Create/Define Bill of Materials
Introduction to THE BILL OF MATERIALS (BOM) CONCEPT:
The Bill of Materials is a type of structured parts list that shows what materials go into the finished product. One can picture the Bill of Materials as an organizational chart, or a family tree. The top block or zero level is the finished product. The various blocks are arranged at organizational levels depicting the sub-assemblies and their place in the hierarchy as indicated in the diagram. The raw materials are depicted at the level they enter the assembly stream.
W ________ | ________ R
The components (raw materials) X and Y are used to make assembly A. Assembly A and raw materials W and R are used to make the finished product C. Product C is also considered an assembly and is often called the top level assembly. The raw material parts called here W and R (regular parts) can never have any components going into them. If they had they would be assemblies and a bill of material would need to be developed to define their structure. The cost of finished product C is the sum total of all components that go into it including labor and overhead.
In this program before one can define a bill of material one must first create a product of type "assembly" or "finished" product in "Create new Products" selection. Define the assembly by selecting a predefined product from the list. Search for other products of any type to add to the structure up to 8 levels. An assembly cannot be added to it's own structure.
1. Click on "Define /Edit Bill of Material" link and enter a known criteria to narrow the search. If you click on "search" without entering any criteria the script will return all type A and F products. Select the one you want from the list. Remember a record must have been created in the products module as type A of F.
2. Select an item.
From the returned list click on the one of interest and click on the "select assembly button" select the one After selecting the item click on the "Create/Edit" button. The name of the selected assembly will appear in the next window with any components previously attached to it. This module handles both creation of new structures as well as modification "edit" of old ones. The example bellow had previously components attached to it as shown bellow. Click on the check box for the components you want to remove from the structure. To add new components enter criteria and select the one you want to add to the structure. Click the "refresh" button to update the list and click the "save changes" button.
If you are unfamiliar with the subject, and want to learn more, begin by reading the white paper below.
MANUFACTURING FACILITIES- Work Flow and Cost Accounting
I INTRODUCTION: Immediately upon their acquisition computers in small business were usually monopolized by the Accounting Department. In most cases an accountants primary interest was to capture the data for reporting purposes and little use was made of the computer to assist manufacturing with forecasting materials and labor management. Oliver Whyte and G. Blosel attracted the attention of executive management and through their efforts, the computer made its entry into production and inventory control management. Since most manufacturing managers at first had no experience with computers they relied heavily on data processing departments to develop the required software.
II MANUFACTURING ENTERPRISES: As referred to earlier the accounting principles already discussed are common to all businesses. While these elements are also an essential part of a manufacturing enterprise there are some special needs connected to a business that produces goods out of raw materials or secondary products.
The transaction cycle for a manufacturing facility is a little different than what has already been discussed. Because of the special case where one product may be used to produce a second product, and the need to keep materials on hand (inventory), the transaction cycle needs a couple of more elements or special accounts.
Manufacturing differs from other businesses to the extent that it acquires raw materials ads labor to them, and produces finished goods for sale. It can be defined as the process of producing a product from a number of materials by utilizing labor and equipment which operate under specific instructions. These instructions are in the form of engineering drawings, bills of material, production routings, schedules, and work orders.
In a manufacturing facility certain products will be combined with others to produce a higher level product called an assembly which in turn may be intermediate in a whole line of assemblies and sub-assemblies, or be incorporated into a finished product. The final assembly in the chain representing the goods that the enterprise sells is the product of that enterprise. However the person buying this product may consider it only as a raw material for his business. The bicycle as purchased from the retail store is a finished product and its wheel is an assembly. The wheel however, when purchased from a parts store can be considered a finished product as far as the parts store is concerned.
The commonly known manufacturing environments are discrete, process and job shops.
A shop that builds custom made goods for customers with specific needs is a job shop i.e. a special computer. In all cases a bill of materials is the means by which the architecture and structure of the product are depicted.
A refinery is a process manufacturing. A chip manufacture is a process manufacturer.
A computer manufacturer that produces computers from memory chips and other components is a discrete manufacturer.
III PRODUCTION PLANNING: The ideal manufacturing environment can be described as one where the required components arrive in production just in time for the production of the finished product (not earlier, not later than when they are needed). Much like the daily bun and meat shipments to a hamburger stand. The sales person at the register sells a burger and reaches back into the food warmer picks up a ready hamburger and hands it to the customer. The burger was prepared in anticipation of the sale, from component parts that arrived that very day. This is the result of good planning. The outcome of no planning or bad planning on the other hand could be devastating. Continuing with the burger analogy, one scenario would require an expediter who would run to the wholesale house for meat or buns as soon as the order was received. Obviously the customer wouldn't wait and the business would lose a sale. In another scenario the products could be purchased well in advance and kept in stock. The problem with this approach is that the meat spoils and the buns get stale.
