Written by: Bev Chretien and Mardi Cairns
It can be confusing to understand how the Bill of Materials (BOM) forecast for a raw material is calculated.
Within the context of a Bill of Materials (BOM), a Finished Good (FG) is a product that has completed the manufacturing process and may consist of one or more Raw Materials (RM).
A Raw Material (RM) is a basic item from which another item, or FG item, is made. The Bill of Material specifies the items that make up the FG. The quantities required to make one FG are specified by the FG:RM ratio. In the example below, to make 1 x Finished Good we require 1 x Raw Material A and 2 x Raw Material B.
Both FG and RM items can have multiple demand streams. The App labels these as:
Sales forecasts - typically based on sales history (which can be amended) at its own particular location. A RM item may have a Sales forecast if the item sells in it’s own right.
Distribution forecasts - the sum of the requirements for dependent locations.
BOM forecasts are only for RM items, unless the FG is a sub-assembly, meaning it forms part of the BOM for another FG item. For example an engine: a screw is a RM of the FG engine, the engine in turn is a RM of the FG car.
The image below is an example of what the BOM tab could look like in the App:
BOM forecasts:
Are derived from “exploding” the FG Recommended order quantities (ROQs*) through the BOM ratio to register the anticipated demand on the RM. Note that the FG ROQ is used, not the FG Sales forecast.
If a RM forms part of the BOM of multiple FG items, then all the FG ROQs will be exploded according to their respective BOM ratio and the resultant consolidated demand is registered against the RM as a BOM forecast.
If we assume in the example below that all the FGs (A, B and C) have an ROQ of 100 units, the resultant BOM forecast for the RM would be 600 units.
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