What is the Bill of Materials (BOM)?
Bill of Material, also known as product structure or BOM , is a comprehensive list of items required for manufacture of end product, containing details of raw materials required, components, assemblies which are required either to construct or manufacture a product and which is used as communication medium of manufacturing team with stores team.
Explanation
Now let’s start with the explanation part. Say, I need to have a pizza on my plate now. Rather than buying it from a restaurant, I am curious to prepare it by myself. The first and foremost questions arise “what ingredients are required for making the base, sauce, and toppings?”. After every component is ready, “what should be ideal heat to bake it?”. There are so many questions involved in making the pizza ready for serve. Now, shifting from pizza to our topic of discussion, what specific items are required for manufacturing the end product? The bill of the material revolves around this question.
- The bill of materials contains the specification of every item required for the manufacture of the end products. Hence, not only the raw materials but also subassemblies, subcomponents, sub-parts, and consumables are enlisted therein.
- The top-level of BOM represents the finished product. Further, it is broken down into parts to define the requirements.
There are two formats in which a bill of material can be displayed:
- Explosion Format: It means to explode the end product into its component or parts (i.e., end to start)
- Implosion Format: It means to connect the individual parts to form an assembly at the highest level (i.e., Start to end)
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Source: Bill of Materials (wallstreetmojo.com)
Structure of BOM
#1 – Single-Level
It is simple to prepare and use. However, in case of failure of the product, it is challenging to investigate that which item requires replacement or repair. Further, such a structure of BOM is unsuitable for complicated products.
The basic structure has been shown below:
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Source: Bill of Materials (wallstreetmojo.com)
#2 – Multi-Level
Here the data is presented in a detailed tabular format with each column for Part Number, Part Name, Description, Quantity, Cost, additional specifications, etc.
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Source: Bill of Materials (wallstreetmojo.com)
Elements
Any Bill of Material should serve the purpose of manufacturing the end product without any hustle on the procurement of even a single item.
Following elements are required to create the same –
- Quantity: The BOM should specify the number of parts to be procured or manufactured for each assembly. Make sure that the optimum purchase order is placed. Quantity is the foremost requirement of BOM.
- Unit of Measurement: Per-unit, inches, grams, kilograms, litres, square-feet, cubic-feet, etc. should be specified for each quantity. It ensures that exact quantities are ordered. The purchase cost should be under the budget set for the project.
- BOM Level: This helps understand all the elements of the Bill of material. BOM level provides the number or ranking for each part. It may be Single-level BOM or Multi-level BOM.
- BOM Notes: This provides additional information regarding the bill of material other than the description of parts.
- Part Number: This helps track each part. Thus, a unique part number is assigned for each item for easy referencing.
- Part Name: The unique name of each item with a specific part number helps identify the item easily and more effectively.
- Raw Material: You should know which is the essential raw material for your end product. BOM should specify the exact quality or type of raw material required in the manufacturing process.
- Description: Each part should have an adequate explanation about the part. It helps to distinguish between similar parts.
- Images: It’s good to have an image of a thousand words. Images of the end product help easy understanding of each component. It helps to cross-verify the BOM details with the image.
- Method of Procurement: The required part or items may either be purchased from an outsider or manufactured internally. Make sure that optimum discount is availed in case of bulk purchases of items from the same vendor.
Types of Bills of Material
There are two types of bills of material.
#1 – Engineering BOM
It defines the design (i.e., drawing) of the end product. The engineering department makes such a design. The design itself specifies the requirement. It has alternate or substitutes part numbers. The dimensions of each sub-assembly are also specified in such BOM. Each line of BOM specifies the description part, name of the part, part number, unit of measurement and its size, and other relevant specifications
#2 – Manufacturing BOM
The requirements herein are specified from the angle of actual manufacturing rather than just designing. However, engineering BOM aids the manufacturing BOM. MBOM specifies the processes which are required at the execution stage and thereby keeping all things ready for manufacturing activities
#3 – Sales BOM
It is treated as a sales item rather than just an item of inventory. The requirements are specified in the sales order document.
Bill of Materials Example
Creating a bill of the material requires knowledge of that sector. Detailed knowledge is not expected, but you should have a broad view of the product. As a basic example, we will consider the manufacture of bicycles. Let’s say there is a demand for 100 bicycles. The question is what parts/components/assemblies/sub-assemblies are ought to be required. A bill of material can be created in tabular form or flow chart form. Well, there are so many types of bicycles. Deliberately, we consider “Mountain-bike” as complicated products so that BOM can be understood in a detailed manner.
Details of all significant parts of mountain-bike:
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Source: Bill of Materials (wallstreetmojo.com)
#1 – Basic BOM: (Flow Chart Format)
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Source: Bill of Materials (wallstreetmojo.com)
#2 – Detailed BOM: (Tabular Format)
Reasons why the BOMs are Crucial?
- We cannot imagine a product without its BOM. It is the BOM that specifies all the components.
- Preparing a BOM is the most crucial aspect since anything which is not specified in the BOM will not be acquired.
- BOM helps to identify the basic cost of components required to manufacture the end product.
- Once we have the cost of components, we can identify the assemblies we can get from a vendor instead of manufacturing them ourselves.
- It also helps to identify wasteful items that can be avoided.
- BOM helps in better decision making whether to manufacture or buy it.
- It makes the manufacturing process a little cost-effective.
- BOM ensures that overhaul all the components are considered.
Conclusion
These are the basic requirement of the manufacturing process. It only helps to compute the cost of purchases. After the BOM is confirmed, other costs such as labour, manufacturing overheads, selling overheads, etc. are lined up further to identify the cost of goods soldCost Of Goods SoldThe Cost of Goods Sold (COGS) is the cumulative total of direct costs incurred for the goods or services sold, including direct expenses like raw material, direct labour cost and other direct costs. However, it excludes all the indirect expenses incurred by the company. read more (COGS).
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