying an entire operation and company.
The best BOM software out there today offers real-time master planning for all types of manufacturers. Whether you need to track product design, product progress, raw material usage, or engineering changes, the software should be able to do this with ease.
This feature offers live insights critical for optimizing resources and scheduling production to meet and surpass deadlines. Available resources, such as raw materials, are automatically updated, and finished products are allocated automatically to fulfill orders. It’s also possible to prioritize your schedule and meet deadlines effortlessly.
Real-time master planning offers real-time visibility critical for optimizing all major resources. It is possible to get optimal inventory levels throughout. You also get to enjoy accurate lead times and make accurate purchasing decisions using live data. Real-time master planning also offers task-level floor control critical for job shop management. You also get an opportunity to automate manufacturing cost calculations using BOM and production.
2. Accurate Costing Features
BOM software also guarantees accuracy when costing. For manufacturers to make informed decisions in real-time, they need live data on raw materials and the overall production process. This information is critical for accurate costing.
BOM allows tracking progress with production orders, sales, raw materials, and other resources real-time that make accurate pricing decisions easier. With BOM software, costing is error-free. The best BOM software will track manufacturing costs on your BOM and production operations. The best software also creates multi-level BOMs for more accurate costing. It’s also possible to track COGS (cost of goods sold) accurately and set ideal costs. Most importantly, you are empowered to make informed pricing decisions
3. Live Inventory Management
Materials BOM software inventory management features real-time. The best BOM software for manufacturers today offers tools for tracking different types of manufacturing inventory. It’s also possible to have end-to-end traceability in your business.
Manufacturers can follow different manufacturing processes like making custom products or tracking different batches of items i.e., with close expiry dates. The flexibility makes it possible to track items at any stage of a supply chain. It is also important to be able to track partially assembled products that can still be considered inventory, also known as work in process inventory or WIP, because these too can be stored onsite for significant periods of time.
In a nutshell, BOM software should offer live inventory management, which includes getting total inventory control on raw materials and finished products critical for improving product lifecycle management. The software should also automate inventory transactions as well as set reorder points that prevent stock outs.
The software should also manage raw materials and product variants in one place, track stock (on-hand, committed & expected) amounts in real-time, autogenerate internal barcodes and batches, allow quick location of items across warehouses, give teams access to live data and trace faulty materials, batches, and products for swift product quality and product recall management.
4. Integration Features
The best BOM software also has superior integration features. You should choose BOM software that allows you to set up integrations and workflows between the software and 3rd party software using API.
The best Bill of Materials programs out there are built to connect to a variety of software. The software should have an extensive list of integrations. Most importantly, if you can’t find a built-in integration in the software, you should be able to build your own and customize it to match perfectly with your manufacturing operations. Custom integrations done from scratch should also offer smooth workflows between other software or operations of your business i.e., production, accounting, stock, sales, and customer service.
5. Effortless Creation, Management, and Editing
You should also settle for software that allows you to effortlessly create, edit and manage BOMs of varying complexity. For instance, you should be able to set up BOMs with many/few components, upload new manufacturing BOMs, use multi-level BOMs for complex production processes involving many sub-assemblies and products, manage parametric & configurable products, and more.
6. Free Trial
Lastly, it also helps to choose BOM software with a free trial period. Since manufacturing operations are different and investing in BOM software is a significant undertaking, the best BOM programs allow you to test everything before making a commitment.
