What is a bill of materials (BOM) and how long does an order take?

A Bill of Materials (BOM) is the list of materials and components needed to make a product, similar to the IKEA bill of materials to assemble a cabinet. A multi-level BOM is the hierarchy of all lists of materials and components to make the end product.  The components themselves are made up from other materials and components, and therefore each may have their own ‘private’ BOM- or parts list.

Consider the example of the assembly of a car consisting of a chassis, body, engine, wheels and interior. The engine itself consists of a series of components (subassemblies) wherein there are further components that in themselves consist of parts.  A car therefore is composed of a hierarchy of sub-assemblies, sub assembly components and individual components.

You can completely drill down the multi-level BOM of a car to the lowest level of every piece of material, component and raw material that has to be brought in from ‘outside’ in order to eventually be able to make that car.  The lowest level is usually the level at which the materials, components and raw materials are either purchased, or must be made available from own stock.

MRP is therefore able to calculate through such multiple levels of BOM from top (end product level) to bottom (purchase level) in order to determine the need for materials, components and raw materials at each level.  MRP does consider that there may still be materials, components and raw materials in stock or semi-finished work orders which are going to produce stock, and that Purchase Orders are already running in the system.

In an MRP function, it is common for each article, material or component included in the MRP run to have an acquisition time or lead time, i.e., the amount of time it takes to acquire, or receive the item, material, or component.

For example, a work order takes a week for the finished product or intermediate product to be ready. The supplier, with whom a Purchase Order for a specific item has been placed, takes 3 weeks to produce and deliver. So, if MRP suggests a Planned order in case of shortages and it is converted to a ‘real’ work order or Purchase Order, the lead time will be subtracted from the demand date stored in the Planned order to ‘calculate’ when the work order or Purchase Order should start or be placed.

MRP does this regardless of the fact that such a start date could be placed in the past. And this can happen when obtaining materials and components through purchasing takes longer than the period required by the customer to have his goods delivered. In fact, this happens quite often, and for planners and buyers who work with MRP, it is considered as one of the most annoying problems in the ERP world.  Every planner understands that planning in the past is impossible and a system that suggests this will only result in misinformation and confusion.