What is BIll of Materials (BOM)?
Generally a Bill of Materials is a manufacturing term meaning the parts that go into something. This could be a finished product or a part that is used in a finished product.
A simple BOM would be a cheeseburger:
- Bread roll x a
- Butter x 15g
- Cheese slice x 1
- Burger patty x 1
- Sauce x 10g
- Onion x 10g
If a part or object is used in multiple instances then it would have its own BOM before adding into a larger item.
For example, if we took a hamburger and broke out the burger patty before it gets added to a hamburger:
- Beef mince x 100g
Salt x 1g - Onion powder x 3g
- Garlic powder x 3g
- Egg x 0.5
- Bread crumb x 20g
In this instance we can use the item ‘burger patty’ in other items like hamburger, double burger etc and we don’t need to duplicate the ingredients each time.
This type of relationship is called a Parent / Child relationship. Depending on the business there can be multiple levels of BOM.
Why is detailing a BOM so important?
There are many reasons why having your Bill Of Materials outlined and mapped out is important to the success of your business. Primarily though it saves in manual labour and calculating different costs of items.
For example, if the recipe of the burger patty changed above you could either modify the existing or create a new burger patty 2.0 and point the items to the new one to see the change in price
Here’s a scenario we can use with the burger patty in a pretend business called Burger Base.
Burger Base sells 5 varieties of burgers and has noticed over the last 6 months that their sales have declined. They do:
- Market research by polling social media.
- Email campaign to their list to see if they can find a reason.
The results come in and there is cause to believe their burgers just don’t taste as good anymore.
The management team decided to hire a new consultant to create a better burger patty. When they roll it out they decide to only include the new patty in 2 of their 5 burgers, the cheeseburger and the hamburger.
So with the new recipe, they create a new BOM for ‘burger patty 2.0’ and then change the BOM of both hamburger and cheeseburger on the date the update occurs.
Burger patty 2.0 does cost more than burger patty 1.0 so the total cost of cheeseburger and hamburger goes up. With that set up they can now see if they push the ‘new improved burgers’ to see if they will create enough extra sales to cover the extra cost of ‘burger patty 2.0’ and boost extra sales.
This data will show whether they made the right call and if the new patty should be rolled out across all 5 burger options.
Bill of Materials have multiple more uses which we’ll cover in future posts. Some of these include planning, procurement, profit projections and more.
