Bill of Materials (What It Is And How It Works)

Looking for Bill of Materials?

What is a bill of materials in simple terms?

What’s important to know?

Keep reading as I have gathered exactly the information that you need!

Let me explain to you what is a bill of material and why it matters!

Are you ready?

Let’s get started!

What Is A Bill of Materials

In business, a bill of materials refers to a document where a company will list all the materials needed in the context of a particular project or order.

In a bill of materials, you’ll typically find a long list of raw materials and components needed to successfully execute the job.

Quite often, you’ll see bills of materials in service projects, manufacturing, engineering, software development, operations, design, and other service projects.

The main objective of the bill of materials is to ensure that all the materials and items needed in the production of goods are identified allowing for an effective and smooth production process.

Companies rely on BOMs to reduce production mistakes, delays, and cost overruns when creating a product.

It is therefore essential to have a complete bill of materials before starting any manufacturing or development work.

History of Bill of Materials

It appears that companies started using bill of materials as early as during World War I, according to Form Labs.

Since resource was scarce, it was important that companies properly managed the purchase of their materials to ensure they were able to produce their products on time.

Then, in the 1960s, Toyota pushed production to a new level by introducing a Just-In-Time production approach making it crucial to identify all the parts and components needed in the production process.

Eventually, enterprise resource planning was applied to managing inventory allowing further development in the production process.

Ultimately, bill of materials is used to effectively plan the production of goods and coordinate with supply chain partners who furnish the raw materials and parts needed in the assembly line.

Production Blueprint

To better understand the bill of material definition, consider it to be your production blueprint or recipe.

On a standard bill of material, you should be able to find information relating to the materials you need to produce the goods, all the components required, along with all the steps you need to take in creating them.

There may be products that require hundreds of thousands of parts and possibly thousands of steps to produce.

Having a bill of materials reflecting the exact needs in production is therefore key to success.

Bill of Materials Example

Let’s look at an example of when a bill of materials may be needed.

Imagine that you are looking to build a wheelbarrow.

To produce that, you’ll need the wheels, legs, handles, and bucket.

To ensure that the wheels are installed properly, you’ll need an axel, spacer, and axle brackets.

For the legs, you need leg braces and small bolts.

For the handles, you’ll need a wheel guard and spacers.

And finally, for the bucket, you’ll need medium and large-size bolts.

In the end, your BOM will look like this:

• Axle
• Spacer
• Axle brackets
• Leg braces
• Small bolts
• Wheel guard
• Spacers
• Medium bolts
• Large bolts

Bill of Materials Definition

How do you define bill of materials?

According to Investopedia, bill of materials can be defined as follows:

The most common bill of materials structures are those that have a single-level bill of materials or multilevel bill of materials.

A single-level bill of materials shows each assembly or subassembly once along with the corresponding parts and quantity needed for each.

A multilevel bill of materials is more difficult to create but shows all of the parties and the relationship between them as well as the assembly and subassembly.

Why Bill of Materials Is Important

Creating a bill of materials is an important process for companies looking to produce or build something, particularly in the manufacturing industry and for engineers.

The bill of materials outlines all the items and components needed to manufacture a product or in the context of development work.

Having an accurate bill of materials allows the service provider or manufacturer clearly identify the raw material, components, and items needed in production or development. 

It also helps the client understand the materials used for the particular project.

The bill of materials will also contain instructions as to the product assembly or development services.

If the information on the BOM is incomplete or inaccurate, it can lead to production delays or unexpected cost overruns.

Types of Bill of Materials

What are the different types of bills of materials?

There are essentially two main types of bill of materials out there, one in the manufacturing industry and one in engineering.

A manufacturing bill of materials provides a detailed list of raw materials, components, and items needed to manufacture and produce a specific good or product.

On the manufacturing BOM, you’ll find information such as the items to be used in production and packaging along with instructions on the manufacturing process.

An engineering bill of materials is typically used in the design and development of a product.

In an engineering BOM, you’ll find information such as the parts and products needed for the job, their quantity, product code, size, weight, length, and specifications.

There are also other types of bill of materials such as:

• Sales bill of materials 
• Production bill of materials
• Assembly bill of materials

Bill of Materials Content

What information do you find in a bill of materials and what is the bill of materials format?

The main objective of a BOM is to make sure that the “recipe” for building a product is correct.

The bill of materials must provide a high-level list of materials and information allowing the creation and development of a product.

Although the bill of materials may vary from one company to another, here is the information you’ll find in most of them:

• Part name
• Part number
• Part description
• Part quantity
• Product code
• Unit of measure 
• Length 
• Weight 
• Production phase 
• Procurement type 
• Product references 
• BOM level 
• BOM notes 

Also, a bill of material can be displayed as an explosion display or implosion display.

An explosion display is a display format where the BOM starts with the highest level of the product and then breaks it down into its components (example: starts with a computer and drills into is parts).

An implosion display is where you start with the components of a product and link them together to form a major product (example: computer parts linked to building a computer).

How To Create A Bill of Materials

Depending on the complexity of your project, you may find yourself using an Excel spreadsheet all the way to specialized software solutions to create your bill of materials.

Companies that regularly create products or develop things may want to consider using a software solution allowing them to create their bill of materials.

It’s crucial to avoid making mistakes in your product BOM so you can finish production on time and keep costs in check.

Companies that intend to invest more in automating their bill of materials process can consider ERP systems built with features and functionalities allowing BOM creation.

On the other hand, a company that may want to develop or build a product only once may get away with a spreadsheet.

You’ll need to assess the criticality of the production planning process in your business and invest appropriately in automating the process.

Bill of Material Takeaways 

So there you have it folks!

What Is Bill of Materials

In essence, a bill of materials (or BOM) refers to an exhaustive list of parts and components needed along with documents and instructions needed to create a product.

You can consider a bill of materials to be the equivalent of a recipe for creating a product or developing something.

In the manufacturing industry, all products are created by first creating and defining a bill of materials detailing the materials needed to build the product.

The objective is to ensure that the production of a product goes smoothly where the manufacturer has all the parts required to start the manufacturing process and ensure its supply chain partners provide what’s needed on time.

Now that you know what is a bill of materials, what it contains, and how it works, good luck with your production!

My Investing, Business, and Law Blog

By the way, on this blog, I focus on topics related to starting a business, business contracts, and investing, making money geared to beginners, entrepreneurs, business owners, or anyone eager to learn. 

I started this blog out of my passion to share my knowledge with you in the areas of finance, investing, business, and law, topics that I truly love and have spent decades perfecting.

You may find useful nuggets of wisdom to help you in your entrepreneurship journey and as an investor.

I’d love to share the insider knowledge that I’ve acquired over the years to help you achieve your business and financial goals.

You May Also Like Related to What Is The Bill of Materials

Related to Business And Production