Business Accent

Adopting a BOM/BOP solution

Ipshita Basu Guha on the significance of computerised BOM/BOP in manufacturing.

The two core functions in any manufacturing company are production and inventory. The latter supplies the raw materials and the former processes them to create an output of finished goods. These finished goods again go to the inventory. The inventory function normally has three different stores— raw, in-process and finished goods. The core of a production function is BOM (Bill of Material) or BOP (Bill of Process). These are directly linked to inventory levels in stores. Let us try to understand what are BOM and BOP.

BOM is a list of items required to manufacture a product. Let us take the example of rice. To cook it you need rice, a pot, water, fire and a ladle. Now each of these items will be required in a specific quantity like 50 gms of rice, 1 metal pot, 1 ladle, 1 gas burner or oven and 200 ml of water. These together comprise the BOM of a standard preparation of rice.

BOP is an extension of BOM. It enumerates stage-wise requirement of input material. The sum total of individual items is the same as that in BOM.

Product–X

The BOM/BOP charts are essential for MRP and ERP inventory management systems apart from production function. It is preferred to have BOP data since it can help in generating BOM reports but not vice-versa. What is the importance of having a good BOM/BOP system for improving the existing computerised production and inventory systems?

Types of manufacturing

There are two types of manufacturing—made to order and made to stock. BOM/BOP concepts are required in both cases especially, from material requirement planning aspect.

Take the example of a car manufacturing company which has three designs. It has four models based on functionality and features in each category. This company will normally fall under the ‘made to stock’ category.

BOP and planning

Made to stock companies normally have an annual production plan based on previous year’s sales and projected demand. This is broken down into quarter and subsequently month-wise figures. While planning for production the important factors to be observed are stock levels and lead time for delivery. Based on these factors, function plans are formulated three to six months in advance. This plan will include the number of pieces to be manufactured under each model. The inventory module will give the report of existing stock levels in the stores. Suppose there is a computerised record of the BOP of each model, then by simply multiplying the quantity in the BOP with the number of planned pieces we can come up with the required quantities of each input item. This is called explosion of BOP. It means that we can see how many pieces of each input item will be required at each stage of manufacturing.

BOP and inventory

If we have a computerised system then we can create various types of reports to analyse our raw material requirement. We can see brand-wise, model-wise and item-wise requirement reports. Integration of production planning, production and inventory data can yield a material shortfall report. This is the difference between quantity required and quantity on hand. Now-a-days inventory management systems offer lead time and safety stock; re-order level information for each item in the item master. If a company enters this data religiously then it can get a scenario status of when the required material will tentatively reach the stores based on the date of ordering the item. The same principle can lead to implementation of JIT (Just-in-Time) principle. JIT helps in keeping optimum inventory levels. Any item which is in store and not being used incurs cost to the company. If this money was put in some other financial instrument, wouldn’t it give you better financial gains?

Another benefit of BOP is recording batch-wise consumption of items. Suppose the car company in the aforesaid example completes three batches of production in a particular month. The production function has to give requisition to stores for the required quantity of items. These requisitions can be generated directly from the BOP. This will reduce the unnecessary human intervention and possible inaccuracies while creating requisitions by counting the items required. All issues made against the requisitions can be recorded and then a batch-wise consumption report can be generated. This aids in cross-tallying stock levels in stores.

The manufacturing planning process

Design modification

A good computerised BOP helps in keeping track of modifications. Suppose a particular size of bolt was always being used. However, due to some design modification and enhancement a new bolt with different specification has been incorporated. This information is available only to the design team. How will purchase, stores and production departments come to know about this new development? In an organisation there is always some amount of loss of information due to weak communication. This situation is possible in all sizes of companies though it is more likely to occur in small and medium businesses. It means that the purchase personnel may end up ordering the wrong item and the same will be consumed during production. This is where BOP plays a pivotal role. By having a centralised repository of BOP, once it is modified, the same information will flow to planning, accordingly requisitions will be raised, purchase orders will be created; material will be received at stores and finally consumed by production.

Historical BOP

This system can act as a repository of historical BOP. There have been instances when manufacturers like Mercedes and Toyota have called back entire batches of cars due to some faulty system. In developed countries accidents caused by these cars could cost a huge amount in terms of compensation to the car manufacturers. In such a scenario, if we have a BOP system in place then we can move in the reverse direction from finished product to raw materials, batch of raw materials and supplier in order to identify the exact location of the fault. The same is time consuming and difficult if we have a manual system. Many automobile companies are adopting by linking their software systems to that of their suppliers. This is to serve the dual purpose of managing stock levels and reverse tracking the products upto the vendor’s end and beyond. This analysis is possible due to BOP.

BOP and management

In the beginning management systems used to work with BOM. Later on improvement occurred in the form of BOP. If you have only BOM then the information available to you is only the list of input items and their quantities whereas in case of BOP you come to know which item is used in a specific stage of production and in what quantity. Integration of BOM with planning, production, and inventory and purchase functions was the precursor to modern day ERP systems. In the earlier days there was MRP I and then MRP II. Our software systems in the manufacturing area have come a long way but the earliest and most vital function has been BOM/ BOP.

Today, any small, medium, large ERP system provides for this feature. Companies should spend a considerable amount of time and thought into building this system. Its benefits are far too many and available on the long-term.

The author works with a pharma company as Business Systems Analyst. The views expressed here are her own and not necessarily those of her employer. She may be reached at ipbasu@rediffmail.com