Raw materials inventory management is the process of tracking, valuing, and replenishing the materials needed to manufacture products. It helps businesses prevent production delays, avoid excess stock, and keep costs under control.

Picture this: Your candle brand's bestseller is flying off the shelves. Orders are pouring in, but production suddenly stops because you've run out of wicks.

A $40 shortage just cost you a week's worth of sales.

That's exactly what effective raw materials management helps prevent.

In this guide, we'll cover direct vs. indirect materials, how to calculate materials used, and best practices for tracking, valuing, and reordering stock, including what to look for in software.

What is raw materials inventory management?

Raw materials inventory management is the process of tracking, controlling and reordering the components, subassemblies and supplies you hold for production but haven't yet turned into finished goods.

The raw materials inventory is recorded on the balance sheet at cost. Managing them covers sourcing, procurement, stock levels, valuation and demand forecasting.

For Shopify brands that make their own products, it means overseeing everything from buying fabric or ingredients to making sure the right materials are on hand when production starts.

What are direct vs indirect raw materials?

Direct materials

Direct materials become part of a finished product and their costs can be traced to individual units, such as fabric in clothing or wax in candles. Their share of total product cost varies by product.

Examples: wood in furniture, fabric in clothing, wax and wicks in candles, steel in car parts.

Indirect materials

Indirect materials support production but are difficult or impractical to trace to individual finished units. Some may physically appear in the product, while others, such as cleaning supplies or machine oil, do not.

Examples: lubricants, cleaning supplies, gloves, sewing machine needles.

How Do You Calculate Direct Materials Used?

Use the formula below to find the cost of direct materials actually consumed in production during a period:

Direct materials used = Beginning inventory + Purchases - Ending inventory

Example: an apparel brand on Shopify starts the month with $10,000 of fabric and trims. It buys another $7,000 during the month and ends with $4,000 left.

$10,000 + $7,000 − $4,000 = $13,000 of direct materials used.

That number feeds straight into your cost of goods manufactured, and it's useful for three things:

1. Pricing: you know the real material cost behind each product.
2. Budgeting: you can predict next period's material spend.
3. Spotting waste: if materials used rise faster than units produced, something's leaking.

💡 Many clothing inventory management tools run this calculation automatically.

Why Does Raw Materials Inventory Management Matter?

Because raw materials are cash sitting on a shelf. Get it right and you save money, protect quality and keep production on schedule.

• Lower costs: avoiding overstock cuts storage costs and frees up capital
• Consistent quality: the right materials in the right quantities mean every batch matches
• On-time production: no stalls waiting for a missing component, so you meet demand and keep customers coming back
• Less waste: buying closer to actual usage means fewer expired or obsolete materials

What are the common challenges in managing raw materials?

1. Overstocking - ordering more than you need ties up cash and storage space
2. Stockouts - running out stops production and delays orders
3. Forecasting - predicting exactly how much material you'll need is hard, especially when finished-goods demand swings.

Remember, all three feed each other. A weak forecast leads to either overstock or stockouts, often both, across different materials.

What are The Best Practices for Managing Raw Materials?

1. Review stock levels against demand regularly

Check raw material levels against seasonal demand and production rates, then adjust. A swimwear brand should be building fabric stock in late winter, not in July.

2. Run cycle counts and regular audits

Count a subset of materials on a regular schedule instead of shutting down for a full count. It keeps records accurate and catches discrepancies early.

3. Share forecasts with your suppliers

Send suppliers your production schedule and expected volumes. They can plan capacity, which shortens lead times and often earns you priority during busy periods.

4. Diversify suppliers for critical materials

Relying on one supplier is a single point of failure. A backup source protects production and gives you more room to negotiate. Learn how to choose the right suppliers.

5. Negotiate more than price

Payment terms, delivery schedules, MOQs and contingency plans for disruptions all matter. Aim for terms that work for both sides. A supplier who's treated well flags problems early.

