What is BOM?
BOM is the core of the manufacturing process!
Bill Of Materials is the list of materials, assemblies and subassemblies that are necessary in order to produce an item. It also includes any processes that must be performed on the item once it goes into production.
Why is it important?
BOM is the connection between your inventory and manufacturing, it is the first step into the manufacturing process.
Every line in the BOM represents an item in your stock and includes all the important information about the item, such as: SKU, UOM, stock levels, whether you need to order some materials to be able to complete the production, and the estimated cost and amount for the quantity necessary to produce the finished item.
Depending on the complexity of the finished item, there are two types of BOM:
1. Single level – made directly from raw materials
2. Multi-level – besides the raw material it also has sub-assemblies with their own BOMs
The cost of production relies on that connection!
The raw materials used in the production have a certain cost (which includes the landing cost as well) and you are using a certain number of pieces or a certain quantity;
the work operations have their own cost per hour, and the duration can vary.
Because the BOM can be branched out to grasp an unlimited number of items and work operation, manually calculation the cost of production is a difficult, time consuming and detailed-oriented job, that is very prone to human error.
And if your finished product also has a certain quantity of sub-assemblies included in the production process, it can get even more complicated.
To make it easier to follow the production process, and calculate real time cost through every step of the way, preventing miscalculations and eliminating human error, that is the main goal of an ERP such as ERPAG!
The questions that a BOM answers:
As a source of information on how to manufacture a product and what it takes to do so, the BOM is spread throughout all the relevant departments in a company:
- Inventory – because it provides information on the listed products and compares the stock levels to check the material availability
- Purchasing – if some materials are not available, that triggers the fulfillment option, making a list of suggestions of what needs to be ordered so you are able to start (execute) the manufacturing
- Manufacturing – not only because the finished item needs to be manufactured, but because that finished item might have subassemblies that need to be manufactured as well
- Sales – because it will give you a predictable delivery process for the customer, which is based on the material availability (lead times for the necessary material to arrive, the duration of the manufacturing process itself) and the estimated cost of production (rolling-up the cost from the raw materials, through the subassemblies to the finished product, including the work operations cost)
BOM is the foundation for planning purposes throughout your company!
Given the above, an accurate BOM lays out all the info required to help making better decisions about purchasing the material, manufacturing the product and, in the end, selling it and all of that efficiently and cost-effectively.
In ERPAG, having an accurate BOM also has some additional perks, such as being able to review all the places in the product BOMs where a certain part number appears.
Based on various reports, it will also be a great indicator on how to set up your minimum stock quantity limits for the assemblies, sub-assemblies and finished items in your stock, and based on that, the system will give you an indicator of what you need to purchase and produce in the following period!