A Bill of Materials Template for Manufacturers
A bill of materials is critical for brick-and-mortar manufacturers. The production of physical products is still one area of business that’s relatively untouched by the march to digitalization and working in the cloud. Until, somehow, the manufacturing process can be distilled or commoditized into a web-enabled platform, we still need a bill of materials to break down the final product into individual parts for costing, forecasting, and inventory management purposes.
Here, we’ll explain what is meant by a bill of material and why manufacturers still need them today. Next, we’ll go through the benefits of a bill of material and how to create one. Finally, we’ll present a free bill of materials template for you to download and use in your simple manufacturing process. If you’re not sure how to use one, we’ll walk you through a detailed example with a finished product.
- What is a Bill of Materials?
- Why Do Manufacturers Need a Bill of Materials?
- Benefits of a Bill of Materials
- How Do I Use the Bill of Materials Template?
- An Example BOM Walkthrough
- Don’t Forget the Product Packaging
What is a Bill of Materials?
A bill of materials (BOM) is a list of raw materials and parts that go into making a final product. Others call it a product structure, an assembly component list, or a production recipe. At a minimum, it contains all the part names, part numbers and the quantities needed to make a finished, shippable product.
As such, BOMs for manufacturing describe the assembly of physical products. Services (e.g. plumbing) or intangible products (e.g. insurance policy) do not use BOMs. The format of BOMs can differ in complexity and they can include details such as BOM levels, units of measure, and the parts revision number.
Why Do Manufacturers Need a Bill of Materials?
Small-Scale Manufacturing in the Past
Not all manufacturers need a BOM. How about a craftsman who produces hand-made sunglasses? He works alone in a single room and knows his stock of sunglass parts in a glance. And he’s contented to produce a maximum of 10 handcrafted sunglasses a day.
But what if you wanted to scale up production to 100 or 1000 sunglasses a day? It would not be possible for every talented assembler along the production line to know their stock of sunglass parts in a glance. You need to stock large quantities of parts in multiple bins.
Mass Production of Finished Products Today
Your sunglass factory would need a bill of materials for the mass production line. It is a production recipe that tells the assembly line what parts and sub-assemblies are needed and their quantity. Also, purchase orders can be issued for those parts that are out of stock.
If BOMs were not used, those along the assembly line would be free to pick and choose whatever parts they wanted and their quantities. This would result in inconsistencies in the final product and parts wastage. And there would be no way of planning what to purchase in advance for future production orders.
Accurate BOMs also ensure uninterrupted production runs. Inaccurate, missing or poorly designed BOMs means an increase in operating costs. It takes time to order or locate missing parts. You may need to start another production order. Shoddy assembly may result in a higher rate of returns. Workers may mix up product lines.
Benefits of a Bill of Materials
There are three broad benefits of using BOMs in manufacturing.
1. Estimate Costing and Pricing
A BOM summarizes the raw materials cost of a finished product. It is not the final cost of a product, of course. There are non-quantifiable costs such as the extensive research and development that went into a product. Or the countless hours and revisions spent on refining the product by the design team. And the sales and marketing costs to put the product in the hands of customers.
However, a raw materials cost is of immense help to management. It lets them know how many parts go into the final product. And whether this can be reduced in the name of efficiency. Most importantly, it presents a list of materials with their quantities and current prices. This allows management to calculate an appropriate profit and a pricing strategy for the product.
2. Maintain Inventory of Raw Materials
A BOM lists all the parts needed to make a final product along with their required quantities. When production forecasts are made to fulfill current and future orders, this determines the quantity of each raw material and part needed. This allows the purchasing department to plan ahead for purchases and factor in the lead time to maintain the production schedule.
Breaking down a final product into its individual parts also helps to track the raw materials and parts used. Keeping inventory records allows you to answer questions such as: “How can I make this in a more efficient way?”, “Can I improve this part for performance or reliability?”, “What other materials can I substitute at a lower cost?”, and so on.
EMERGE App, for example, handles simple manufacturing through the creation of production orders. The finished product quantity determines the amount of raw materials used. The stocks of raw materials are automatically deducted when the final products are made and stored in the warehouse location.
3. Enable Mass Production
A BOM is behind every production order. It would be very difficult to schedule and start production if there was no recipe telling the factory what parts are required and how they fit together. Mass production and economies of scale require standardization. And a BOM is a standardized method of assembling a final product for shipping and sale.
Normalizing the production process also means cutting down on waste and duplication. Engineers, designers, and accountants can work on a BOM to ensure that the product is made:
- With the least number of parts
- At the lowest cost possible
- At a price point that is acceptable to buyers.
How Do I Create a Bill of Materials?
A BOM can be created from pen-and-paper, a spreadsheet or sophisticated BOM software. For wholesalers, distributors and manufacturers who deal with simple manufacturing, we suggest that spreadsheets are sufficient to communicate what raw materials are needed for each finished product. Your main concern here should be inventory management of raw materials.
A typical BOM starts with a hierarchy. The finished product is at the top. Everything else that follows below is subordinate to the final product. Every line describes the individual component, part or raw material needed. In addition, it includes the packing materials needed to ship the final product to the customer.