6. Train the team on the system

The best process fails if people don't follow it. Make sure everyone who receives, counts or orders materials knows how the system works.

What Features Should Raw Material Inventory Software Have?

1. Automation: data entry, calculations and reorder suggestions without manual work.
2. Reporting and analytics: insight into usage, costs and trends beyond what Shopify offers.
3. BOM support: link each finished product to the materials it uses, so finished-goods demand turns into material demand.
4. Scalability: handles your full material catalog as it grows.

Want to compare options? Here's our list of the best raw materials management apps.

How do You Value Raw Materials Inventory: FIFO, LIFO or Weighted Average?

Your valuation method decides what cost each unit of material carries into production, which changes your COGS, gross profit and tax.

Take one example through all three. A Shopify brand buys 100 units at $5, then 100 units at $7, and uses 100 units in production.

1. FIFO (first in, first out)

FIFO assumes the oldest material costs are assigned to production first; it does not necessarily describe which physical units are consumed. Here, materials used cost $500 and the remaining inventory is valued at $700.

FIFO is best for keeping stock fresh and inventory values close to current prices. 

2. LIFO (last in, first out)

LIFO assumes the newest material costs are assigned to production first, regardless of physical usage. Here, materials used cost $700 and remaining inventory is valued at $500.

When prices rise, LIFO shows higher costs and lower taxable income. It isn't allowed under IFRS, so check your accounting rules. 

3. Weighted average cost

Every unit carries the average cost: ($5 × 100 + $7 × 100) ÷ 200 = $6 per unit. Materials used = $600, remaining stock = $600.

Best for large volumes of similar materials where tracking each batch isn't practical.

Whichever you pick, use it consistently as switching methods makes period-to-period comparisons meaningless.

How Do You Track Raw Materials Inventory?

Tracking means following every material from receipt to use in production. The common tools are:

• Barcode scanning for fast, accurate receiving and counts
• RFID for high-volume or high-value materials
• Inventory management software that updates stock in real time as materials are received, transferred or consumed

If you work with contract manufacturers or several locations, you'll also need to transfer inventory in Shopify between warehouses and production sites.

How do you track raw materials in Shopify?

Shopify tracks sellable product inventory but does not provide a full native bill-of-materials (BOM) and material requirements planning workflow. 

Manufacturers typically use an integrated inventory or manufacturing app to link finished products to components, record usage and plan reorders.

How Can ABC Analysis Improve Raw Materials Management?

ABC analysis typically ranks materials by annual consumption value (annual usage × unit cost), so teams can prioritize purchasing and stock checks. 

Example: a skincare brand might classify an expensive, high-usage active ingredient as an A item and a low-cost label as a C item. 

However, a low-cost component can still be production-critical: if a missing pump top stops every bottle from shipping, it needs careful monitoring regardless of its ABC class.

ABC analysis helps you set reorder points and safety stock by class, focus cash on what matters most, and cut waste and stockouts at the same time.

How Do You Calculate Raw Materials Needed for Production?

Raw materials required = Planned production quantity × Material quantity per finished unit.

For example, a candle brand making 1,000 candles that each need 200 grams of wax requires 200 kg of wax before allowing for waste. 

To work out how much to purchase, subtract usable stock and confirmed incoming materials, then allow for expected waste and safety stock. A bill of materials (BOM) connects this calculation to every finished product.

How Do You Set Reorder Points for Raw Materials?

A reorder point is the stock level that triggers a new order. The standard formula:

Reorder Point = (Average Daily Usage × Lead Time in Days) + Safety Stock

If you use 50 metres of fabric a day, your supplier takes 14 days, and you hold 200 metres of safety stock, your reorder point is (50 × 14) + 200 = 900 metres.

The reorder point answers when to reorder. Economic order quantity (EOQ) helps estimate how much to order by balancing ordering and holding costs. Supplier minimums, shelf life and changing demand may also affect the final purchase quantity.

How Do You Calculate Raw Materials Inventory Turnover?

