Bill of Material

What is Bill of Material in purchasing?

A bill of materials (BOM) is essentially a comprehensive inventory of the raw materials, assemblies, subassemblies, parts, and components, including the quantities of each of these that go into manufacturing a product. 

To break it down, the BOM is basically an entire list of every single item that is needed for the purpose of manufacturing a product. A bill of materials might also be called a product structure, assembly component list, or production recipe. 

It is critical for several manufacturing and supply chain processes like production, materials requirement planning, inventory planning, scheduling, and product costing to be carried out in a smooth and effective manner.

Along with listing the materials, components and parts and their quantities that are needed to manufacture or repair a product, the BOM also makes note of their descriptions and costs. 

It also contains instructions for procuring and using these materials. Due to the amount and depth of the data that the bill of materials holds, it can act as a central record of the materials, components, and processes used to manufacture or repair a product.

You could say that it is pretty much a blueprint for manufacturing or repairing a product. It can aid businesses in planning for purchases of materials, estimating costs, planning for and controlling inventory as well as reducing production delays and waste substantially. 

If it is prepared well, the bill of materials can assist in identifying the cause of product failure and help the company take action to replace the faulty parts, materials, and components.

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How is a Bill of Materials calculated?

Data from various sources goes into calculating a bill of materials.

Purchased item information used in standard cost Bill of Material calculations

• The costs of the purchased items. Every cost record has an effective date, and the BOM calculation date is used to figure out which cost record will be used.
•  The cost group that is assigned to a purchased item, providing the basis upon which cost segmentation can be done.
• The warning conditions that are embedded in the item’s BOM calculation group, making it possible for the BOM calculation to identify potential problems. It is possible to override the warning conditions while initiating a BOM calculation.

Manufactured item information used in standard cost BOM calculations

• The item’s standard order quantity for inventory which serves as the default accounting lot size for amortizing constant costs.
• The warning conditions that are embedded in the item’s BOM calculation group, enabling the BOM calculation to detect potential problems. These can be overridden while initiating a BOM calculation.

Bill of material information utilized in standard cost BOM calculations

• The BOM version which is assigned to the produced item and has effective from and to dates, and a status to show whether it is approved and active.
• The BOM line item quality which is usually expressed for manufacturing one parent item, but it could be expressed per 100 or per 1000 to take care of decimal precision issues. 
• It can also contain BOM line item scrap.
• The from and to dates for the component.
• The type of production for the line item.
• The sub-BOM for a manufactured component.
• The sub-route for a manufactured component.
• The operation number as well as the impact of operation scrap percentages.

Operations resource information utilized in standard cost BOM calculations

• The hourly costs associated with an operations resource, which are expressed as cost categories assigned to set up time and run time.
• The operations resource costs per unit of output, expressed as a different cost category for quantity.
• The overriding operations resource information regarding routing operations.
• The cost group assigned to a cost category.

Route information used in standard cost BOM calculations

• The route version that is assigned to the manufactured item.
• The routing operation time which can be specified for runtime and setup time.
• The routing operation time for secondary resources.
• The routing operation scrap percentage.
• The cost categories for the routing operation.

Manufacturing overhead information utilized in standard cost BOM calculations

• The surcharge tied to a  particular cost group.
• The rate, which reflects an amount per unit tied to a particular cost group.
• Time-based versus material-based overheads 

Costing version information utilized in standard cost BOM calculations

• The costing type.
• The fallback principle which the costing version could mandate.
• A blocking flag to block BOM calculations of the pending cost for manufactured items.
• The specified from-date which serves as the default calculation date for every BOM calculation that involves the costing version.
• The specified site, which limits BOM calculations to a single site.

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What are the types of Bills of Materials?

There are three main types of bills of materials. The different types of BOMs have varying structures and levels of detail.

Manufacturing Bill of Materials (MBOM)

This holds a structured list of all the items or subassemblies required to make a manufactured, shippable finished product. It also contains information about the parts that require processing before assembly and explains how different components relate to one another in a product. 

The information contained in the manufacturing bill of materials gets shared with all the integrated business systems involved in procuring and producing the product, including enterprise resource planning (ERP), material requirements planning (MRP), and, sometimes, a manufacturing execution system (MES).

Engineering Bill of Materials (EBOM)

This defines assemblies or parts as designed by the engineering department. It displays the component structure from a functional perspective and tends to be made up of a mechanical or technical drawing of a product. It is quite common to have multiple engineering bills of materials as the design goes through revisions.

Sales Bill of Materials (SBOM)

The SBOM defines a product in the sales stage. The list of finished products and the components that are required to develop them are mentioned separately in the sales order document. In the sales bill of materials, the finished product is managed as a sales item and not an inventory item.