Bill-of-Materials-(BOM)-Management-for-Manufacturing

ERPAG 5.1

Bill of Materials (BOM) Management for Manufacturing

How to manage multi-level Bill of materials? What is the main benefit of implementing BOM in manufacturing? Modern cloud-based software in a mission to simplify bom management in manufacturing.

Bill of Materials Management

1. What is the bill of material (BOM)?

In the core concept bill of a material describes a product structure.
If we wish  to expand and get a bigger picture then we can define a bill of material like in this wiki citation:
"A bill of materials or product structure is a list of the raw materials, sub-assemblies, intermediate assemblies, sub-components, parts, and the quantities of each needed to manufacture an end product."
As we can see BOM acts as a blueprint for our complex product.

2. Manufacturing overview having a bill of material in mind.

Today, SMB manufacturing is a more versatile concept than 30-40 years ago. From the small manufacturing point of a view, you didn't have to deal with overseas suppliers, online sales channels and rapid prototyping/estimating. 

In past times, just a small portion of manufacturing was outsourced from the main production facility to contractors, and usually, buyers were from the same city/state.

Today we are dealing with totally different business models in SMB, even though they look exactly the same.

e.g  We will make comparisons between 2 small business that compete for the same market in the same product category - smart child bike.
We will call them Company A and Company B.


Bill of Materials ManagementCompany A is a family business in wood manipulation industry for more than 50 yrs. They follow trends and expand portfolio with children bikes, toys etc. Main product designer designed simple bike and created BOM with estimates-after a couple of prototypes BOM has been approved and ready for the manufacturing. The complete manufacturing process is in house and company has its own resources to deal with manufacturing and assembly process.

Company B is a startup or early-stage small business. They also have great product designer that has designed cool small bike and created  BOM. 
But in this case, all manufacturing is outsourced and only the final assembly is in the house.

In both cases, ERPAG as a software solution needs to handle the complete process, from ordering, over manufacturing to final delivery to the customer.

What is expected from software solution is to give estimated manufacturing time, cost of labor, machining and landing cost.


Usually, we call this type of software Manufacturing Resource Planning or simply MRP. In one word we expect from MRP to give us a cost of manufactured goods as close as possible.

3. What are the basic steps to implement manufacturing based on the bill of material?

From our experience, everything starts with perfect inventory. 
You cannot even dream to implement MRP if you don't have good inventory management in your company.That means that you have a way :

  • to open new SKUs, 
  • to track serial, lot numbers using barcode or QR code generated from the system. 
  • Also, you need to define your warehouses (initial inventory, physical location, bins). 
  • to define your suppliers (lead time, purchase prices...).
  • to connect your sales channels (brick-and-mortar, eCommerce).


4. Creating Bill of material (BOM) in ERPAG
In ERPAG creating a bill of material is easy. We have created a special input form to make it easy to add components, sub-components and operations.

So basically what we need to do is to transfer each element of our Bike to a BOM.

Bill of Materials ManagementBill of Materials Management

As you can see from the image ERPAG fully supports Multi-level BOM. It enables you to create very complex BOMs and easily see the cost and inventory levels.
You can build up you tree-view structure where each level represents the position of an element in BOM.

The different levels within the BOM illustrate the parent-component relationship, otherwise known as a “multi-level BOM.” This means that every component or sub-assembly occupies a certain “level” within the BOM hierarchy. 


Each level has its own code so it can be tracked by the parent-child principle. In this way even if one component is used in multiple parts or assembly we will know its position in BOM.


Bill of Materials Management
Example of BOM structure in ERPAG

5. How to deal with the supply chain, and right-in-time order fulfillment?

Now back to our heroes, Company A and Company B.

Until this moment the workflow is more or less the same for both companies. Now comes the interesting part.
Upon receiving order ERPAG automatically triggers Fulfillment mechanism based on the technology latest algorithms. We track current available stock and update purchasing module in order to fulfill our orders.

In Company A case, ERPAG will generate more manufacturing orders to produce missing components.

As work orders unfold fulfillment, engine scans for missing basic components and triggers purchasing module.



Bill of Materials Management




Basic workflow:


  1. Receive an Order
  2. Generate WO based on BOM
  3. Compare against inventory 
  4. Generate all WO for missing sub-assemblies
  5. Automatic fulfillment process (PO ordering prepare)
  6. Order missing items from suppliers
  7. After receiving missing items we can finish our manufacturing process
  8. Assemble bottom up
  9. Deliver Finished goods
  10. Ship to customer



In the ordering process, ERPAG supports multi-suppliers per item so you can easily make better decisions .
That means that you will be provided the current item price from the system in the critical decision making moment.

All work-orders get an EXPECTED date based from the Supplier setup and expected date of Purchase Orders.

Bill of Materials Management

Now we can finish our manufacturing and input real material qty, the time recorded for each operation, generate serial and lot numbers.
Last step is to deliver manufactured finished good into specified Warehouse. 

In Company b case, ERPAG will generate WO based on SO received. All missing items in this scenario are outsourced. Based on inventory info, ERPAG populates fulfillment list and enables you to select best supplier options. Based on selection ERPAG can generate bulk POs and order missing items from contractors or outsourced suppliers.

Bill of Materials Management

After receiving all missing items, shop floor can continue with assembly and deliver finished good. Conclusion These are all very simplified scenarios and in our success stories we have seen BOMs with more than 40 layers or levels. Also with real contractors and dropship involved these scenarios and workflows can get little bit expanded, but still easy to follow. To try for free and test please go to: https://www.erpag..com To see customer stories go to: https://www.erpag.com/cases Resources: https://en.wikipedia.org/wiki/Bill_of_materials "What is pseudo bill of material? definition and meaning". BusinessDictionary.com. Retrieved 2018-04-17. ^ "Bill of Materials". Inventory Interface. Gerald Drouillard. 2001-12-28. Retrieved 2011-06-07.









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