Raw materials inventory turnover measures how frequently a business uses and replaces its raw materials during a given period.

Raw Materials Turnover = Cost of Raw Materials Used ÷ Average Raw Materials Inventory

To calculate average inventory:

Average Raw Materials Inventory = (Beginning Inventory + Ending Inventory) ÷ 2

For example, an apparel brand used $13,000 of fabric and trims in one month, starting with $10,000 in raw materials and ending with $4,000:

13,000÷(($13,000 ÷ (($10,000 + $4,000) ÷ 2) = 1.86 turns per month

That means the business used materials worth 1.86 times its average raw materials inventory during the month. 

Compare turnover with prior periods and production needs: a low rate may signal excess stock, while an unusually high rate could mean too little buffer stock.

How Does Prediko Help Shopify Brands Manage Raw Materials?

Prediko's raw materials management keeps raw materials and finished goods in one place, so finished-goods demand turns into material orders automatically.

1. Real-time material tracking: see how many units are in stock, in transit and in production, across warehouses and locations.
2. Material demand from your forecast: AI demand planning forecasts finished-goods demand, and your BOMs translate it into the materials you'll need, so you stop guessing quantities.
3. Reorder suggestions: the Buying Tab shows when to order each material and how much, based on lead times and stock levels. No reorder-point spreadsheets.
4. Supplier management: link multiple suppliers to a single SKU and get every supplier's lead time and currency in one view, so orders go out on time and production doesn't stall.

Setting up raw materials in Prediko

1. Create your raw materials in the Prediko app, or bulk-import them with the Import function.
2. Review your full material catalog in one view.
3. Build a bill of materials for each finished product.
4. Create production orders. Prediko tracks material usage as you go and tells you when to reorder.

This leads to fewer production delays, less cash locked up in materials, and no more manual BOM math.

How Are Brands Automating Raw Materials Planning?

• Demand-driven material planning: translate finished-goods forecasts and BOM quantities into upcoming requirements, rather than relying only on last month's material usage.
• Automated inventory updates: barcode scans, connected devices and production records help track materials as they're received, moved and consumed.
• Supplier lead-time monitoring: compare actual delivery dates with promised lead times and adjust reorder timing when suppliers become slower or less reliable.

Stop Letting Materials Stall Production

Raw materials are where production delays start and where cash quietly gets stuck. Track them in real time, value them consistently, reorder from demand rather than gut feel, and you'll spend less time tackling material issues.

Want raw materials and finished goods in one place? Start Prediko's 14-day free trial.

Frequently asked questions

What is raw materials inventory management?

It's the process of tracking, controlling and reordering the components and supplies you hold for production but haven't yet turned into finished goods. It covers sourcing, stock levels, valuation and demand forecasting.

What is the formula for direct materials used?

Direct materials used = beginning inventory + purchases during the period − ending inventory. For example, $10,000 + $7,000 − $4,000 = $13,000 of materials used.

What's the difference between direct and indirect materials?

Direct materials can be traced to a finished unit, like fabric in a shirt. Indirect materials support production but aren't practically traced to each unit, like machine oil or cleaning supplies.

How do FIFO, LIFO and weighted average differ?

FIFO uses the oldest materials first, so inventory reflects recent costs. LIFO uses the newest first, which raises COGS when prices rise. Weighted average gives every unit the same average cost.

How do Shopify brands manage raw materials?

Shopify doesn't track raw materials natively, so brands use an inventory app like Prediko that links materials to finished products through BOMs, tracks stock in real time, and suggests reorders from forecast demand.

Why does raw materials turnover matter?

Turnover shows how often materials are used and replaced. A high rate means efficient use and lower carrying costs; a low rate points to overstock or slow production.

Production halts, missing components, unexpected cost spikes, wasted resources, and frustrated customers are just some of the consequences of mismanaging your bills of material. 

Trust us, things can get even worse.

This is why having a solid Bills of Material (BOM) inventory management process is important. It ensures you’re always prepared, with every component accounted for and your production running smoothly.

