your Bill of Material Process a Core Competency?
by Dave Garwood
Bills of material -- not a new topic! An old friend recently asked, "Are
companies still struggling with this topic? We have been talking about
bills of material since the early MRP days." The answer is yes. Many
companies still struggle with keeping accurate, properly-structured bills.
Bills have always been, and will always be, an essential document for
every department in a business. Family kitchens and fine restaurants have
been preparing meals for years, yet recipes are still needed. Bills are
the recipes for industry. As new products are launched and new engineers
are added to the staff, the question of how to structure the bill and
what to include comes up again...and again...and again. Unfortunately,
there is no industry standard for structuring bills and yet, they are
an integral part of how we cost, plan, build and service our products.
We spend mega-bucks maintaining this critical documentation.
What is causing this resurgent interest in bill of material structuring?
Several events are driving this continuing need for restructuring bills
Five Drivers of the Resurgent Bill of Material Interest
1. Formal systems demand an accurate and properly-structured bill of material.
For decades, most companies used an informal system, frequently dubbed
"shortage/expedite" system, to get parts and material to keep
production going. They pulled material from the stockroom, staged the
orders to discover shortages, made a "Hot List" of the missing
parts and expedited until the shortage was filled. A correct bill of material
was not so important with this informal process. Tribal knowledge ruled.
The expeditors depended on their own bill and visible shortages. Today,
many companies use the bill in an ERP system to calculate future requirements,
predict shortages and schedule orders to avoid shortages. Flying the plane
with instruments demands accurate instruments. Flying with leather helments
and wind socks does not. Some companies also use the bills to "backflush"
and deduct inventory records. These formal systems depend on good bills.
Bad bills will cause bad results. They have to be accurate and properly
structured with formal systems.
2. New concepts such as lean manufacturing, JIT and others have created
the need to restructure bills. For example, as material flows are simplified
into work cells or focused factors or flow lines, levels in the bill can
be removed. The bills can be flattened. Bills that were correctly structured
yesterday are not correct today when manufacturing processes are streamlined.
3. As one burger palace commercial said, "we want it our way."
Customers demand products with more features and options to meet individual
customer needs. The potential combinations of these options causes the
number of end items or SKUs to explode. This requires a totally different
look at how bills are organized. Creating a SKU or catalog number for
each end item becomes impractical. The bills need to be reorganized or
modularized. Tools such as configurators to create end item bills for
each customer order become essential! The organization of bills becomes
radically different when competitive pressure requires many more features
and options and the ability to do mass customization.
4. Competitive pricing pressures have driven the need to eliminate unnecessary
cost activities. Structuring bills is a process. A low quality process
will cause high costs. A high quality process meets the expectations of
these internal "customers." Who are the bill customers? Almost
every functional department. Maintaining multiple bills for engineering,
manufacturing, costing, etc. becomes a prime target for cost reduction.
A single company bill of material will nuke the unnecessary costs to keep
multi bills! One bill for everyone means understanding and meeting all
of their expectations with one bill data base.
Other wasteful, costly activities become necessary when bills are not
properly maintained. Costs are wrong and bad decisions are made. Order
entry errors occur and have to be corrected. Material shortages pop up.
Inventory records are wrong. Product Service gets the wrong parts. Customer
delivery dates are missed. And many more symptoms drain The P & L
as these mistakes are corrected. A high quality bill of material process,
including an effective change control process, is essential to avoiding
these costly mistakes.
5. The term "engineering release" is obsolete. We cannot afford
the bill to be sheltered in engineering until they are ready to let the
rest of the organization have a peek (or release) at it. If the other
internal bill customers find problems with the bills, they must be discovered
early and be corrected before we go to market. Getting to market faster
with new products doesnt allow time for recalls, warranty claims,
retrofits, production delays, etc. This means the bill must be debugged
during design, not while the product is in the customer's hands or during
initial production runs. The bill must be used to order prototype and
initial production run material. All materials that will eventually be
required are often not simultaneously known during these phases. Yet lead
times require them to be ordered before the bills are complete. This means
the bill "evolves", i.e. it is made available to the organization
in "partial releases." The bills need to be visible before they
are complete. This approach doesnt fit the old paradigm of engineering
completing the design and having a 100% complete bill before it is "released."
The bill process must accommodate this evolution of the bill approach
during the design phase.
Product life cycles are getting shorter and shorter. This means the frequency
of new product launches is higher and the ability to use bills before
they are complete is more critical than ever.
Bills of Material as a Competitive Weapon
Core competencies that separate a business from the competition are not
always in the technology of the product. Sometimes it is in the way we
run the business, i.e. business processes. eBay, Dell Computer and Federal
Express are few examples. Product technology can often be purchased or
duplicated. The ability to effectively manage a business to meet customer
The ability to quickly customize products, avoid unnecessary costs, respond
quickly with short lead times, launch new products without costly delays
and have the right materials at the right time without warehousing excess
inventory can be a real competitive advantage. Maintaining properly structured,
accurate bills of material during this constantly changing business environment
is an essential element to meet this competitive goal. Does your bill
of material process have this capability? Is it a core competency?
Better find out how
to make it one before your competition does!