What is Bill of Materials (BOM)?

A Bill of Materials (BOM) is a comprehensive, structured document that lists every raw material, component, sub-assembly, and quantity required to manufacture, assemble, or bundle a finished product. Think of it as a recipe for creating a product — it specifies exactly what ingredients are needed, in what quantities, and often includes instructions about the hierarchy and sequence in which components are combined. BOMs are fundamental to manufacturing, production planning, procurement, inventory management, and cost accounting across virtually every product-based industry, from electronics and automotive to consumer goods, food and beverage, cosmetics, and e-commerce product bundling. A well-maintained BOM ensures that everyone involved in creating a product — from procurement teams ordering raw materials to assembly workers putting components together to accountants calculating product costs — is working from a single, authoritative source of truth.

Why It Matters

Without an accurate BOM, manufacturing and assembly operations cannot function reliably. If a component is missing from the BOM, it will not be ordered, and production will halt when workers discover the shortage on the assembly line. If quantities are wrong, the business will either order too much material (wasting capital on excess inventory) or too little (causing production delays). If the BOM does not reflect the latest engineering changes, the product will be built to an outdated specification, potentially creating quality issues, customer complaints, and costly rework or recalls.

BOMs are also essential for accurate product costing. The total material cost of a finished product is the sum of the costs of all its component materials, which are enumerated in the BOM. Without a complete and current BOM, businesses cannot calculate the true cost of producing each unit, which means they cannot set profitable prices, evaluate the financial impact of material cost changes, or compare the economics of different sourcing or design options. In industries with thin margins, even small BOM errors can have outsized impacts on profitability.

For e-commerce businesses, BOMs are critical for managing product bundles, kits, and subscription boxes. A "Summer Essentials Kit" that includes a sunscreen, a beach towel, and a pair of sunglasses has a BOM that lists each component product and its quantity. When the kit is sold, the inventory of each component must be decremented according to the BOM. When it is time to reorder, the BOM drives the purchasing plan — if 500 kits are needed, the procurement team knows exactly how many of each component to order. Without a properly configured BOM, bundle inventory management becomes a manual, error-prone process that frequently results in component stockouts and unfulfillable orders.

BOMs also facilitate regulatory compliance and traceability. In regulated industries such as food, pharmaceuticals, and electronics, manufacturers must document exactly what materials go into each product for safety, recall, and compliance purposes. The BOM serves as the authoritative record of product composition, supporting traceability from raw materials through to the finished product and enabling targeted recalls when a specific component is found to be defective or non-compliant.

How It Works

BOMs are structured hierarchically to reflect the way products are assembled from components and sub-assemblies:

• Single-level BOM: Lists only the immediate components and materials needed to create a product, without showing how those components are themselves assembled from sub-components. A single-level BOM for a laptop might list the screen, keyboard, motherboard, battery, and chassis, but would not detail the individual chips, capacitors, and connectors that make up the motherboard. Single-level BOMs are simpler to maintain and are sufficient for products with straightforward assembly structures.
• Multi-level (indented) BOM: Shows the complete hierarchical structure of a product, including all sub-assemblies and their components at every level. Using the laptop example, a multi-level BOM would show the motherboard as a sub-assembly under the laptop, and under the motherboard, it would list all the individual electronic components. Multi-level BOMs are essential for complex manufactured products and for production planning systems that need to schedule sub-assembly manufacturing ahead of final assembly.
• BOM fields: Each line item in a BOM typically includes the component identifier (part number or SKU), component description, quantity per unit of the parent product, unit of measure, procurement type (purchased externally or manufactured internally), reference designator (the specific location or position where the component is used in the assembly), and any notes about acceptable substitutes or critical specifications.
• BOM for bundles and kits: In e-commerce, BOMs define the composition of product bundles and kits. Each bundle has a BOM that lists the individual products included and their quantities. When a bundle is sold, the system uses the BOM to decrement inventory for each component. When purchase planning, the system uses the BOM to calculate how many components are needed to build the required number of bundles. This BOM-driven approach ensures that bundle inventory management is automated and accurate.
• Engineering BOM vs. Manufacturing BOM: In manufacturing environments, the engineering BOM (EBOM) defines the product as designed by the engineering team, while the manufacturing BOM (MBOM) defines the product as it is actually built on the production floor, including process-specific details like assembly sequence, tooling requirements, and inspection points. The MBOM may differ from the EBOM to account for manufacturing practicalities, and maintaining synchronization between the two is a critical process management task.

BOM Management Best Practices

Effective BOM management requires treating the BOM as a living document that evolves with the product. Version control is essential — every change to a BOM should be tracked with a revision number, change description, effective date, and approval record. Component substitutions, design changes, and quantity adjustments should follow a formal change management process to prevent unauthorized or undocumented modifications. Regular BOM audits verify that the documented BOM matches the actual product composition and identify discrepancies that need correction. Centralizing BOM data in a single system of record prevents the fragmentation that occurs when different teams maintain their own spreadsheet versions of the BOM, which inevitably diverge over time and create confusion.

How Nventory Helps

Nventory supports BOM management for both manufactured products and e-commerce bundles, enabling you to define the component structure of any assembled or bundled product and manage inventory accordingly. When a bundle or assembled product is sold, Nventory automatically decrements inventory for each component according to the BOM, ensuring that component stock levels are always accurate. Reorder alerts and purchasing recommendations account for BOM-driven demand — if a component is used in multiple bundles, Nventory aggregates the demand across all parent products to calculate the total replenishment need. BOM-based cost calculations give you accurate product-level profitability by summing the landed costs of all components. Whether you are managing simple two-product bundles or complex multi-level assemblies, Nventory's BOM capabilities ensure that your component inventory, purchasing, and costing are always aligned with your actual product composition.