This article will cover everything you need to know about BOMs, including the different types, a step-by-step process to manage them, common challenges you might face, and a review of the top 5 software for BOM management.
‍

What is the Bill of Materials in Inventory Management?

A Bill of Materials (BOM) is a detailed list of all the parts, materials, and subassemblies needed to make a product. It also includes information like quantities, costs, lead times, and part numbers. Simply put, it’s the blueprint to turn raw materials into a final good.

The Bill of Materials (BOM) for a wooden table could look something like this

This BOM details the components (wooden top, screws, varnish), the quantities required, unit costs, and total costs for each part of the table. This helps manufacturers understand exactly what is needed to produce the table, along with the total production cost. It also provides a part number for tracking and reordering components.

Why is BOM Management Important?

By maintaining detailed BOMs of all components, raw materials, quantities, and their associated costs

• Minimize excess inventory and stock outs by knowing exactly how many components you will need for each production cycle

• Accurately calculate product costs, forecast future expenses, and identify areas for cost-cutting 

• Better negotiate with vendors through accurate and predictable order volumes 

• Eliminate production delays and accurately schedule manufacturing runs with on-time availability of components 

• Maintain product quality and compliance by tracking and documenting every component used in production

• Expedite the product development cycles with error-free and smooth production. Reduce time-to-market and execute product launches faster 

• Improve coordination among various departments (engineering, procurement, production) with BOMs acting as a shared reference

‍

Types of Bill of Materials

There are different types of BOMs and each serves a distinct purpose. Understand the differences and choose the right BOM type based on factors like product complexity, customizations, and your manufacturing process.

1. Single-Level BOM

A Single-Level BOM, also known as a flat BOM or level-0 BOM, is the simplest form of materials listing. It represents all components and their quantities needed for a finished product in a single, non-hierarchical format.  This is best suited for simpler products.

A basic wooden table will have a single-level BOM that lists individual components like wood, nails, paint, and screws but doesn't involve any assembly beyond the basic construction.

This type of BOM is particularly great for simple products where only a few components come together in a straightforward assembly process. However, this simplicity can become a limitation when dealing with more complex products.

2. Multi-Level BOM

A Multi-Level BOM (aka hierarchical BOM) is used for more complex products that consist of multiple sub-assemblies, parts, and raw materials. It gives a complete view of product structure by showing parent-child relationships between components. 

This helps understand how different parts come together to form sub-assemblies, and how these sub-assemblies ultimately create the final product. 

Commonly used in complex manufacturing industries like automotive and electronics, a Multi-Level BOM breaks down products like a car into sub-assemblies, such as the engine, chassis, and interior, further breaking down the components of each.

3. Configurable BOM

A Configurable BOM is ideal for products that offer multiple variations or customization options or made-to-order processes. This BOM type allows manufacturers to configure the components, materials, and parts based on customer preferences, such as color, size, or features. 

It is particularly useful in mass customization, made-to-order, or build-to-order processes where each unit or batch may have different configurations. 

Computer manufacturing may have a configurable BOM to adjust component requirements based on customer choice for processor type, memory capacity, storage options, and display specifications. 

4. Engineering BOM (EBOM)

An Engineering BOM is created during the product design phase and includes the technical specs, material requirements, design parameters, and CAD file references. This type of BOM is important for product development and engineering teams to translate the conceptual design into an actual product.

Unlike other BOM types, the EBOM focuses more on the design part rather than production or assembly.

5. Manufacturing BOM (MBOM)

A Manufacturing BOM is tailored for production needs. This is used by production teams and focuses on the materials and components required for the assembly and manufacturing of the product. It includes all the components listed in the EBOM but also adds production-specific details such as assembly steps, tools, packaging, and any special instructions. 

The MBOM is essential for production managers and shop floor workers, providing them with all relevant information to efficiently manufacture the product while maintaining quality standards.

