Bill of Materials

What is Bill of Materials?

A bill of materials (BOM) is the complete list of raw materials, components, sub-assemblies, and quantities required to manufacture one unit of a product. It is the recipe that defines what goes into production and what those inputs cost.

From a cash flow perspective, the BOM defines when cash is committed. Materials listed on the BOM must be purchased before production begins. That cash is spent days or weeks before the finished product ships and months before the customer pays.

A BOM costing $400 per unit on an order of 1,000 units commits $400K in material costs before any revenue is collected. The BOM is the starting point of the manufacturing cash conversion cycle. Understanding BOM timing is essential for production cash planning. See the manufacturing finance guide. Before approving a production run, model when material cash leaves, when finished goods ship, and when customer payment is expected. Production without a cash timeline is a bet on timing you have not examined.

Why it matters

Every production run starts with a cash outflow defined by the BOM. Manufacturers who model BOM costs against expected collection dates avoid starting production without the cash to fund it.

Formula

Material Cost per Unit = Sum of (Component Cost × Quantity) in BOM

Example

How RunwayCal helps

Common mistakes

• 1Starting production without modeling the BOM cash commitment
• 2Not updating BOM costs when material prices change
• 3Ignoring BOM costs in cash conversion cycle calculations