1. Single-Level Bill of Materials
A single-level BOM is the simplest form of a production recipe. It shows each assembly or sub-assembly along with its required quantity. However, single-level BOMs do not show the relationship between assemblies or sub-assemblies. It will not be possible to identify the parts involved in a repair or failure.
2. Multi-Level Bill of Materials
A multi-level BOM is more complex as it shows the total raw materials required. There is more detail in the product structure to reveal the relationship between assemblies and sub-assemblies. This not only benefits the manufacturing line but also other departments as well.
How Do I Use the Bill of Materials Template?
Let’s run through the structure of our BOM.
- Product Name: The product name. This is BOM level 0. Everything else is subordinate to this.
- Assembly Name: The assembly name given to BOM level 0.
- Number: The assembly number given to BOM level 0.
- Revision: The assembly revision number or alphabet.
- Approved By: Name of approver.
- Approval Date: Date of approval.
- Part Count: Total number of parts used.
- Total Cost: Total cost of the BOM.
Itemized List of Parts
- BOM Level: The hierarchy of the part or assembly. It is numbered from 1 onwards.
- Part Number: The number assigned to the individual part.
- Part Name: The name of the part.
- Description: Additional notes about the part.
- Quantity: Quantity of parts needed.
- Units: The unit of measurement for the part.
- Unit Cost: The cost per unit of the part.
- Cost: The total cost of the part.
- Total Quantity: Total number of parts used in the BOM.
- Total Cost: Total cost of the BOM.
An Example BOM Walkthrough
Here is an example BOM for the assembly of sunglasses. The individual parts come from different suppliers. One supplier specializes in plastic optics. Another does injection plastic molding for the sunglass frame, arms, and logo. Yet another provides the screws and hinges. Your business simply assembles and packages them so that they are ready to ship.
Let’s focus on the BOM level so that you can understand the hierarchy of the parts or sub-assemblies. Just think of them as text representations of a graphical chart. Once you master the BOM level representation, you can easily scan a bill of materials and understand how each part relates to the other.
Bill of Materials Document
Bill of Materials Diagram
BOM Level 0
Your finished product is always BOM level 0. This is the product name and it is always at the top of the BOM.
BOM Level 1
These define the things that make up the ready-to-ship product. In this case, we have two: the sunglasses themselves and the packaging. They make up the BOM level 1. It would be very difficult to ship out sunglasses without protective packaging, so this is essential.
BOM Level 2
For the BOM level 1 sunglasses, we see that it is made up of three BOM level 2 items: the front frame, the two arms that sit on your temple, and a mandatory safety sticker on the lens.
The European and American markets require a sticker for regulatory reasons. It states the level of UV protection given by the sunglasses as well as a stern warning not to look directly at the sun.
BOM Level 3
Further down, we see that the BOM level 2 items are themselves made up of smaller parts. For example, the arms that hold the sunglasses to your face are secured by a BOM level 3 hinge and screw. And a logo is attached to the side of the arms.
Don’t Forget the Product Packaging
Moving on to the other BOM level 1 product, the packaging. This is made up of a box with a barcode label. The box contains a warranty card, a simple manual, and a silk pouch to protect the sunglasses.
Sharp readers will notice that there is no BOM level 3 items here. That’s because none of these packaging items require any further sub-assembly. The silk pouches, for example, come from another supplier that manufactures them in bulk with the cord drawstring in place. This is a real time-saver for your factory assembly line.
All in, we need a total of 17 parts to make a pair of sunglasses. And they cost $6.85 each excluding labor, sales, marketing, and distribution costs.
With this detailed multi-level BOM for sunglasses, you can now make informed decisions.
BOM and Costing
For the profit margin, you need to add further production costs to the parts cost to arrive at a final cost figure. Then you can decide on an appropriate margin after accounting for sales, distribution, and marketing costs of the sunglasses.
BOM and Service & Repairs
For service and repairs, customer support staff have a clear representation of what exactly goes into a pair of sunglasses and their quantity. So, for example, if the product returns jump due to loose hinges or falling lens, they can pinpoint the affected parts and inform the design team to redress the problem.
BOM and Sales & Marketing
For the sales and marketing teams, having a BOM for each product in the catalog can help them to craft a value proposition. One selling point could be the 11 parts in a pair of sunglasses, excluding the sticker and packaging. Sunglasses with fewer parts last longer, are tougher and are easier to fix if anything goes wrong.
BOM and Inventory Management
For inventory management, it’s far easier with a BOM to plan ahead and purchase the number of parts. A production order deducts the correct quantity of stock for each raw material used. And keeping accurate inventory records means better and more informed reporting.
A bill of materials is a must for mass production. BOMs can vary in complexity but a simple spreadsheet is sufficient for simple production orders. Manufacturing operations are not the only ones to benefit from a detailed BOM. Management, sales & marketing, customer support, and purchasing all benefit from the additional data provided by BOMs.
So, what do you think of our free bill of materials template? Did it help you in your simple manufacturing process? What kind of additions or enhancements did you make to the template? Drop us a note. We’d love to hear from you!