A manufacturing plant producing a television would have an MBOM that lists all components like the screen, electronics, casing, screws, and packaging materials along with assembly instructions.

Common Challenges in BOM Management

As you step into the complex process of managing Bills of Materials, some issues are bound to surface. Here are the most common challenges, along with actionable strategies to overcome them. 

Typical obstacles & inefficiencies

Managing BOMs involves handling complex information like detailed component lists, quantities, costs, etc. A single error, such as an incorrect part number or missing materials, can lead to major production disruptions. 

Inconsistent communication between teams can also lead to inaccurate supply of raw materials and delays. Manual data entry is another major setback that makes BOM management on Shopify prone to human errors and slows down updates.

Solution: Conduct regular BOM audits to check for inconsistencies and data accuracy. Set up a structured process for BOM updates. You can establish clear guidelines and a checklist for creating and updating BOMs. 

Prediko allows you to import material lists and make them readily accessible along with your final goods inventory, giving your team a single view of both raw materials and finished products. This results in more accurate planning and execution.

Keeping BOMs updated

Products undergo revisions over time based on customer needs. As designs evolve or suppliers change, keeping the BOMs updated gets difficult. This leads to issues like the wrong materials being used or delays in production while waiting for the right components. 

Solution: Automate change notifications to relevant departments whenever a component is revised. Schedule routine BOM reviews, especially when a design change or new version is introduced.

Use a tool like Prediko that allows you to easily update BOMs as product requirements change, quickly assess the impact of modifications, and keep all stakeholders on the same page

Managing multiple BOMs across product lines

If your company manufactures different products or variants, managing separate BOMs can lead to confusion and overlap, especially if common components are used. Products with different variants make the process even more complex. Mismanagement can affect multiple production schedules and increase inventory costs. 

Solution: Build templates and reusable sub-assemblies to quickly create new BOMs for similar products. Deploy an inventory management software like Prediko that allows you to assemble detailed BOMs for each product across multiple warehouses, locations, and product lines on one dashboard. This helps manage storage and distribution. 

Integrating BOM data across ERP systems

BOM data is often managed separately and needs to be connected with ERP, MRP, or inventory management apps. Lack of integration creates data silos where information is scattered across various platforms and departments, making it hard to maintain a single source of truth. This can cause order errors, skewed inventory records, or even financial mistakes.

Solution:  Choose an inventory management software with bills of materials management capabilities or integrations for managing inventory and related processes. Look for tools that offer native integrations or, at least, support API connections. 

Prediko’s inventory management solution has in-built BOM management features, giving your team a single view of the entire supply chain, from raw materials to finished goods.

Implement Effective BOM Inventory Management

Follow this step-by-step approach to create a solid and reliable BOM inventory management system that supports your operational goals.

Step 1: Standardize BOM structures across departments

The BOM inventory management process begins with creating a BOM template (use Google Sheets) that includes key details such as part numbers, detailed descriptions, required quantities, sourcing data, and a complete revision history. 

Maintain standardization in naming conventions such as PP-001 for purchased parts and MA-001 for manufactured assemblies. Also, clearly define which fields are mandatory and which are optional. Document the creation process for reference across departments or new team members.

Step 2: Choose an inventory management system that supports BOMs

Next, select an inventory management system that accommodates multi-level BOMs and also provides real-time finished goods inventory tracking.

Jot down the detailed requirements and specific needs of the company. Go for a cloud-based solution. Then, engage with multiple vendors and request detailed demos from at least 3-5 potential providers. Include IT, production, and engineering teams in the selection process to consider all perspectives. 

If you’re a Shopify store owner, Prediko is a perfect choice as it combines both raw materials and finished goods tracking across your supply chain with its extensive inventory management and BOM features.

Step 3: Train staff on BOM maintenance & updates

Develop an exhaustive training program that covers important BOM management concepts, like system-specific features, detailed data entry rules, change management processes, team/department roles, and quality control protocols. Also include common tips and mistakes to avoid. 

