Quick Summary: The BOM forecast calculates dependent demand for raw materials and sub-assemblies by multiplying a finished good’s recommended order quantity (ROQ) by its BOM ratio to ensure component availability.
Why It Matters
Accurate BOM forecasts align material planning with actual production demand. By deriving component requirements from ROQs rather than sales forecasts, the app ensures that raw materials are ordered only when finished goods are planned for manufacture, preventing excess or shortage at the component level.
How BOM Forecasts Work
Within the context of a Bill of Materials:
A Finished Good (FG) is a product that has completed manufacturing and may consist of one or more raw materials.
A Raw Material (RM) is a component used to manufacture a finished or semi-finished good.
The FG:RM ratio defines the number of raw material units needed for one finished good.
Finished Good | Raw Material | Ratio | Meaning |
FG1 | RM-A | 1 | 1 of RM-A per FG |
FG1 | RM-B | 2 | 2 of RM-B per FG |
Therefore, 100 units of FG1 generate 100 units of demand for RM-A and 200 for RM-B.
Demand Streams in the BOM Context
Both FGs and RMs can have their own demand streams:
Sales forecasts: Based on sales history or manual adjustment at each location.
Distribution forecasts: Aggregated demand from dependent locations.
BOM forecasts: Dependent demand passed down from parent items.
A BOM forecast applies mainly to RMs or sub-assemblies that form part of another item’s BOM.
➜ For more on this topic, read: Demand Streams Explained: Sales, Distribution, & BOM
How the Calculation Is Performed
The BOM forecast “explodes” the FG’s Recommended Order Quantity (ROQ) through the BOM ratios. Note that the FG ROQ is used, not the FG Sales forecast.
If an 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.
Finished Good | FG ROQ | RM Ratio | BOM Demand on RM |
FG-A | 100 | 2 | 200 |
FG-B | 100 | 3 | 300 |
FG-C | 100 | 1 | 100 |
Total RM Forecast | — | — | 600 |
The raw material’s BOM forecast is the total of all parent ROQs multiplied by their ratios.
⚠️ Watchouts
Sales Forecast ≠ ROQ: The BOM forecast for a raw material is driven by the Finished Good's Recommended Order Quantity (ROQ), not its sales forecast.
💡 Tips
Zero Policy: A Zero policy item is a useful variation of a non-stocked item . While it ensures the item will not be held in inventory, it still allows a sub-assembly's sales forecast to flow down to its raw materials, which correctly influences their purchasing recommendations.
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