Why a BOM is important when moving from prototype to production

Remember the days when you needed to buy servers and expensive software licenses to build new software? Well, I got news for you sunshine, those days are gone. Today there’s open source software, cloud servers, and lots of useful and cheap infrastructure available. The cost structure of financing software projects has drastically changed.

These days, the same is occurring with manufacturing. A decade ago you would consider large buildings, facilities and expensive equipment when working on manufacturing projects. Just as with software, manufacturing is changing. You can hire contractors, buy components online, and create prototypes using 3D printers. Almost tempting to think once get a prototype in your hands that production is just around the corner. But it is not…

You’ll hear many people in the know talk about the importance of manufacturability at the prototype stage. And they are right, it is absolutely critical and never too early to think about. However, another process that has everything to do with manufacturability and more is often overlooked by companies. The Bill-of-Materials (BOM).

I can’t say it enough, you need to create a BOM with pristine accuracy, early. Especially if you want to avoid forgetting components. And to make assessment of cost and lead time. And more stuff I could get into, but I think you get the idea.

The Entrepreneur article, From Prototype to Production: 3 Things You Need To Know discusses what I’m talking about. Here is my favorite passage from the article:

Create a bill of materials with pristine accuracy.

A bill of materials, or BOM, is a spreadsheet of the complete cost of all individual parts and assemblies that will make up a single production unit of the product. Make sure to also factor in shipping, import taxes and labor. Costs will vary with volume, but be sure to estimate your costs at the lowest expected production volumes, in case your sales are lower than expected.

You should estimate the BOM once the prototype is complete, although you will not yet have production quotes from your contract manufacturers or even final production designs. You will need experienced mechanical and electrical engineers to envision the final product and estimate each individual part separately.

After accurately estimating your BOM, you can set your retail price. The cost of goods sold (COGS) is the BOM, plus the labor and shipping costs associated with a single unit — basically your total cost per unit. Your gross margin is the sale price minus the COGS. Your margin will vary depending on your distribution channel. If you’re selling through retail stores, you will need a much higher margin than if you are selling direct to customers. When selling direct to customers as a startup, targeting a 50 percent to 60 percent margin is a good rule of thumb.

Understanding exactly how much it will cost your company to build your product will allow you to set the price properly, thus ensuring you won’t lose money or have to raise prices later on.

openBOM was born out of an understanding that the importance of having an easy tool to manage BOMs at the early product development stage can make the difference. To illustrate the point I’m trying to make, watch these short videos to see how easy it is to create BOM from Excel (first video) and a CAD system (second video). …And how to manage all changes and share a BOM among what is likely to be a geographically distributed team.

That last point, about managing changes and collaborating across distributed teams is key. I hope you took notice how openBoM facilitates these in the videos. By sharing a BOM you insure all team members are on the same BOM. As a result, mistakes are reduced, costs are more predictable, and workflow is better organized.

Conclusion. openBoM gives you the opportunity to move from a spreadsheet mess (yes, it does happen) to an organized environment where team members stay on the same BOM with you. And product related assessments and planning is under your and the teams control.

Let me know what you think and how you go from prototype to production.

Best, Oleg @openbom.com