How To Use Bill Of Materials To Improve Supply Chain Performance

  General, business advice

bill of materials

A bill of materials (BOM) is an essential document for any manufacturing business. It provides a detailed list of raw materials, components, and sub-assemblies necessary to manufacture a product. Good BOMs give value to several departments across the company, with the best ones achieved when those groups collaborate to create them.

However, this isn’t something all businesses pick up on right away. People often talk about BOMs as “ingredients” for a product or a manufacturing “shopping list.” While these are descriptive, they don’t fully capture what a BOM can do for your business. Some of the benefits you can capture include streamlining of operations, accelerating manufacturing cycles, and reducing costs, among others. Without a BOM, you could run into problems in purchasing parts, which could then delay manufacturing. Or worse, find out midway through the process that you have to undertake a costly redesign.

According to management consulting firm Accenture, the benefits of an optimized BOM (e.g. better cost control and supply chain performance) typically lead to a 10%-15% reduction in time to market. Furthermore, most companies experience a 25%-30% improvement in overall cost productivity throughout the value chain.

In this post, we will be discussing how to optimize your BOM to achieve similar results. This includes:

  • How to write an effective BOM
  • How to use a BOM to improve business performance
  • Improving BOM Use with inventory management software

How To Write An Effective BOM

writing bill of materials

The ultimate goal of the BOM is to guide the manufacturing process. While its basic form is a list of materials and components, it consists of additional information to support this purpose. Some of this information is standard, for example, the listing of costs, suppliers, remaining stock, etc. Other points of information, however, depend on your specific needs.

Points for consideration before writing the BOM

1. Who will use the BOM?

All employees use the bill of material from Procurement to Sales, Engineering to Marketing. The information in the document needs to account for the needs of all those using it. It needs to be as comprehensive as possible. You do not want people asking each other questions when they could be referring to the document instead. 

2. How do you reconcile your BOM record?

There will inevitably be iterations and updates to the BOM. With several departments contributing to it, it’s essential to have a process for reconciling different versions. This way, when production starts, all teams are guaranteed to be using the right version. This is especially important if you use a manual method to manage your Bill of Materials, such as a spreadsheet. 

3. What counts as an entry?

Some businesses don’t count consumables such as glue or fastener while other businesses do. Before you start inputting into your Bill of Materials, make sure guidelines are clear on what gets documented in your BOM. Just remember that if it is not on the list, it may end up overlooked in manufacturing.

It is also important to have a process for attaching supporting documents. Not all entries fit easily into a list. So, consider how to keep things like computer-aided design (CAD) drafts, data sheets, and work instructions easily accessible.

Organizing Information

It doesn’t take much to list a chunk of data—but a good list makes things easy to find. A good BOM will include several kinds of information, some of which are used to sort the data, while others are used to make it more skimmable.

To make things easier to sort, use the following descriptors
BOM Level: a number indicating where the item fits in the BOM hierarchy.
Phase: Identify whether each part is “in design,” “in production,” “unreleased,” etc.
Name and Number: Have a consistent scheme for numbering and naming parts. Your scheme should make it easy to add parts to the list without having to think too long about how to label them.

To make the list easier to skim, use the following descriptors:
Description: This makes it easy to distinguish between similar parts. Remember to tailor it to the specific users of your BOM.
Measure: This might refer to sizes or dimensions, but for some parts, it will simply be an indicator of units (i.e. “each”). Be consistent across similar part types.
Quantity: Indicate how many of a given part is needed for production. This will guide both manufacturing and purchasing.
Procurement Type: Indicate how each part is obtained (i.e. purchased or made). This also helps to guide manufacturing and purchasing.
Notes: If you need any further information, add it here rather than messing up the format in other entries on the list. 

