Bill of Materials – An Essential Guide for Manufacturers

1. BILL OF MATERIALS – AN ESSENTIAL GUIDE FOR MANUFACTURERS

2. Regardless of the size of the manufacturing operation, a Bill of Materials (BOM) is vital for production. Companies across the globe utilize them as the guide and shopping list for their final product and as such, they are tied into manufacturing, maintenance, scheduling, purchasing, and other areas of the organization.

3. What is a Bill of Materials (BOM)? A BOM is a structure for making a product repeatably every time. It contains the list of materials, assemblies, sub-assemblies, formulations, mixes, or other components that go into each finished product. A Bill of Materials will contain the quantity or volume of each item used and it may also contain information such as cost, lead time, waste factors and other work-center data required to produce the finished item. It is easy to assume that small manufacturing companies may not need a structured and well-crafted BOM because with their size and smaller product portfolio they are intimately aware of all the parts and materials required. It is also easy to assume that because a product is simple or consists of only a small number of components (or a single component), they are not necessary.

4. However, both of these assumptions are incorrect. BOMs are a company’s guide and recipe for building their product. Not having a BOM, or having an inaccurate BOM, can lead to waste, inefficiency, and errors. It also means that rather than having systemized data for the most efficient process that can be passed on to future employees as the company scales or as employees leave the company, knowledge is fragmented and siloed across several employees or software systems leaving the company exposed to loss of repeatability.

5. BOMs are also important as part of the process for manufacturing overall. If a company wants to undergo process improvement that uncovers new methods and ways of doing things, an accurate BOM is required so that everyone knows what the product requires and in what order. Without a BOM, the effort of process improvement is limited. It is also recommended to use a BOM software for creating and managing your BOMs.

6. Types of BOMs There are several functional types of BOM. These include: 1. Engineering Bill of Materials The engineering bill of materials is used for the creation of a new finished good. It is the ground zero for a finished product that lists all parts, components, and materials for the finished product as it was originally designed. The EBOM is also used by planners, purchasing, and finance to trigger purchases for materials from existing vendors or to source vendors for new materials. They may also include drawings for new parts that will become standard in the manufacturing bill of materials. An example of an Engineering BOM would be a company that produces a new scooter using 3D printed parts or a revolutionary technology for propulsion. It would contain a detailed list of all parts required to bring the new product to market.

7. 2. Manufacturing Bill of Materials A manufacturing BOM is the most recognized form and consists of all materials, assemblies, formulas, or components required to produce a shippable product. This type of BOM may also be tied to the required processes that are to be performed in its production. It is also used by planners and schedulers for calculating purchase requirements as needed for an MRP or ERP run in companies that utilize automated software to integrate MRP functionality, BOMs, purchasing, and other production-related operations into a single system. Because they also include time factors such as lead time and production time, they help material planners determine when to purchase as well as when to start the production of a particular item. An example of a manufacturing BOM would be a pair of blue jeans. The BOM would contain material type, weave configuration, cutting, and sewing instructions as well as labeling instructions and could be used repeatedly for small and large volumes of the same type of jeans.

8. 3. Configurable Bill of Materials Like a manufacturing BOM, a configurable BOM (also called a Matrix BOM or a BOM with parameters) is a guide to producing a finished good. However, many manufacturing companies produce the same product in a variety of sizes, colors, or other parameters. Some manufacturers also produce the same goods for different brands under a “white label” arrangement. This means that the core product and bulk of manufacturing will the same, but the final version may differ slightly depending on the customer. This could mean different packaging, volume, unit count, branding or stamping, and other differences to make the product applicable to the customer’s use or brand. The core product, however, is the same. An example of a configurable BOM would be a company that makes applesauce. A single formula would make up most of the BOM while final instructions may require 120 ml in one type of container and printed packaging while another customer’s branding and volume requirements may require 175 ml.

9. There are also two kinds of operational differences in BOMs as well. These distinctions are not exclusive and may both be used within the same company by different departments. 1. Single-Level Bill of Materials This is the high-level BOM that lists the materials required to manufacture or assemble the product. If there were subassemblies, mixes, blends, or other components required to produce these materials, they are not listed and the finished component for the final manufacture is all that is shown. Single-level BOMs may be used as the only guide for production in companies where the product is simple or where it contains few components or where no sub-processing is required downstream. An example of where using a single level BOM would be appropriate would be in a factory that produces wire coat hangers. As the wire is the only component, it lends itself to a single-level BOM.

