The Ultimate Guide to Bill of Materials (BOM) Management for SMEs

May 19, 2022 in Purchase and Production

8 MIN READ

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Would a better Bill of Materials management help your business? Bill of Materials (BOM) is a big part of any manufacturing process. Many industries rely on the use of the bill of materials (BOMs) to manage their supply chain. It helps to manage the efficient production and supply of all parts needed for the production. The advanced Bill of Materials management lets you increase profitability and revenue by reducing time to market, eliminating waste, and thus minimizing costs.

Bill of materials management is not only for large enterprises that have a complex procedure for organizing their assets and materials. There are companies of all sizes that use different products to enhance the quality of their work. And to get the best results from every product as well as to plan future purchases, it's important to keep track of everything, starting from supplying the manufacturing cycle, and production and ending with selling finished items. Every smart business owner should know that having an effective bill of material system can increase the efficiency of their enterprise, decrease purchasing costs and inspire confidence among suppliers by using advanced tools for creating, organizing, and managing bills of materials. All this means is that it's worth taking a closer look at what elements are involved in BOM management and how to implement them on your own or your team's projects.

With this blog, we want to share with you what a Multi-level Bill of Materials is? How does it empower businesses in the current competitive landscape? And how multi-level BOM (MLB) can help in the manufacturing process, source management, production scheduling, track, and traceability and introduce you to tools that facilitate multi-level BOM (MLB) management.

What is a Multi-level Bill of Material?

A multi-level bill of materials (BOM – also known as an indented bill of materials) is a bill of materials that explains exactly how you build your product, including each sub-assembly, component, and material that goes into manufacturing it.

The hierarchical BOM structures in your multi-level BOM will show your finished product at the top, including your SKUs, part descriptions, quantities, pricing, and any other specifications.

Multi-level BOMs are an essential component of production, especially for firms that use several sub-assemblies to build their finished goods.

But, before we go any further, there are several sorts of BOMs to be aware of. The BOM structures occur as follows:

  1. Modular BOM.
  2. Configurable BOM.
  3. Multi-level BOM.

Read more - What is Bill of Materials - Everything you should know about BOM

The Components of a Multi-Level BOM.

A multi-level BOM structure mimics a family tree and maps out all components and sub-assemblies for a product.

Each BOM level will list all of the components that are employed directly or indirectly in the manufacture of a parent item.

Purchased parts and raw materials can be found within a BOM level, which will resemble a BOM tree.

Components of Multi-level BOM

Manufacturing Business Overview Using a Bill of Materials.

SME manufacturing is now a more adaptable idea than it was 30-40 years ago. You did not have to deal with overseas suppliers, online sales channels, or quick prototyping/estimating as a small manufacturer.

Previously, only a tiny amount of manufacturing was outsourced to contractors from the primary production facility, and purchasers were typically within the same city/state.

Even if they appear the same, we are now dealing with very different business models in SMBs.

Let's take an example, we will compare two small businesses that compete in the same market and sell the same product – smart child bikes. They will be known as Company A and Company B.

Company A has been in the wood manipulation sector for almost 50 years. They follow trends and grow their portfolio with children's bikes, toys, and so on. The main product designer built a simple bike and a BOM with estimates—after a couple of prototypes, the BOM was approved and was ready for manufacturing. The entire manufacturing process is handled in-house, and the company has its own resources to handle the manufacturing and assembly processes.

Company B is a startup or a small business in its early stages. They also have a terrific product designer who produced BOM and designed a cool tiny bike.

Wooden Bike

However, in this situation, all manufacturing is outsourced, with only final assembly taking place in-house.

In all scenarios, TranZact as a software solution must handle the entire process, from ordering to manufacturing to final delivery to the consumer.

The software solution is expected to provide an estimated manufacturing time, labor cost, machining cost, and landing cost.

This type of software is commonly referred to as Manufacturing Resource Planning or MRP. In a nutshell, we want MRP to provide us the most accurate cost of manufactured items.

Read More - Material Requirement Planning (MRP) - Ultimate Guide for SMEs

What are the fundamental steps for implementing manufacturing based on a Bill of Materials?

