Keep an Updated Bill of Materials (BOM) For your Products
When you’re initially putting together the pieces of your brand’s supply chain, creating your bill of materials is a key step. A bill of materials (BOM) defines what is exactly in each product. It’s the recipe. You can have a bill of materials for both finished goods and raw materials, however it’s most common to only keep track of the bill of materials for the items you are in charge of planning and purchasing the raw materials for, which is usually just finished goods. Here’s an example of what a BOM would look like in a spreadsheet for a simple finished good of a chair where you also purchase the raw materials:
The amount of materials you keep track of will be based on how your supply chain is set up. In some scenarios you need to manage the raw materials of your raw materials. This is more complex, but can happen if you are creating custom items. If that’s the case, you’ll ned BOMs for your raw materials as well. An ideal setup however is that you ultimately only purchase finished goods from your manufacturer. This is called a Turnkey purchasing setup, and more to come there.
BOMs come in handy in many ways. Here are a few I can think of:
For planning purposes: BOMs will help you calculate how much of each raw material you’ll need relative to the finished good plans, so you can properly place POs for materials and keep production running.
For managing raw material inventory in your system: If you manage the raw materials of your finished goods, you also need to keep track of the inventory of those raw materials in whatever system you are using (As simple as a spreadsheet or complex as an ERP). This is directly tied to the amount of value in cash your company is holding in inventory, which is an important piece of information for your financial numbers. When you produce finished goods with your manufacturer, your BOMs will determine how much of each raw material is used and thus how much is remaining on hand.
For quick reference of what’s needed: Keeping track of your BOMs is also helpful for quick references if needed. One example might be that your sales team has the opportunity to make a large sale, and they come to the operations team asking if you have sufficient inventory to support it. If you have a BOM already made, you can quickly determine how much of each raw material you’d need to support the order. Then you can check your inventory to see if you have it or if you need to order more.
For producing items with different suppliers: BOMs should be consistent from supplier to supplier, however sometimes one partner needs to produce your item slightly differently. So BOMs can be kept at the supplier level. Structuring your products in a BOM like the above with the raw materials that make it up and the quantity of each used will allow you to use multiple BOMs at different suppliers if needed.
BOMs are an organizational tool that will be part of the foundation of your supply chain. Keep your BOMs accurate and updated. This will lead to more accurate planning, more accurate inventory and thus more accurate operations.
