inventory-management

How to create a Bill of Materials (BoM) in 7 easy steps

We show you how to create a bill of materials for your products in simple, easy to follow steps.

As a small manufacturing business, it is important to be in control of your entire supply chain and inventory management processes to ensure you can make and produce your products on time.

To help you achieve this, you’ll want to be aware of the principles of Materials Resource Planning (or MRP). A key tool in your Material Resource Planning toolbelt is the “Bill of Material”.

This article aims to explain what we mean by a Bill of Materials, and give you 7 easy to follow steps on how to create a bill of materials yourself.

Ready? Let’s go!

What is a Bill of Materials?

So, what exactly is a Bill of Materials? A Bill of materials (otherwise known as a BOM) is a document (“bill”) showing the components and sub-assemblies necessary (“materials”) to produce a product.

BoMs can be created for any product that needs to be made or constructed from materials: from soaps to bicycles to printed circuit board assemblies.

Although a BoM seems on the surface like an overly technical document designed for mass production situations, it’s completely suitable (and required!) for smaller operations too.

A bill of materials, at its core, is just a simple list of materials, and their quantities required.

There are two types of BOMs:

  • Manufacturing BOM (MBOM): Used in the production process to define what materials and components are needed to make a product.

  • Engineering BOM (EBOM): Used in the design process to specify what materials and components are needed to make a product.

For this article, we will be focusing on how to create an MBOM.

Why are BoMs important for small manufacturers?

As we’ve mentioned, Bill of Materials are not just for massive, production line assembly situations. BoMs are also hugely beneficial for small manufacturers because they:

  • Help you understand how your product is made, what components are needed and the quantities required

  • Improve your communication with suppliers by providing a clear and concise list of materials needed

  • Help you streamline your manufacturing process by ensuring you have all the necessary materials on hand when you need them

  • Help you track and manage inventory by understanding how much material is needed for each product

  • Can help reduce manufacturing costs by optimizing the number of parts needed

It can feel a bit daunting to create a bill of materials for the first time, but luckily, it is not as difficult as it may seem.

Here are six easy steps to follow when creating your first bill of materials:

Step 1: Define Your Product

The first step in creating a BOM is to define the product. What are you manufacturing and how do you uniquely identify it in your inventory?

It’s important to recognize in this step that slight differences (or variations) in your product may use different amounts or types of materials, so it’s worthwhile creating BoMs at both the product and variation levels.

As an example, let’s say you are manufacturing a chair. The product level BOM would list all the materials needed to make one “base” chair, whereas the variation level BoM would list the materials needed for each type of chair (e.g. different wood types, different seat upholstery, etc).

Once you have considered and structured your product list, you can start to construct your manufacturing bill.

Step 2: Create a List of Components

The next step is to create a list of components. This includes the raw materials and any sub-assemblies needed to make your product.

For our chair example, the components might include:

  • Legs
  • Seat
  • Backrest
  • Armrests
  • Casters
  • Wood screws
  • Upholstery fabric
  • Foam padding
  • etc.

Multi level BoMs

One thing to consider is if you have any sub-assembles as part of your production process: for example, the legs and seat might be pre-assembled before being attached to the rest of the chair. If this is the case, you would create a separate BOM for each sub-assembly so you can track the stock levels, costings, and labor separately.

This BoM structure is known as a a multi level BoM, whereas combining all BoM levels together to see all materials required is called an “exploded bill of materials”. An exploded BoM can be helpful when trying to understand all materials required to construct the product, or if you need to analyze and improve the manufacturing process.

Step 3: Identify the Part Numbers for Each Component

The next step is to identify the part numbers for each component, and make sure they are unique.

This is important because it will help you keep track of your inventory and ensure that you are ordering and making with the correct parts.

Adopting a SKU system is a good way to do this.

For our chair example, the part numbers might be:

  • Legs (SKU: CHAIR-LEGS)
  • Seat (SKU: CHAIR-SEAT)
  • Backrest (SKU: CHAIR-BACKREST)
  • Armrests (SKU: CHAIR-ARMRESTS)
  • Casters (SKU: CHAIR-CASTER)
  • Wood screws (SKU: SCREW-WOOD)
  • Upholstery fabric (SKU: FABRIC-UPHOLSTERY)
  • Foam padding (SKU: PADDING-FOAM)
  • etc.

Step 4: Specify the Quantity of Each Component Needed

The next step in creating our bill of materials is to specify how many of each component you will need to make your product. You’ll also want to think at this stage about if you’d like to create a batch view of your bill of materials or an individual (per unit) view.

