ERP Bill of Materials System for Managing Production Costs

ERP Bill of Materials System for Managing Production Costs

What is the Bill Of Materials?

Bill Of Materials is also known as the BOM which is essential in designing enterprise resources planning systems and material requirement planning. 

A bill of materials (BOM) is a detailed record of all raw materials, components, and manufacturing or repair steps for a product or service. BOMs are typically organized in a hierarchical style with the finished product at the top and the various components and supplies at the bottom.

In the manufacturing industry, several processes have to be followed by every manufacturer to complete the production by the deadline. That’s the reason they are focused on creating the proper schedule for the process of the production of the products. 

Today there are many software development companies that offer various software to manage businesses effortlessly. BOM is the system through which organizations can properly manage their production. 

When developing a product and purchasing new parts, a BOM list is essential and helps avoid problems if the product needs to be serviced. This helps to purchase orders and reduces the risk of errors.

Key items that are included in the bill of materials…

BOM Level

Each part or component in the BOM must be assigned a number or ranking that indicates where it belongs in the hierarchy of the BOM. This makes the BOM easily understandable for anybody.

Part Number

The BOM should be assigned a part number, which allows anybody participating in the manufacturing process to quickly reference and identify parts. Each part must have only one part number to avoid confusion.

Part Name

Each part, material, or assembly must have a unique, detailed name that allows anyone to quickly identify the part without accessing the data elsewhere.

Phase

To complete the productions, manufacturers have to follow the cycle of the productions. In the BOM, manufacturers can save the lifecycle stage of each part.

Descriptions

Each material or component must have a detailed, useful description. This description helps in the identification of parts and the differentiation of similar parts and materials.

Quantity

The quantity of the materials is described in the bill of materials. This helps to analyze how much quantity is remaining in the organizations.

Unit of Measures

A Bill Of Materials should represent a unit of measure used to quantify a part or material. Terms such as “each”, “inch”, “feet”, “ounce”, and similar quantity identifiers may be used. This information will help you purchase the correct quantity and ship it to the assembly line.

Procurement type

Each part must be labeled as either the shelf or custom-made to design specifications.

Notes

Notes are additional information that is stored in the bill of materials. So, when the particular parts are used by any workers then the notes help them or provide additional guidance. 

Type of Bill Of Materials

There are two main types of BOM: Engineering BOM and Manufacturing BOM.

1. Engineering Bill Of Materials:

The design of the finished product is determined by the BOM. It includes all part numbers and parts contained in the drawing notes. A product code, part name, part number, part version, description, quantity, unit, size, length, weight, product specification, or characteristic is listed on each line of the specification.  

Engineers often use computer-aided design (CAD) drawings to create technical specifications. Several technical specifications have been developed for finished products. 

2. Manufacturing Bill Of Materials:

A manufacturing bill of materials (BOM) lists all assemblies and parts used to create a deliverable finished product. It also includes the materials necessary to transport the goods to the customer, including packaging. It contains all of the relevant information for the processes and production activities that must be completed before the product is completed.

Also Read: What Is A Bill Of Materials(BOM)? Expert Guide & Tips

Importance of Bill of Materials

1. Improve Quality Controls

The quality of the products is vital for maintaining the trust of the consumer in the products. The companies always maintain the consistency of the product quality. For maintaining the quality the organizations have to properly utilize and use the proper measurement for the production of the products. 

Bill of materials system through which the workers can know about the procedure for manufacturing the products. While following the steps of the productions the companies easily get the proper output and can manufacture the best quality products. 

So, using the software the companies maintain their quality of production as well as while conducting the proper research they can improve their productivity. 

2. Increase ROI

ROI stands for “Return Of Investment”. When companies are established in the market then they have a specific goal in their mind. Businesses devoted themselves to getting success. 

They invest their time and money in producing the products and delivering the products at a given time. Revenues of the companies increase when they increase their profits while decreasing the cost of production. 

Through the help of the bill of materials system, the administrator can maintain the production in effective ways. And as a result at the end of the month, they can increase their ROI(Return Of Investment).

3. Maintain Cash-flow

The cash flow is a vital point for the companies. The positive cash flow of the companies describes that the organizations are well-maintained and trustworthy. And at the other side, a negative cash flow in the organization makes a negative impression in the consumer’s mind and this action makes a bad impact on the companies’ sales. 

That’s the reason the businesses have to focus on maintaining the cash flow positively. Through the help of the BOM, companies can monitor the purchases or sales of the whole month. Also, the auto-reminder of the payment collection from the consumers helps the companies to collect payment in the time. 

4. Reduce the cost

With the BOM system, manufacturers have listed the raw-materials details, products details, order details, etc. Sometimes manufacturers face problems like overstock of the raw materials. This action affects the companies revenues while they calculate their whole profits at the end of the month. 

The businesses can increase their sales ratio but if they are not able to decrease their production cost then they are not maximizing their revenues. For that, BOM is the best option for maintaining the production cost to increase the revenues. 

While analyzing the record of the raw materials, the companies easily get the purchase decision. A pepper purchasing decision helps to reduce the cost and this action maximizes revenues. 

5. Inventory Control

Inventory management, or inventory control, can be broadly defined as “the activity of checking inventory in a store”. For gaining the satisfaction of the consumers the companies have to complete the production in time and deliver the materials by the deadline. 

For that, the organizations have to ensure that the right amount of supply is available within a business. That’s the reason they are taking the help of the bill of materials system. A properly maintained inventory management system is used to maintain an inventory with positive results while serving customers consistently and effectively. But their effectiveness depends on maintaining clear records regularly.

Easily manage manufacturing costs with BOM system

A custom BOM is a finished product that matches the characteristics of a specific customer. A configurable bill of materials includes all components required to manufacture materials to customer specifications. This often requires minor changes to the labeling and packaging of a single product made for different consumers.

Companies must focus on providing quality products while satisfying the desires of their clients. They require standard materials to produce customized products based on the needs of the clients.

Companies may simply manage the purchasing of raw materials according to their needs with the help of the bill of materials. As a result, they can reduce raw-material waste while increasing sales ratios and maximizing revenues.

When producers reduce their production costs, they can increase their income. Manufacturers can implement BOM systems in their factories to simply control production costs and achieve profitable results.

Recommended for you: What Are Process Manufacturing Challenges Will ERP Software Solve?

Conclusion 

A Bill of Materials, by definition, ensures that all departments are working together. To ensure that the record is 100 % accurate, input from design, purchasing, manufacturing, and sales is required when creating an accurate BoM. Furthermore, with the help of the ERP bill of materials, the manufacturer can achieve a successful result by increasing their sales ratio in a competitive market.

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