Inventory Management

What's a Bill of Materials and How Do I Create One?

What parts are necessary to manufacture a product? That's the job of a Bill of Materials, a roadmap to a finished good. We explore its features and provide a free guide to creating your own...

September 19, 2019
Read time: 3 minutes

What Is a Bill of Materials?

A Bill of Materials is a comprehensive list of all items—components, sub-components, raw materials, intermediate assemblies, subassemblies, parts, etc.—plus the necessary amounts of each—that are needed to manufacture a finished product.

A Bill of Materials is also referred to as a BOM, product structure, BOM list, bill of material, or associated list.

What’s Included in a Bill of Materials?

In order to manufacture a bottle of Geeen4Life’s beGone solution, manufacturing facilities and co-packers must have a Bill of Materials that not only specifies which components or raw materials are needed, but also:

  • Item Name
  • SKU
  • Usage
  • UOM (Unit of Measurement)
  • Total Conversion
  • Single Conversion
  • Standard Cost Each
  • Incoming Freight
  • Co-packer name
  • Cost (packaging materials, logistics costs, e.g.)
  • Additional costs involved (if any), including any costs related to direct labor, fixed overhead, variable overhead, and other operational costs.

Why a Bill of Materials Is Essential to Supply Chain

A Bill of Materials is vital to the manufacture of a product because it outlines, in specific (and ideally precise) terms, all of the information that’s needed to assemble a product in multitudes. Accurate BOMs benefit the efficiencies of supply chain operations across the board:

  • Production: An accurate BOM helps production planning, assembly line and materials management, and manufacturing processes become more efficient and cost-effective.
  • Purchasing: Having a clear strategy related to planning and purchasing raw materials and components, including amounts, units of measure (UOM), and lead time, is incredibly important.
  • Logistics: Strategies related to freight forwarders (delivery) and co-packers (packaging) becomes optimized.
  • Inventory: A clearer, real-time picture of inventory management emerges, helping to maintain healthy inventory levels.
  • Finance & Accounting: Calculating costs, like material movements and purchasing, is essential to accounting.
  • Sales: All roads lead to sales (or lack thereof). Calculating margins sales, such as COGs or loss of revenue, is vital.

On the other hand, when a Bill of Materials is inaccurate, incoherent, or simply unclear, many of these benefits are lost. When the Bills are erroneous, or late for that matter, it could result in excess inventory (or the opposite). A missing part number could throw off an entire production schedule, meaning products take longer to get to market, which can affect a CPG company across the board, especially the S&OP process. As a result, profits could plummet.

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