Use actual examples from your company's operations to make the training more relevant and practical. Record all training sessions and create a library of resources to be accessed in the future.

Step 4: Integrate BOM with real-time inventory tracking

Now that you have a system in place to view both raw materials and finished goods on one interface, make sure to sync the BOM data with real-time inventory tracking. This will help improve production planning, procurement, and order fulfillment.

Step 5: Implement regular audits & updates for BOM accuracy

Regular audits and updates are a must for accurate BOM inventory management. Establish a detailed audit schedule that includes weekly data accuracy checks, monthly inventory reconciliation, quarterly BOM reviews, and annual full audits.

Keep verifying supplier information and cost in the audit processes. Create detailed audit checklists and rotate audit responsibilities among team members for fresh perspectives and objectivity. 

Prediko lets you update and modify the Bills of Materials(BOMs) as needed, ensuring your production line stays on track.

if you have more questions, you're not alone. Get answers to the 5 most pressing inventory questions from the Limited Supply Podcast in this article.

Best Practices for Optimizing BOM Management

To produce and manage your BOMs efficiently, it's important to keep in mind the following practices. 

Automate processes and integrate tools 

Integrate your BOM solution with ERPs to centralize data and sync BOM management with other critical functions such as procurement, production planning, sales forecasting, and financial reporting. This centralization makes the right materials and resources available when needed. 

Moreover, manual processes like entering part numbers, quantities, or updating versions are error-prone and time-consuming. Relying on them can be costly. Automation pulls accurate data from integrated sources so that your BOMs are always up-to-date and all stakeholders (internal teams and external suppliers) are working with the correct information. 

If possible, look for inventory management software that can do BOM management along with finished goods so that a seamless flow of data can be created. 

Prediko is an inventory management software for Shopify brands that lets you manage almost every aspect of your supply chain, from finished goods inventory and raw material tracking to purchase order management and sales forecasting.

Monitor Data in Real-time

Live data is important if you are executing the just-in-time inventory management strategy, where the stock arrives as it is needed for production.

Relying on outdated or batch-processed information can result in stockouts or excess inventory, both of which can be costly. Real-time monitoring lets you make quick, informed decisions and have the right materials on hand at the right time. 

It also helps you spot issues well in advance like discrepancies in inventory levels, overdue orders, or delays in the supply chain before they become bigger problems. 

Document and standardize processes

Without standardized processes, different departments may manage the BOM in different ways, leading to confusion and inconsistency. 

Begin by creating a master template or SOP that defines mandatory fields, naming conventions, and clear approval workflows. It should specify exact procedures for BOM creation, updates, and version control. This SOP allows all teams, whether in procurement, production, or inventory management, to be on the same page.  

Give relevant members from each team access to BOM management software and establish team communication channels, if necessary. You may also create video tutorials that walk employees through the procedure of BOM management. 

Do Forecasting and Demand Planning

Preplan your raw materials inventory and demand to avoid over-ordering materials or running into shortages. Use historical data, market trends, customer order patterns, and production schedules to forecast demand for raw materials and components. 

The more accurate your forecasts, the better you can plan your BOMs to meet production needs without excess waste. Plus, using the BOM for production planning ensures that you have the exact parts needed for each phase of production.

Choosing Right Software for BOM Inventory Management

Manually managing BOMs is not an effective approach and gets difficult as your production scales. To maintain accuracy, efficiency, and seamless communication across departments while managing BOMs, it’s important to make use of technology. 

A dedicated BOM software can simplify key stages in BOM management including updating and managing the BOMs, integrating these with other processes, and forecasting demand. 

Choosing the right software brings you a step closer to an optimized production process. 

Here are the key features you must look for in a BOM inventory management software 

1. Real-time inventory tracking‍

Choose a solution that gives you real-time visibility into current inventory levels across multiple locations. This enables you to track stock as it’s received, used in production, or transferred, preventing discrepancies and supporting quick decision-making.

