Bill of materials inventory management: How to improve BOM forecasting and planning

When finished goods are built from a set of components, a Bill of Materials (BOM) is extremely useful for inventory management purposes. A bill of materials is usually associated with production planning in manufacturing, and is typically used in manufacturing software such as materials resource planning systems (MRPs).

BOMs are also very useful when multiple components are used in the assembly of final items for sale or for servicing equipment and machinery.

In all cases, the BOM structure describes the connection between the finished item and the components required to build, assemble or repair it.

BOMs are extremely important for inventory management teams as they allow them to forecast and order the correct quantities of each component required to make up the final product. This prevents delays to production, servicing and sales fulfillment.

Forecasting for bill of materials inventory

A BOM structures items in a hierarchy with the finished product at the top [‘Level 0’ in the graph] and ‘child parts’ below it.

Bill of Materials (BOM) Levels

If you know the demand of a finished product, then it’s possible to explode out the forecasting requirements for all other components within its BOM.

Sometimes the forecasts for BOM components are totally dependent upon the finished item, because they are only used in the making of the final good. Without a demand for the finished item, they would have no demand of their own. An example of a BOM-dependent forecast would be for the components that make up a fountain pen.

Sometimes the demand forecasts for BOM components are made up of the BOM-dependent forecast and an independent forecast. This is when items are also used or sold independently of the finished good. An example here could be when stationery items are sold in a writing set, but also sold on their own.

BOM forecasting and planning with spreadsheets

While some MRPs and enterprise resource planning (ERP) systems have simple BOM capabilities, very few have BOM forecasting functionality.

Even the most sophisticated systems will rely on demand forecasts to be uploaded manually to then trigger reorder point calculations in the planning BOMs. This means inventory management teams find themselves using spreadsheets to create and manage their bill of materials forecasting.

While mapping out a BOM can be fairly simple to do, BOM forecasting can be a very time-consuming and challenging task. As we’ve already mentioned, some items may have demand that is BOM-dependent, while others could have both BOM-dependent and independent demand.

Other items may be used in more than one final product and therefore be components within more than one BOM. Then there are components that may require assembly with others to form a sub-assembly before they can be used within the final product.

Finally, if you add the complications of seasonality and demand trends to the mix, suddenly a simple forecasting project becomes a complex nightmare.

Automated BOM inventory management

To overcome the complications of manually calculating bill of materials’ forecasts, stock management teams can digitalize this process. Luckily, inventory optimization tools, such as EazyStock, have the functionality to help.

By connecting EazyStock to your ERP or MRP, it can calculate the demand forecasts for every item in a BOM, exploding them down from the finished item to the smallest nut and bolt.

With demand forecasts in place, EazyStock will then automatically adjust ordering parameters such as safety stock levels, reorder points and order quantities for every item within the BOM. Items are clearly identifiable as finished assemblies, sub-assemblies or components.

BOM inventory management tool

By clicking on a finished assembly you can quickly see items that make-up the BOM and a wealth of data about each one including:

  • How many of each item is needed in the BOM
  • Current stock levels
  • Expected service levels (stock availability target)
  • Safety stock quantities
  • Lead times
  • Forecasts

The forecasting screen below shows how items can have both independent and BOM dependent forecasts which are aggregated into a single forecast, ready for reordering parameters to be dynamically adjusted by the system.

BOM forecasting

The benefits of automated BOM inventory management

With BOM planning and forecasting automatically carried out by EazyStock, inventory management teams will be able to optimize their stock levels while still ensuring they can achieve even the most challenging fulfillment targets. Further benefits include:

1. Accurate forecasts and ordering

Automated bill of materials forecasting will ensure that every component in the BOM has a forecast that takes into account the BOM’s demand and any autonomous demand, ensuring accurate and up-to-date forecasts at all times.

2. Improved efficiency

Inventory planners will no longer need to use spreadsheets to calculate and update forecasts, saving valuable time and resources. Instead, they can use the data to make informed inventory management decisions and refocus their time on managing suppliers and customers.

3. Help prevent stockouts

Accurate BOM forecasts will help ensure purchasing teams have a clear and accurate list of materials and quantities to order. This can help improve efficiency right along the supply chain. With the right quantities of the right items in stock, there should be fewer delays to production. Service teams can stay on schedule, and sales orders will be fulfilled on time.

4. Less waste

With an accurate bill of materials, stock levels can be optimized, so stock is carried to meet forecasted demand with a deliberate level of safety stock as back-up. Optimized inventory levels will help improve cashflow, free up space in the warehouse and reduce carrying costs.

Summary – BOM planning and forecasting

It’s extremely challenging using spreadsheets to forecast and manage BOM inventories. Inventory planners will often find that their manual processes lead to outdated and inaccurate outputs.

By connecting EazyStock to ERP and MRPs, BOM forecasts will feed into planning BOMs, so the right quantities of stock can be ordered at the right time to fulfil production, servicing and sales requirements.

If you’re interested in a demo showing how BOM functionality works in EazyStock – or what other great inventory management features the system can offer, please get in touch.