10. 2. Multi-Level Bill of Materials Like a single-level BOM, multi-level BOMs contain materials and quantities for producing a finished good. However, for complex manufactured products, a multi-level BOM may have several sub-levels that feed into the final assemble top-level BOM. In multi-level BOMs, the top-level acts as the “parent” item with the second level of one or more components that are blended or assembled acting as the “child”. This process may be repeated for third, fourth, and other subsequent levels where the manufacturing company may be vertically integrated enough to produce its own subassemblies or formulations to be added to others and thus feed the next level up. Information such as cost, lead time, work process, etc. may be added all the way down to the lowest level. This data can then be tied to integrated automation software such as MRP or ERP manufacturing software to automate purchasing, plan labor, develop schedules, and other operational tasks.

11. Benefits of an Effective BOM A BOM is a definitive guide for creating a finished good. Without one, a manufacturing company risks a host of problems that can be avoided with the production of an effective and well-crafted BOM. Benefits for using a BOM include: Purchasing – Planners can use a BOM to plan purchases in the correct quantity. Because BOMs often include process steps, they can also plan the arrival to work toward a just-in- time delivery when possible. Costing – BOMs are vital for conducting accurate costing of finished goods. If the BOM is truly multi-level and fully and accurately measured and costed, the Cost of Goods Sold (COGS) calculations will be accurate. This will impact margins, profits, and even taxation levels.

12. Inventory – By using an accurate BOM and purchasing in appropriate amounts, manufacturers can better control their inventory. This not only means the reduction or elimination of shortages and stockouts, but it also means a reduction of excess inventory and the associated holding costs. Process Improvement – BOMs are systemized guidelines for the production of finished goods. This provides the groundwork for manufacturing to better plan workflows and work centers. By planning these vital functions accurately, a BOM can be a good guide to realizing process improvements that improve efficiency and profitability. Waste Reduction – Because all levels of components are accurately measured for quantity and volume, waste can be measured and controlled better. Even the slightest volumetric miscalculation can cause unnecessary waste in a high-volume operation. An accurate BOM can measure in only the waste normally created from the process without skewing the number due to inaccuracy.

13. Who Creates Bills of Materials? The creation of BOMs may vary from company to company or industry to industry. In companies where products are very technical, this may be a technical designer or product designer. In many MTO companies, it may be an engineer or an industrial engineer. BOMs may also be built by those within administrative functional areas such as purchasing, planning, or scheduling provided the person entering the data has the information required to ensure its accuracy.

14. What to Include in a Bill of Materials? An effective and accurate BOM requires specific information. This is true of all BOMs but is especially true for those BOMs tied to MRP/ERP software. Without accurate, in-depth data, the lower levels of the BOM may not “roll up” correctly or accurately to the single level. Missing data also degrades the capabilities of the software and makes its benefits less pronounced. All BOMs should include: BOM Level – This is the framework for a multi-level BOM. By assigning a BOM level, the BOM can be “exploded” to see all relevant parts at all levels including cost, lead time, and production time. Part Number – Each part in a manufactured finished product should have a part number. Part numbers can be used for both references and for ordering replenishment parts. There are several different approaches to assigning part numbers.

15. Intelligent – Intelligent part numbers depict meaning. This may mean that certain numbers in certain positions indicate the date or month produced. It may also indicate an alpha designation as a partial description of the part such as using MTR for a motor. Unintelligent – These part numbers indicate nothing about the part and are assigned using a predetermined numbering system decided upon by the manufacturer. Vendor Assigned – Many companies use vendor assigned part numbers to reduce the matching required to tie internal and external numbers together for purchasing and planning purposes.

16. Part Name – As parts become common on the production floor, many employees on the line will come to know them by their common name. Assigning a part name helps staff in terms of referencing the part during production. Description – Like a part name, a solid part description helps identify and differentiate a part from similar items. Procurement Type – Procurement type tells purchasing and planning how the component is made. It may indicate that it is a purchased part and needs no additional assembly before adding it to the finished good. It may also indicate a made to specification item or a material that will need to be altered somehow (such as drying or cooking of material). Quantity – The quantity is the number of each item used in the manufacture of one finished unit.

