Bill of Materials
What is a Bill of Materials?
Wikipedia defines a
Bill of Materials (BOM) as ‘a list of the raw materials, sub-assemblies,
intermediate assemblies, sub-components, parts, and the quantities of
each needed to manufacture an end product’. The end products are often
referred to as the ‘finished goods’. There are generally three types of
Bills of Materials.
An Engineering Bill of Materials (EBOM) which defines the design intent of the product and is often based on a CAD drawing.
A Manufacturing Bill of Materials (MBOM) which is all the materials used to create the end product including packaging items.
A Sales Bill of Materials (SBOM) which is a list of items as they are ordered.
Manufacturing Bill of Materials is normally the one referred to as a
Bill of Materials or BOM. It is also referred to as the formula,
ingredient list or recipe.
A Bill of Materials forms part of MRP
(Material Requirement Planning) system, which in turn is normally part
of an ERP (Enterprise Resource Planning) system.
What is the Structure of a BOM?
BOM is normally hierarchical in nature, with the end product at the top
and the list of raw materials listed below. This is referred to as a
single-level BOM. If the manufacturing process is more complex, the BOM
will be made up of several levels or sub-assemblies, each level having
its own BOM. These levels assist with identifying the main components of
the BOM and organising all the raw materials into different groups.
This is referred to as a multi-level BOM.
Typically each item within a BOM will contain, at the very least, this information:
- Stock Code or Part Number
- Description of the item
- Quantity required
- Unit of Measure
What is the importance of a BOM?
Bill of Materials is used to ensure that the correct raw materials and
components are used in the manufacturing process as well as the correct
quantities. Linking to an Inventory Control System gives information on
raw material availability, information on purchasing with supplier
details, prices and lead times. This information can also be used to
provide realistic delivery dates to the customer.
Having an accurate
Bill of Materials can help reduce stoppages due to stock shortages and
increase the efficiency of the manufacturing process. Many businesses
make the mistake of having too much stock which ties up precious cash
resources, or too little stock which impacts the manufacturing process
and results in lost sales and time wastage. An accurate BOM can greatly
assist with managing this balancing act.
Having a BOM means that
the cost of manufacturing the end product can be carefully established
and monitored. The impact of price fluctuations can be immediately
established as well as the cost implication of needing to substitute raw
materials. The BOM can also take into account any wastage that is part
of the manufacturing process. Additionally the cost of labour can be
incorporated into the BOM.
In a manufacturing business, one of
the major expenses will be the cost of materials. On the financial
statements of the business it will be crucial that the material expenses
are accurately represented and having accurate BOM’s in place can
ensure that this is achieved. Essentially this gives an accurate Cost of
Sales (COS) value, resulting in an accurate Gross Profit (GP) figure.
Furthermore the value of the stock (inventory) holding can be accurately
Having accurate BOM’s will result in an accurate costing system.
An Example of a Bill of Materials.
A company manufactures apple fruit pies. A simplistic Bill of Materials might look something like this:
| BOM LEVEL|| DESCRIPTION|
| 0|| Apple Pie|
| 1|| Baked Pie|
| 2|| Fruit Filling|
| 3|| Apples|
| 3|| Sugar|
| 3|| Cinnamon|
| 3|| Water|
| 2|| Pastry|
| 3|| Flour|
| 3|| Butter|
| 3|| Salt|
| 3|| Sugar|
| 3|| Milk|
| 2|| Tin Foil Case|
| 1|| Packaging|
| 2|| Plastic Cover Film|
| 2|| Cardboard Box|
| 2|| Labels|
there will be the exact quantities of each of the ingredients and also
baking and labour costs which would need to be added. This is a very
simple example of a multi-level BOM where the finished product is made
Advantages of a Bill of Materials software system
mentioned, a Bill of Materials forms part of an MRP system, which, in
term, is part of an ERP system. This means that it forms part of an
integrated system. By creating accurate BOM’s, when a customer sales
order is captured into the system, the raw materials required to fulfill
the order will be flagged and any shortages will be quickly identified.
This allows a realistic delivery date to be provided to the customer.
Sales orders can be grouped to work out efficient production schedules
and the necessary purchase orders to suppliers can be generated. Any
variations in the cost can be highlighted. A production schedule with a
detailed list of the all the raw materials and the quantities required
can be issued to the warehouse or stock room. The packaging materials
required can also be itemised and issued from stock. These issues then
update stock levels so that later sales orders use the accurate
available stock levels to check raw materials and packaging required.
Once the manufacturing process is completed, the sales orders can be
converted into delivery notes and/or sales invoices. All the costs and
materials used in this whole cycle are fed into the financial figures,
enabling the business owner and managers to monitor profits and
Omni Accounts offers a comprehensive Bill of
Materials module which forms part of its fully integrated ERP
functionality. It is suitable for all types of businesses and has no
restriction on the number of levels of a BOM.
Back to Articles