Writing and Iterating

When coming up with the BOM, expect that there will be a considerable back-and-forth between various departments. The process is something like this:

  1. Engineering comes up with a BOM based on the finished product’s design. This is usually an annotated CAD drawing or a list with a drawing attached.
  2. Purchasing will take the BOM and identify how best to source the materials.
  3. Manufacturing assesses the proposed parts to see if they are suitable for their production process.
  4. Engineering revises designs based on feedback.
  5. Manufacturing uses the revised BOM to create test models of the product.
  6. Based on the results, all departments involved revise the BOM.

It’s fairly common for two kinds of BOMs to be used for different stages of the process. An Engineering BOM sets out the product design and the materials needed to produce it. A Manufacturing BOM contains the parts and assembly required to produce the product, as well as the packaging necessary to distribute it.

Using a BOM to Improve Business Performance

business performance

A good BOM doesn’t just make manufacturing possible. Used correctly, you can make your supply chain process efficient and cost-effective. The Northrop-Grumman Corporation, for example, used effective BOM management techniques and software to track inventory, identify suppliers, and anticipate the obsolescence of parts. Through their effective management of data on parts, they were able to avoid a redesign that would have cost them $50,000.

Each company will find different ways to make the most of their BOM, but here are a few common benefits.

A. Improve Planning

The process of creating the BOM help to bring different teams on the same page. This can be especially useful in creating a timeline, forecasting difficulties or delays, and making adjustments or allowances. It can also reveal new positions that need to be filled or skills that need to be further honed.

B. Reduce Costs

Use your bill of materials to identify opportunities to reduce costs in purchasing or production. For example, you might be able to get multiple products from one supplier, rather than several. This will allow your business to negotiate for better prices. Similarly, you might have remote facilities all purchasing from one supplier despite having cheaper options nearer them.  

C. Manage Inventory

Having quick access to all materials and quantities, you should be able to prevent shortages or delays during procurement or in-house production. This information can help guide teams in using what is on hand: engineers know which materials are ready for use and purchasing teams to know which materials need to be purchased.

It’s easiest to see the benefits of inventory management by looking at the problems it prevents. Without this information, delays could pile up. Materials left unpurchased will slow down production, which in turn will affect assembly, testing, and manufacturing. A good BOM helps prevent little problems from snowballing into disasters.

Improving BOM Use with Inventory Management Software

inventory management software

The most efficient way to create and manage a good BOM is to have the right tools for the job. However, despite the availability of specialized inventory management software to help manage bill of materials, relatively few companies use it.

According to a survey by Arena Solutions, “nearly half (48.4%) of [the 405] respondents are using either a spreadsheet (34.6%) or nothing at all (13.8%) to manage their BOM.” The respondents comprised organizations of various sizes, some with less than 500 employees and others with over 2,500 total staff.

While spreadsheets are certainly better than nothing, there are a number of problems that can crop up while using them. Their versatility and freedom of form mean that formats could be inconsistent. Without a cloud-based solution, you could also run into problems reconciling and managing updates. Moreover, even with a cloud-based spreadsheet, managing access and ensuring version consistency can be tedious.

Specialized inventory management software solutions provide a more solid foundation. Their built-in templates ensure you’ll have all the necessities while allowing for customization later on. On top of that, they include various useful features such as:

  • Better Sorting: Organize items according to different variables or types. You can also track which parts or products any given item is used for.
  • Version Management: Using inventory management software makes it easy to reconcile versions and track changes for your bom. Many also include features for better simultaneous collaboration.
  • Recieve Alerts and Reminders: Most inventory management platforms notify you of potential problems you encounter during your manufacturing. For example, you could get an alert when your inventory of a given material or part is below you reorder point.

One of the most appealing benefits, however, is the ability of these platforms to integrate with other business software solutions. Platforms for various business processes are becoming increasingly accessible and can be especially useful for small and medium businesses, which have limited manpower. For example, you can have your bill of materials to integrate directly with your accounting or shipping software to streamline your operations. This will compound the benefits you’d get from each program on its own.

Looking to streamline your inventory management and supply chain processes? Here at Sweet, our inventory and order management software helps wholesalers, manufacturers, and distributors to streamline their supply chain process. To find out how Sweet can help your business, request a free demo today.

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