17. Unit of Measurement – There are many units of measurement depending on the finished good being produced. This may include units of weight (e.g. kilograms), volume (e.g. liters), and area (e.g. square feet), or simply pieces. The unit of measure used in conjunction with quantity and lead time helps determine the amount of materials needed and when they should be ordered. Reference Designators – Some products such as printed circuit boards require reference design. BOM Notes – BOM notes provide other relevant info related to the product. Phase – Many products have a lifecycle. By classifying parts by where they are in the lifecycle, change management can be made easier. Some examples include “In Production”, “In Design”, or “Unreleased”. This helps track changes as they occur during the product’s lifecycle. For example, an appliance may have started its lifecycle using metal bushings on a key assembly. However, a change to ceramic bushings for performance improvement may be underway with those parts carrying the designation of where they are in development.

18. Tips for Building an Effective Bill of Materials Having an effective BOM systemizes a lot of tasks to improve accuracy and efficiency. Without a BOM, manufacturing operations must create workarounds to determine valuable information related to production and assembly. An accurate and effective BOM streamlines the production process by providing a roadmap or recipe for each finished good, freeing up valuable hourly and management time to commit to the process of production.

19. Here are a few tips for creating an effective BOM: Enter Data on the Front End – The best time to create an effective BOM is at the beginning of the product’s lifecycle. If there is an existing EBOM, this can be used “as is” to create the manufacturing BOM. And some MRP and ERP software allow for the migration of electronic files to partially or fully populate BOM data. Whether using an existing EBOM or through the use of CAD drawings and other media, putting in the data up front will help ensure the accuracy of the BOM. Formalize a Change Management Process – As bad as having no BOM, failing to formalize a change management plan can lead to delays, quality failure, material shortages, and other issues. A BOM is not a static document. It is a dynamic document that will change as years go by. By making accommodations for change management, accuracy can be maintained throughout the lifecycle of the product. These changes can include things like price changes, drawing revisions, part substitutions, packaging changes, part and material substitutions, vendor changes (which often require their own validation and lot control), and others.

20. Consider Who Will Use the BOM – The more details included in the BOM the better. By understanding who within the operation is going to use the BOM, you can make the right choice about the amount and depth of information to be included. Many people accessing the BOM for day- to-day tasks will not always be familiar with one another and may not even be in the same facility. Plan for the “Little” Things – Small things may make a big difference in the accuracy of a BOM. One example is consumables. While many may not want to go to the trouble of adding glue, tape, labels, and shrink wrap, many product lines have missed ship dates due to one of these unforgotten components. While making time to measure, cost, and quantify an application of a small amount of something such as glue may seem like a headache, it is important for the BOM to be complete.

21. Formalize Access to the BOM – Most people within a manufacturing company can get by with “Read Only” access, where they can view a BOM on screen or in print form. But formalizing the process of who has access to the BOM can clear up confusion and limit errors. If the BOM is part of an automated MRP/ERP software, these changes may be permission-based, where purchasing people can only change costs and engineers can only substitute parts. And in some smaller and medium-sized companies it is not unusual to appoint one or two people to make all changes as they occur, which offers the opportunity to audit proactively before the change is made. Regardless of the methodology, formalizing both “Read Only” and change access will help minimize mistakes. Formalize the Audit Process – Because a BOM is a dynamic document, a formal audit process should be defined. Some finished goods that have undergone many changes during their lifecycles can have inaccuracies add up thus creating off quality products. The audit process can look for errors such as changes in the unit of measure, (for example, changing from a vendor who sells in gallons to one who sells in liters), part substitution, drawing, and iteration changes, cost changes, new process steps related to new OEM equipment in production, and more. It is important to formally audit BOMs on a schedule, note the changes where appropriate, correct errors as soon as they are identified, and document the changes that were required during the audit.

22. Conclusion A well crafted BOM is essential for any manufacturing company regardless of size or product complexity. While making a BOM out manually can work, most MRP and ERP software and automation systems include this functionality. This allows companies to customize and tie their BOM into planning, finance, maintenance, and more.

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