Bill of Materials (BOM)

What belongs in a bill of materials (BOM)?

A bill of materials consists of a header and several line items. The header identifies the product to which the BOM applies via its item or material number as well as details such as validity period, status and BOM quantity. Each line item refers to a component – likewise by number from the master record – and carries the required quantity, the unit of measure and often further attributes such as item number, location of use, scrap factor or a flag as an alternative or phantom item.

In addition to the pure build components, bills of materials may, depending on the system, also contain packaging material, consumables or documents. It is important to separate the bill of materials from the routing: the BOM states which materials are needed and in what quantity; the routing describes in which operations and with which resources they are built in. Together, both define how components become a finished product.

How the bill of materials (BOM) works in the ERP system

In the ERP system, the bill of materials is the data basis from which the entire material flow of a production order is derived. When a product is planned or produced, the system explodes the bill of materials: it multiplies the item quantities by the order quantity, takes scrap factors into account and thereby determines the gross requirement of each component. Material requirements planning (MRP) reconciles this requirement with existing stock and open purchase orders and generates purchase or production proposals for the subordinate parts from it.

This means the bill of materials connects several modules. Purchasing derives from it which bought-in parts are to be procured and in what quantity. Production uses it to stage and confirm material. Costing sums up the material costs of the components along the BOM structure and – together with the routing – the production costs to arrive at the manufacturing costs of the product. Inventory management, finally, issues the consumed components during manufacturing and receives the finished product into stock. A changed bill of materials thus has an immediate effect on planning, procurement and cost accounting.

Why the bill of materials matters

The bill of materials is the prerequisite for a company being able to plan and cost its production at all. Without it, neither the material requirement could be determined nor the selling price soundly established. Because procurement, planning and costing read from it automatically, the reliability of these processes depends directly on the quality of the BOM data. A correct, up-to-date bill of materials ensures that the right parts are available in the right quantity at the right time – the basis for on-time delivery and ability to supply.

Conversely, errors in the bill of materials have an immediate impact: a wrong quantity leads to shortages or overstocks, a forgotten component to a production stop, an outdated item to incorrect manufacturing costs and thus to miscalculations. Since bills of materials must be maintained across product changes, a clean change management with validity dates and version states is decisive. Only this keeps it traceable which composition was valid at which point in time.

Distinction: bill of materials, item master and recipe

The bill of materials belongs to the master data but is not itself a standalone object like an item: it describes a relationship between master records. Both the product and every component lives in the item or material master; the bill of materials links them by quantity. It is therefore clearly to be distinguished from the individual items it references, and equally from the transaction data – such as the concrete production order – which apply a bill of materials at a point in time but do not change it.

Maintaining bills of materials: change management and DACH specifics

For a bill of materials to deliver its value, disciplined change management is needed. Products evolve, parts are replaced, suppliers change – every such change must be mapped in the bill of materials with a validity date and, where necessary, with a version or revision state. This lets the ERP system use, for each order, the composition valid at the time of manufacturing, and older orders remain reproducible. In regulated industries, this "which bill of materials applied when?" is also indispensable for the traceability of batches.

In the DACH region, the bill of materials indirectly touches on tax and legal requirements. Because the manufacturing costs and thus the inventory valuation of semi-finished and finished products are derived from it, it feeds into valuation-relevant and tax-relevant documents. Changes to valuation-effective bills of materials should therefore be logged in a traceable manner in line with the GoBD, and costings should be reproducible with the respective valid state. For regulated products, requirements for traceability and documentation are added, for example in food, pharmaceutical or medical technology.

Frequently the same product structure exists in several forms: engineering maintains an engineering bill of materials (E-BOM) in a CAD or PLM system, while manufacturing uses a manufacturing bill of materials (M-BOM) in the ERP system. Keeping the two cleanly separated and in sync via an interface is one of the more demanding tasks of an ERP project – and a common cause of data quality problems when the handover is done manually.