Ongoing challenges in the supply chain, such as shortages caused by increased demands and the shutting down of some factories, continue to affect manufacturing businesses even to this day. However, effectively dealing with these challenges and optimizing a manufacturing business’ processes is challenging without adopting and implementing a Bill of Materials (BOM) to accompany an organization’s ERP system.
What is a Bill of Materials?
A Bill of Materials (BOM) is a comprehensive list of all the items needed to manufacture a product. It records all the parts, materials, and processes used on the factory floor. A BOM may be a relatively simple document or a complex, multi-levelled product description made from multiple sub-assemblies.
For instance, a car manufacturer that makes at least 2000 cars in a year would use a BOM. It would include the material for making the car, the machinery, the time to make one car and every other significant step. Probably more than ten levels deep with multiple steps (sub-assembly, component and operations).
Benefits of Bill of Materials (BOM) for manufacturers
There are many ways in which BOM helps the manufacturing industry. First, keeping track of the production process is very beneficial. However, BOM offers more value. It identifies constraints in the business processes, providing guaranteed improvements. For example, in a bakery business, using the right tool with the BOM, the overall capacity of the oven and fridges could be monitored, and improvements as to how best to use ability could be suggested to reduce electricity costs, capacity constraints and workforce.
While many manufacturing businesses focus on production, customer satisfaction can make or break a business. Getting products to customers on time is another positive effect of BOM. The ability to have the right stock in place at the right time. In product recalls, which have become a widespread inconvenience for the industry, business owners can go back to the operation line and trace what went wrong and at which point. They can then recall the product before it lands in the hands of the consumers, plus update the BOM for future production to prevent a repeated product recall
The details held within the BOM can be used with different sourcing policies to ensure you get the best product from the right supplier at the best price and availability, ensuring customer satisfaction and reduced costs.
An ERP system uses the BOM to calculate the final costs of the product, calculating up from the lower levels. In many cases, the same item could be made in alternate ways, using an alternate BOM. In case of material shortages, manufacturers can switch to the alternate BOMs on the shop floor, using up alternate stock or production capacity. This all improves customer satisfaction in the organization.
BOM is an essential part of your quality and control systems. Accurate BOM improves inventory flow, and material planning, giving a business the unique competitive advantage it requires.
Here’s how BOM can help you manage your inventory
Capacity planning: This is about determining what the business requires to meet changing demands for its products. It includes considering the number of machines, the size of the employees, equipment utilization and overall efficiency.
Procurement planning: It has to do with ensuring that business purchases arrive promptly and in the right quantities
Forecasting of the procurement: It is the process of calculating quantities of parts required to make selected products and is about planning for the future to support inventory optimization.
Production planning: It is planning a business’s production and manufacturing modules. For instance, how you manage your supply chain, raw materials, employees, and the physical space where the manufacturing process takes place.
Improved cash flow: A BOM outlines the exact materials and quantity used in every product, so a business can order only what it needs and prevent unnecessary purchases.
Inventory optimization: This a vital part of inventory management, if a business wants to use less capital while maintaining a saleable inventory and factors in the volatility of supply and demand.
BOM within your ERP
Within a manufacturing business, multiple departments can use BOMs, including production, purchasing, sales, and after-sales services. However, poorly managed or non-existent BOMs can lead to a higher cost of goods sold or revenue loss from inaccurate part information, excess or inadequate inventory, quality issues, longer time to market, and insufficient collaboration between suppliers, vendors, and contract manufacturers.
That results in poor end-to-end supply chain visibility, latency in critical decision-making and overall inefficiency in supply chain operations. The combination of MPS, BOM and MRP information determines the items to be manufactured, in what quantities and by when, and what must be procured. Doing all this manually would be tedious and impractical, but it is easy for an ERP system. Then there is a final function to consider – what is the capacity of the shop floor to manufacture products?
An ERP system is the best possible solution for effective and efficient BOM management. Information obtained through a Bill of Materials can feed directly into an ERP system to enhance operation efficiencies. Using an ERP system also integrates teams for easy collaboration and faster processing. In addition, it enables centralized control of the entire product record and ensures delivery of a superior quality product.