Coming into the hardware startup industry doesn’t just mean that you’ll be building a physical product and marketing it to a few handful audiences. There’s a lot more going on behind the scenes of launching a hardware startup. In fact, one of the most important reasons why HW startups fail is because they neglect getting the proper cost estimates. If you fail to get accurate estimates, you might just find yourself filing bankruptcy.
So let’s talk about one of the most important methods of tracking costs. A bill of materials.
First up, what is it?
A bill of materials is essentially a rule book. It contains a set of meticulously written instructions on where to find a specific product part, how much it costs, where to get it, and even assembly processes needed to build a complete product.
But why is it important?
The importance of a BoM
Products today aren’t as simple as they were a decades ago. They’re now built with complex circuit boards, WiFi, bluetooth compatibility and high end speakers.
Because there are so many different parts involved in a single product, it’s essential to keep tabs on what is actually influencing your product costs.
Anything that increases the cost of getting your product to production should be included in your BoM. This can be components you’re buying from suppliers, ordering electronic modules online, or even packaging.
If it influences product costs, it belongs on your BoM.
But other than the physical hardware you need to actually build out your product, what else belongs on a BoM?
Certain processes and tools are also part of it!
Think manufacturing tools, quality and testing processes, and even the assembly process are expenses that need to be considered for an accurate product cost estimate.
Oleg from Beyond PLM, a goto resource in the hardware manufacturing community wrote an article title, “Hardware Startup – The Importance of Product Records to Estimate Cost,” where he not only describes how important it is to create a BoM but also what you should have on a BoM.
“Establishing methods and tools to manage product records is your way to get cost assessment under control. It is well known fact that 70-90% of product cost is influenced by 20-30% of parts. So, the ability use PDM/PLM tool to deconstruct product data into right groups is essential. However, this is just a beginning of managing your product lifecycle.
Components you are buying from suppliers are representing only part of your product cost assessment. You should take into account discounts at volume and other aspects of cost management in variety of supply chain scenarios.”
But beyond what you need to have on a BoM. Let’s talk about why you need it.
Why you need a BoM
It’s quite scary to think about what could happen if a BoM isn’t thoroughly documented and accurate. But to give you a sense of the possible outcome let’s introduce Unleashed. A software company that specializes in managing inventory. In the article, “Why a Bill of Materials is so Important for Manufacturing,” by team member Mandy, she stated this:
“The dangers facing a business when a Bill of Materials is ineptly put together can be many and extremely costly – both in terms of time-wastage, and through a needless squandering of capital and labor resources.
Any incorrect, unclear or absent piece of information in the BOM spells disaster down the line. If even one component is left un-sourced, the entire manufacturing machinery could grind to a halt. When this occurs, time and money will have to be spent tracking down the cause of the delay, sourcing the component and then restarting production.”
Let me emphasize this: “manufacturing machinery could grind to a halt.”
I think we can all agree that time is a resource that’s far too expensive to lose because your BoM wasn’t written properly.
Make a BoM
Not having a BoM can potentially cost you thousands of dollars. And it can potentially cost you hundreds of hours you won’t be able to get back.
To steer away from disaster, document every part, every build process, every supplier, and every dollar that goes into building your product!