October 27, 2014 at 2:52 PM
An important tool for manufacturers is the Bill of Materials also known as the BoM
or recipe. The bill of materials is a listing of the raw
materials and work in progress and the quantities of each needed to manufacture a finished product. The bill of materials has multiple
- Pricing: A labor and overhead element can also be included in
the bill of materials. By listing each raw materials and associated labor you can derive a cost for your products.
You then compare that to the market price to ensure you will be producing profitablly.
- Production: The BoM is the basis for manufacturing the product. It is used for
pick sheets and routing. It can also be used for raw
material back flushing.
- Purchasing: The BoM is used to forecast the raw materials
demand based on the quantity of finished products that needs to be produced.
Indented bill of materials
The term indented bill of materials refers to a product that has
multiple stages of production. The typical manufacturing process has at least
one work in progress stage and packaging stage. At each stage the
product is inventoried which implies that a seperate SKU or Item should be created for each stage. The indented bill of materials will show a hierarchical nature of a finished goods with the top level reprsenting the finished product which may be comprised of raw materials and work in progress.
The following is an example of 2 stages in production:
- Batch: The raw ingrdedients are mixed and one or more batches are created. Lot or batch #s are used to distinguish between batches made at different times. The bill of materials will contain the raw materials necessary to create the batch.
- Package: The batch will be combined with other raw materials to create the finished product. The bill of materials will contain the quantity per of the batch necessary to create a unit of the finished product.
Routes vs. Stages
A stage is different than a route. A route refers to a step in the
production process to achieve a certain stage. For example in producing
the batch there may be mutiple steps including pouring, mixing, cooking,
cooling etc. You draw the line between a step and a stage by determining
if you need to keep track of the inventory of work in process (WIP). If you need to inventory WIP then it
should be a stage and it should it have its own SKU and bill of materials.
Otherwise it should be a route or step.