For our chair example, the quantities might be:

  • Legs (Qty: four)
  • Seat (Qty: one)
  • Backrest (Qty: one)
  • Armrests (Qty: two)
  • Casters (Qty: four)
  • Wood screws (Qty: 24)
  • Upholstery fabric (Qty: 0.75 yards)
  • Foam padding (Qty: one)
  • etc.

This step in the bill of materials process can be tricky for materials that are difficult to measure, and it may take some trial and error to get the quantities right.

A good tip is to start by estimating how much material you will need, then increase the quantity by a small margin (e.g. 15%). This will help ensure you have enough material on hand in case of mistakes or unforeseen problems.

Ensure you record each time you make your product with the amounts you used, and also regularly cycle count your stock to compare on-shelf amounts to what you would expect to have on hand. From here, you’ll then be able to adjust your bill of materials to increase or decrease the amounts as you learn more about your process.

Ensure that you also add any notes or instructions that might be helpful for the manufacturing process to your bill of materials. This could include information on assembly, packaging, or anything else that would be useful for the team member tasked with assembling your product.

Step 5: Calculate Unit Costs for each Component

The final step in creating your bill of materials is to calculate the unit cost for each component. This will help you understand how much it costs to make each individual unit of your product, and also give you a better understanding of your overall product cost.

To do this, you’ll need to find the cost of each raw material, as well as the cost of any labor required to assemble the component.

You can find the cost of raw materials by contacting your suppliers, or by looking up the prices online. If you are using a perpetual inventory system, your unit costs will be automatically calculated for you from your purchase history.

To calculate the cost of labor, you’ll need to estimate how long it will take to assemble each component, then multiply this by your hourly manufacturing rate.

Putting everything together, we now have a bill of material for our Chair product that looks something like this:

SKU Material Unit Cost Quantity Total Unit Cost
CHAIR-LEGS Chair Legs $12.00 2 $24.00
CHAIR-SEAT Seat $25.00 1 $25.00
CHAIR-BACKREST Backrest $17.00 1 $17.00
CHAIR-ARMRESTS Armrest $8.00 2 $16.00
.. .. .. .. ..
LABOR       $22.00
Total       $78.00

This now provides us with a list of materials we need to create the chair, the total material costs, labor costs and our total cost of production (otherwise referred to as our COGM).

See our article here for more examples of bill of materials for small manufacturing businesses.

Step 6: Review and Update Your Bill of Materials Regularly

It’s important to review and update your bill of materials regularly, especially as your product evolves.

As you make changes to your product, be sure to update the corresponding bill of materials so that everyone is working from the most accurate information.

Step 7: Store your BoM using software or a spreadsheet.

Once you have created your manufacturing bill of materials, you’ll want to store them in a place where they can be easily accessed by everyone on your team.

Using a spreadsheet to store your bill of materials is a good initial option because it’s fairly easy to use and share, although as your manufacturing process gets more complex (i.e. if you have multi level bill of materials, or want to see an exploded bill of materials) this solution tends to get unwieldy.

If you want to get more sophisticated, there are dedicated software options available that can help you manage your bill of materials more effectively. For this, you’ll want to be looking into using Product Lifecycle Management (PLM), ERP or MRP systems.

Craftybase: Bill of Materials Software for Small Manufacturers

Craftybase is MRP software designed specifically for small manufacturers. It helps you keep track of your raw materials, bill of materials, finished goods, and work in progress so that you can focus on making products instead of managing paperwork.

Using Craftybase, you can:

  • Automatically create bills of materials from your products and variations
  • Keep track of how much material you have on hand, in real-time
  • Receive low stock alerts when it’s time to order more raw materials
  • See how much your products cost to make
  • And more!

If you’re looking for an easy way to manage your inventory and stay organized, Craftybase is the perfect solution. Start your 14 day free trial today!

Conclusion

As we have learned, creating a bill of materials might seem like a lot of work, but it’s an important part of running a manufacturing business, especially if you are planning to scale.

By taking the time to create accurate and up-to-date BoMs, you can save yourself a lot of headaches down the line. And, if you use SKUs to track your inventory, you’ll be able to quickly and easily reorder the parts you need to keep your business running smoothly.

Nicole Pascoe Nicole Pascoe - Profile

Written by Nicole Pascoe

Nicole is the co-founder of Craftybase, inventory and manufacturing software designed for small manufacturers. She has been working with, and writing articles for, small manufacturing businesses for the last 12 years. Her passion is to help makers to become more successful with their online endeavors by empowering them with the knowledge they need to take their business to the next level.