The devil is in the BOM (Bill of Materials) and it is confidential

The devil is in the BOM (Bill of Materials) and it is confidential

the-devils-is-in-bom-cost

The idiom “the devil is in the detail” refers to a catch or mysterious element hidden in the details, and derives from the earlier phrase “God is in the detail” expressing the idea that whatever one does should be done thoroughly and the details are really important.

When it comes to manufacturing, cost structure is one of the most sensitive information that can be exposed about how a specific manufacturing companies is doing its business.

Solereview article What does it cost to make a running shoe brings a very interesting perspective on a business of companies manufacturing running shoes – Nike, Adidas and few others.

The following passage speaking about BOM management is my favorite:

However, what we don’t have is the material break down of each FOB cost. In the industry, this is known as the BOM – short for bill of materials. This itemizes the cost of each and every component used in the shoes, based on their consumption in a single pair.

Think of it as a list of ingredients in a cooking recipe, except that the list is marked with how much each ingredient cost you to purchase.

For a typical running shoe, the BOM will add the consumed cost of synthetic leather, mesh, threads, logos/inks, trims, midsole, outsole etc. The final costing sheet also includes the labor and overhead (LOH) costs. Very often, the cost of making the expensive sole molds is spread across/amortized a particular model too.

The BOM information is confidential, restricted to the product team involved in creating a particular shoe model. For that reasons, we do not have individual BOM’s and costing sheets.

The same article brings an interesting summary of a shoe cost. Take a a look on the picture which shows the cost anatomy of Nike shoe:

nike-shoe-cost

While BOM and cost are hugely important, I found the transparency of BOM and cost information in an organization problematic. The information lives in different departments, organizations, suppliers and systems. Each of these systems knows how to manage BOM and related information. But the overall picture is often missed.

The vision of PLM system was to manage product information across a lifecycle. But most of PLM implementation stuck in CAD management. With an increased complexity and distribution of design, manufacturing, supply chain and distribution, to manage information about product is a challenging task.

Many manufacturing ending up with no information about what does it cost to manufacture product and how to decompose Bill of Materials and what are the most important components in product BOM from every standpoint – production, components, etc.

What is my conclusion? When it comes to manufacturing “God is in the BOM” and it is really important for companies. The information about BOM cost is scattered among different departments, people and functions. To combine it in a single place with all references pointing on the right information sources, people and operations can be an interesting exercise for many manufacturing companies. Just my thoughts…

Oleg

Want to learn more about PLM? Check out my new PLM Book website.

Disclaimer: I’m co-founder and CEO of openBoM developing cloud based bill of materials and inventory management tool for manufacturing companies, hardware startups and supply chain.

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