In manufacturing as contrasted to a food stand, planning for production is a little more difficult because different people are involved who are motivated by different factors, and who want different things out of the facility. Marketing people want to sell anything the customers requests. Engineers always need more time to design the product, and production wants more time to build it. The purchasing department wants the design firmed up before ordering the necessary components, and finally the controller wants to keep the inventory costs to a minimum and not order anything before it is needed. These motives are good but they are conflicting. A system is needed to control inventory and to help every one involved plan for the necessary items to come together exactly when they are needed- no earlier, no later. There are tools available to provide control over the flow and cost of materials. Businesses who use these tools successfully are generally more profitable than the ones who don't for they provide good customer service at minimum cost.
IV THE BILL OF MATERIALS (BOM) CONCEPT: The Bill of Materials is a type of structured parts list that shows what materials go into the finished product. One can picture the Bill of Materials as an organizational chart, or a family tree. The top block or zero level is the finished product. The various blocks are arranged at organizational levels depicting the sub-assemblies and their place in the hierarchy as indicated in the diagram. The raw materials are depicted at the level they enter the assembly stream.
W ________ | ________ R
The components (raw materials) X and Y are used to make assembly A. Assembly A and raw materials W and R are used to make the finished product C. Product C is also considered an assembly and is often called the top level assembly. The raw material parts called here W and R (regular parts) can never have any components going into them. If they had they would be assemblies and a bill of material would need to be developed to define their structure.
V. PROCESS FLOW IN MANUFACTURING: Manufacturing Processes are defined as a sequence of steps and methods used to produce a product based on the Bill of Materials (BOM). The facility processes raw materials into a finished product, or puts together components and assemblies, into higher level products based on the BOM, the production routing, and the work order. As the Bill of Materials defines the component structure of a product (what), the manufacturing Routing defines the processes and methods (how), i.e. take part A and part R to work center #1 to be combined to produce part C. Processes are tasks performed by people or machines at a work station or work center. Before preparing a Routing one or more work centers need to be defined. The work center names are generally descriptive of the process or the work that will be performed there. Management can identify the costs that were added to the product at a specific work station. A simple work center would be the shop floor, the location in the factory where work takes place.
1. The Shop Floor: The shop floor is where products are produced in manufacturing. Raw materials and assemblies go in, and finished product comes out. The value of the inventory, materials, assemblies and partly finished products, on the shop floor is called Work in Progress. Its value is comprised of material and labor costs. It is most difficult to compute costs of products if the shop floor is the only level of work center, unless the process is very simple. To simplify the process and account for costs most manufacturers divide the floor into work stations.
2. Work Station and Manufacturing Routings: At a work center or work station materials are directed to that center's machines and people perform work. Accountants call it a cost center because there, cost is added to materials as a result of labor and other associated expenses. The cost of the final product is a sum of materials, labor, and overhead costs that were applied to the product at each of the work centers.
Depending on the detail required, each station can be also used as a separate cost center, by formally releasing materials to it and, accounting for it when the work at the station is completed. At completion time the assemblies are transferred to the stock room and from there, if more work is to be done, to another work center. This approach of breaking the job into discrete steps can assist management to track costs and productivity.
3. Production Orders: Depending on the company inventory policy i.e whether it is build to order or build for stock, a production order is issued to the production facility as a function of the sales order. Work orders are issued to the plant to build certain product quantities for the purpose of satisfying orders from customers. Production orders are based either on forecasts or actual customer orders.
4. Routings: To build an assembly as defined in the engineering Bill of Materials, production management needs instructions and procedures detailing the sequence and methods to be used. This information is found in the Manufacturing Routing File. A document, often referred to, as the "Routing sheet", with the build instructions that accompanies the product.
The manufacturing Routing is also hierarchical. It defines the sequence of steps and materials needed at each work station, and the scheduling of the timely arrival of sub-assemblies, to produce the finished product.
The chart of accounts for manufacturing contains a distinctive extra line item which reflects the cost of manufacturing. A manufacturing business will also have a line item for Work in Progress over and above the raw materials and finished goods inventory.
5. Job Costing: In manufacturing as in other environments the function of the purchasing department is to acquire the raw materials for a product from vendors based on the engineering specifications. The work order document authorizes the production department to produce a certain number of products or assemblies. Upon completion of the work order, the finished product is available for sale. However the cost of the finished product now includes the cost of all materials used, the cost of all direct labor involved in producing, and the cost of overhead. Cost of overhead typically includes the cost of buildings, equipment, and management salaries, including the cost of money that was used to purchase materials and pay for labor and or equipment. Figuring and keeping track of the cost of production is a sub-part of accounting called cost accounting.