Everything, in our experience, begins with an excellent inventory. You can't even think about implementing MRP if your organization doesn't have good inventory management. That means you have a choice:

To create new SKUs, track serial and lot numbers with the help of a barcode or QR code generated by the system

You must also define your warehouses (initial inventory, physical location, bins). To identify your vendors (lead time, buying pricing, etc.) In order to link your sales channels (brick-and-mortar, eCommerce).

What is the significance and purpose of a Multi-level Bill Of Materials (BOM)?

There is a lot you need to do to get your operation set up with the smoothest production flow possible so that your production does not bog down later.

Finding the optimum manufacturing routes and optimizing your manufacturing inventory management are examples of this. However, there is one document that you must have ready well before you begin production.

A bill of materials (BOM), sometimes known as a product recipe, is the genetic code of a manufacturer's product.

The goal of having a multi-level BOM is:

  1. Overview of Assemblies: To have more specificity and depth on the parent and sub-assemblies in the product, as well as their exact relationship between the sub-assemblies and the finished product.
  2. Preventing Errors When Dealing with Sub-Assemblies: As your manufacturing firm grows, it becomes important to break down your products into sub-assemblies, and then into smaller sub-assemblies and components, and so on, which will be essential in preventing errors and correctly tracking parts.

Is Excel the ideal tool for Multi-level BOM Management?

A multi-level BOM spreadsheet can be saved and kept. A spreadsheet may appear to be the logical choice for managing your multi-level bill of materials, but is it the best?

1. Error Prone.

From simple copy/paste problems to more intricate macro and script issues, BOMs stored in inefficient Excel spreadsheets are prone to errors and must be manually updated regularly, using a significant amount of your resources. It not only wastes time but can also imply that important business choices are being made based on erroneous data.

2. Variants are difficult to add.

Adding potential product versions is tough. When a product has several versions, managing it in Excel can be difficult because the number of resolved BOMs grows exponentially with the number of variants, quickly becoming impossible to maintain.

3. Cost and Quantity Calculation

Totaling in Excel may appear simple, and it is for flat or single-level BOMs. However, dealing with multi-level BOMs is more difficult. To calculate costs and quantities for multi-level BOMs, significant setup, sophisticated formulas, and VLOOKUPs are required, to name a few. This takes considerable time away from other critical duties and, as complexity increases, can lead to errors.

4. Creating a Multi-Level (Indented) BOM is Difficult.

Creating a multi-level BOM in Excel is not impossible, but it can be time-consuming. You must be able to indicate a level of hierarchy across parts and sub-assemblies. This is problematic because:

  1. If you need to add or remove any elements from your existing multi-level BOM, you can easily make human errors. For example, are you putting the new value in the correct places, or have you mistakenly erased all the corresponding pieces while removing a sub-assembly? Small errors might lead to large ones if you make a business choice based on inaccurate data.
  2. Excel's sorting tool is quite handy, but it can also pose severe issues. Sorting columns, for example, can disrupt your essential columns and slow down your production process.
  3. When producing different items, the same parts are frequently used. Managing multiple instances of a part across products and layers of the BOM hierarchy can pose major Excel problems. For example, if you change the part number for one product, will it affect all instances of the part in the BOM?

So, if Excel or any other sort of spreadsheet documentation is untrustworthy, what options do manufacturing companies have for gaining more control over their multi-level BOMs?

Conclusion

Adopting an inventory management software, like the one offered by TranZact, into your manufacturing business is going to mean more control over your multi-level BOMs.

TranZact is a digital transformation solution and platform for SMEs that allows them to digitize business operations from client inquiry to dispatch. It aids in the digitization of fundamental business tasks such as the production of the Multi-Level Bill of Materials. It delivers BI Dashboards that show the position of cashflows, total creditor balances, and other statistics. This further assists user in making data-driven, efficient business decisions. As a result, businesses should select this program or any other software only if it meets their needs in terms of nature and size.


TraZact

TranZact is a team of IIT & IIM graduates who have developed a GST compliant, cloud-based, inventory management software for SME manufacturers. It digitizes your entire business operations, right from customer inquiry to dispatch. This also streamlines your Inventory, Purchase, Sales & Quotation management processes in a hassle-free user-friendly manner. The software is free to signup and gets implemented within a week.