If you want to know the cost of a finished product, you must first define what is inside it. The BOM (Bill of Materials) is precisely that definition.
Production can be done without a BOM; however, inventory deductions are made manually, costs are estimated, and both drift away from reality over time.
In this article, we explained the BOM structure, quantities and scrap allowances, multi-level BOMs, and revision management.
Table of Contents
What is a BOM?
A BOM is the list of materials required to produce a finished product. It is also referred to as a material list or simply BOM.
Each line specifies a material and how much of that material is needed. This simple structure is the foundation of all production calculations.
The BOM answers two questions: what will be deducted from inventory when the product is manufactured, and how much will this product cost.
It also provides forward-looking planning. When the number of units to be produced is known, the required amount of each material can be calculated.
Definitions are made in the production module and linked with inventory cards.
What is in a BOM line?
Every BOM line must carry at least three pieces of information: material, quantity, and unit.
Quantity is the amount required for a single unit of product. If this definition is unclear, all calculations will be skewed.
Unit consistency is critically important. Writing a material in grams in the recipe when it is kept in kilograms in stock requires a unit conversion.
Optionally, the operation sequence and preparation notes can also be added. These serve as a guide on the production side.
We covered unit definitions in the unit and brand definitions article.
Waste allowance
Not all materials used in production turn into the finished product. Cutting waste, spoilage, and adjustment losses are inevitable.
If the waste allowance is not defined in the recipe, actual consumption will always exceed the recipe, and the stock discrepancy will continuously grow.
The waste rate varies depending on the material. While it can be negligible for some materials, it can be significant for others.
Rates must be derived from actual data. Waste allowances set by estimation distort either the stock discrepancy or the cost.
Waste rates need to be reviewed periodically; as the process improves, the rates should also decrease.
Multi-level recipes
Some products consist of intermediate products that are also manufactured. In this case, a multi-level recipe is required.
The intermediate product has its own recipe and appears as a single line in the parent recipe. This structure prevents repetition.
If the same intermediate product is used in more than one finished product, defining it separately provides significant convenience.
Whether the intermediate product will be tracked in stock is a separate decision. If it is stored, it must have a stock card.
The number of levels should be kept moderate; unnecessary depth complicates both the definition and the calculation.
Cost calculation
The recipe provides the material component of the product cost. This is usually the largest part of the total cost.
The calculation is done by multiplying the quantity in each line by the unit cost of the material and summing them up.
As material prices change, the product cost also changes. Therefore, calculation with current prices is important.
Labor and general manufacturing overheads are not added to the recipe; these are distributed using separate methods.
We discussed cost tracking in the production costwe detailed in the article.
Revision management
Recipes change over time. Material changes, supplier changes, or design updates require revisions.
Overwriting the old recipe makes past production records meaningless. Revision tracking is necessary.
Every revision must have a validity date. Past productions should be evaluated with the recipe of that period.
The reason for the change should also be recorded. Why a material was changed is a question that will be asked later.
Linking revisions to approval prevents uncontrolled changes.
Recipes in variant products
Recipe management in products with color, size, or dimension variants requires extra attention.
Only some materials change between variants. Redefining the common part creates unnecessary burden.
In this case, the base recipe and variant differences can be managed separately. Thus, the number of definitions remains under control.
For quantities that change based on dimensions, proportional definition can be used.
We discussed the variant structure in the variant definitions article.
Recipe setup sequence
Starting recipe setup with all products unnecessarily prolongs the project. Proceeding gradually is more efficient.
Start with the most produced products. These are the items where both stock and cost impact are the greatest.
First, make sure that raw material cards are defined correctly. A missing card halts the recipe definition.
Then verify the recipe with a few productions; actual consumption should be compared with the recipe.
If there is a difference, the scrap allowance or quantity definition should be corrected. This verification step should not be skipped.
Points to consider
The recipe not reflecting reality is the most common problem. When changes made on the shop floor are not entered into the system, the recipe becomes outdated.
Therefore, regular reviews should be conducted with the production team.
Overly detailed recipes are also unsustainable; very small consumable items can be tracked as overhead expenses.
Special attention must be paid to unit errors; thousand-fold errors occur most frequently at this point.
We explained the production slip workflow in the production slip article.
From recipe to planning
The greatest value of a recipe is not retrospective recording, but forward-looking planning. When the production quantity is known, material requirements can be calculated.
When compared with current stock, this calculation yields the missing quantity. Purchase orders are created based on this deficit.
Lead times must also be taken into account. Materials with long lead times must be ordered well in advance of the production schedule.
In multi-level recipes, the calculation proceeds in stages; first the semi-finished product requirement is determined, followed by its raw material requirement.
When this structure is established, the disconnect between production planning and purchasing is largely eliminated.
We covered the details in the raw material requirement and purchasing connection article.
Frequently asked questions
Can there be more than one recipe for the same product?
Alternative recipes can be defined; they are used in cases where production is carried out with different materials or methods.
Can the recipe be exported?
It can be exported; file-based uploading can also be configured for bulk definitions.
Is an allowance for waste mandatory?
It is not mandatory; however, if not defined, the stock discrepancy continuously grows and costs appear lower than they actually are.
Can purchasing requirements be derived from the recipe?
They can be; you can refer to the raw material requirement article.
The recipe is the fundamental definition that every manufacturing business must establish. Inventory accuracy and cost calculation directly rely on it.
Start with the most produced items; starting with the entire catalog unnecessarily drags out the project.
Derive the scrap allowance from actual data. Rates set by estimation either distort inventory variance or costs.
Review formulas regularly as well; when field changes are not reflected in the system, definitions quickly become outdated.
By consulting the EQLEM team, you can plan your formula setup.