2. Multi-level BOM support‍

The software should also offer multi-level BOMs for complex product structures with hierarchical component relationships. This feature allows you to precisely track both parent and sub-assemblies, providing a complete and detailed view of the production needs.

3. Integration capabilities with other tools (ERP, CRM)‍

Ensure the platform integrates with other business tools, such as ERP and CRM for seamless data flow between them. Integrations eliminate manual data entry and provide a unified view of business operations across different tools.

4. Customizable fields and flexible BOM management‍

The tool must offer configurable templates and field options to accommodate unique industry or company-specific requirements. With such a feature, you can easily modify BOMs, support version control, and quickly adapt to design changes or product variations.

5 Popular BOM Inventory Management Tools for Shopify Stores

Now that you understand the key features to look for in a BOM inventory management software, here are five popular options to consider.‍

No.1 👉 Prediko's AI Inventory Management App

Prediko is a full-fledged inventory management solution that enables you to plan and manage both finished goods and raw material inventory simultaneously.  

You get a unified dashboard to track and oversee all aspects of your supply chain– Raw materials, BOMs, purchase orders, finished goods inventory, and even sales forecasts. Its seamless integration with Shopify makes it a great choice for Shopify stores dealing with complex production workflows.

Key features 

• Import raw material data: Fetch your entire raw material data in bulk with a single import and easily manage your inventory.
• Multi-warehouse support: Optimize storage and distribution by managing raw materials across multiple locations.
• BOM creation and tracking: Quickly create detailed BOMs for each product and update them as needed to ensure production runs smoothly.
• Made-to-stock production orders: Create made-to-stock production orders to keep inventory levels ready to meet demand without overproducing.
• Demand planning for raw materials: Prepare for future inventory needs by forecasting the raw materials required to meet production and customer demands. (coming soon)
• Finished goods inventory management:  Plan and manage finished goods inventory with AI-powered forecasting, buying table, automated suggestions, inventory reports, and purchase order creation. 

Pricing 

Prediko offers three pricing plans; Starter at $49/month, Growth at $199/month, and Enterprise at $349/month. All plans include the same core features, with plans varying based on your business's revenue volume.

2. Katana

Katana is a comprehensive inventory software that helps businesses manage everything from from purchase of raw materials to the delivery of finished goods across multiple sales channels. 

Key features 

• Real-time data for production planning 
• Made-to-order and made-to-stock workflows 
• Supports the creation of multi-level and single-level BOMs
• Automated manufacturing cost calculations
• Shop floor app to access real-time shop floor insights

Pricing 

Plans start at $179 per month, billed annually.

3. MRPeasy

MRPeasy is a material requirements planning software specifically designed for small to medium-sized manufacturers and distributors, typically with 10 to 200 employees. It adds efficiency and brings together various aspects of manufacturing operations. 

Key features 

• Single-level and multi-level BOMs creation along with CSV uploads 
• Matrix BOM functionality to configure products 
• Automatically calculates order costs and checks material availability.
• Scheduling of manufacturing and purchase orders 
• Integrations to manage production planning, inventory, sales, and more in one place
• Version control system to record changes in your BOMs

Pricing 

Plans start at $49 per month.

4. Unleashed inventory management 

Unleashed is an inventory management tool designed for retailers, manufacturers, wholesalers, and distributors. It provides control over stock levels, production, and purchasing processes, enabling you to operate proactively and efficiently.

Key features

• Manage multi-level Bills of Materials
• File library to manage all the production documentation 
• Stock ordering for production based on your BOMs and existing inventory 
• Disassembly for selling individual products 
• Build kit sets or bundles on the fly
• Automated calculations of production costs to see precise profit margins 

Pricing

Plans start at $349 per month.

5. Craftybase

Lastly, we have Craftybase, which simplifies inventory management for small manufacturers by allowing them to easily generate accurate BOMs in minutes. It helps businesses track materials and update BOMs as needed, ensuring they always know exactly what’s needed for production.

