What is a Bill of Materials?
Bill of Materials (BOM) is 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.
Different types of BOMs
There are various types of Bill of Materials (BOMs) tailored to specific business needs. These include the Engineering Bill of Materials (EBOM) for design, Manufacturing Bill of Materials (MBOM) for production, and Sales Bill of Materials (SBOM) for order fulfilment.
- Engineering Bill of Materials (EBOM): An EBOM defines the design intent of the product and is often based on a CAD drawing. It’s crucial during the initial design and development stages, ensuring that the product is conceived correctly from the start.
- Manufacturing Bill of Materials (MBOM): The MBOM includes all the materials used to create the end product, including packaging items. It’s the core BOM used during the manufacturing process, ensuring that all components are readily available for production.
- Sales Bill of Materials (SBOM): The SBOM is a list of items as they are ordered by customers. It helps in understanding and fulfilling customer orders accurately, ensuring that the right products are delivered.
What is the Structure of a BOM?
A Bill of Materials (BOM) can take on different structures. It can be a single-level BOM, where raw materials are listed directly, or a multi-level BOM with hierarchical layers, including sub-assemblies and components, suitable for complex manufacturing processes. A Bill of Materials (BOM) can take two primary structures:
- Single-Level BOM: In a single-level BOM, the end product is at the top, followed by a list of raw materials directly. It’s suitable for simpler manufacturing processes where components are directly assembled into the final product.
- Multi-Level BOM: In a multi-level BOM, the BOM is hierarchical, with sub-assemblies, intermediate assemblies, and components organised into levels. Each level may have its own BOM. This structure is ideal for complex manufacturing processes with multiple stages and sub-assemblies.
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 Bill of Materials?
The 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 Bill of Materials 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 calculated.
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:
|2||Tin Foil Case|
|2||Plastic Cover Film|
Obviously, there will be the exact quantities of each of the ingredients and also baking and labour costs that would need to be added. This is a very simple example of a multi-level BOM where the finished product is made in stages.
Advantages of a Bill of Materials software system
As mentioned, a Bill of Materials forms part of an MRP system, which, in turn, 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 fulfil 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 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 efficiency.
Choose Omni’s BOM System
Looking to streamline your Bill of Materials (BOM) management and optimise your manufacturing processes? Consider Omni Accounts, an all-in-one ERP system. With Omni’s comprehensive BOM module, you can efficiently create and manage accurate BOMs, improve order processing, and gain better control over your inventory. Unlock the power of precise manufacturing with Omni ERP by contacting us now!