Key features 

• Create and manage complex multi-level BOMs
• Track both raw materials and finished products
• Automated calculations for inventory and COGS 
• Easily forecast and schedule production requirements 

Pricing

Plans start at $24 per month.

Prediko’s inventory management solution stands out with its extensive and powerful BOM management features. Think it can fit right into your business operations? Start a free 14-day trial now and see for yourself. 

Imagine you're putting together a complex puzzle. In manufacturing, the Bill of Materials (BOM) is like the picture on the puzzle box. It shows you what the final product should look like and what pieces you need.

We quickly cover how to create, why BOM is crucial, and how you can use it to make things easier and cheaper, getting your products ready faster.

What is Bill of Materials (BOM)?

Think of a BOM as a unique shopping list for making a product. It lists down everything you need, like materials and parts, along with the right instructions on how to put all of them together.

There are different kinds of BOMs used at various stages of making a product, from designing it to actually building it.

Each type of BOM is tailored to meet the needs of different teams working on the product.

Why is Bill Of Materials Important?

A bill of materials helps in bringing clarity, managing stock, and figuring out costs. A well-made BOM makes sure you have everything you need when you need it without wasting time or money.

A well made BOM makes sure you have everything you need, when you need it, without wasting time or money.

How to Create a Bill of Materials Appropriate for D2C Manufacturing?

1. Start a clear and complete list with all the items required.

2. Add the information about where to get each item and how many you need- Supplier & Quantity.

3. The issue with creating a Bill of Materials manually or even in Excel is that it requires regular upkeep and people waste time on doing that.

For a high-growth brand, time is money. It’s better to invest in an app that actually helps you to quickly generate BOMs based on your raw materials and also manage them in a single place.

Changes happen often and it's essential to make sure every person on your team sees the latest version. Also, making sure that BOM works and integrates well with other systems in your business. But these challenges are easily manageable in a modern-day inventory management solution like Prediko. It just takes 3 steps to quickly create a Bill of Material within Prediko.

Managing BOM in the Time of Fast-Moving & High-Growth D2C Brands

The future is exciting. With new apps in the Shopify ecosystem with their own proprietary AI, creating and managing BOMs would become streamlined and automated (internet-connected devices).

All these new generation apps make it easier to keep track of materials, predict needs, and even spot problems before they happen, keeping the production line running smoothly.

Best Practices for Raw Material Management for Shopify Brands

Adopt best practices to help you achieve optimal raw material inventory management and prevent common pitfalls. Here are a couple of strategies:

1. Regularly review and adjust inventory levels

Regularly review your inventory levels to help identify trends, such as seasonal demand fluctuations or changes in production rates. Adjust inventory levels accordingly to ensure that you always have the right amount of raw materials on hand. This approach helps in maintaining balance between supply and demand.

If you're still unsure which inputs should be tracked as direct raw materials vs. general supplies, we’ve shared this in our post on how to find direct raw materials used in D2C brands.

Prediko's predictive analytics tools enable you to forecast demand accurately and adjust raw material inventory levels in real time, thereby reducing risk of stockouts or excess inventory. 

2. Create, manage and track raw materials within Prediko’s Shopify app

1. First step is to create all your raw materials within Prediko’s Shopify app.

2. Import raw materials using the Import function

3. See entire catalogue of your raw materials within Prediko

4. Create and track Bill of Materials (BOM) for D2C & B2B brands
   

3. Conduct regular audits

Periodic audits of your inventory helps in verifying the accuracy of your records and identifying discrepancies. This involves physical counts of materials or cycle counting, where a subset of inventory is counted regularly.
Regular audits ensure data integrity and help in identifying and addressing any issues promptly.

4. Collaborate with suppliers

Build strong relationships with suppliers to improve communication and lead to better terms and more reliable deliveries. Sharing production schedules and inventory levels with suppliers helps them anticipate needs and reduce lead times.

Collaboration also leads to more favourable pricing and priority service during high-demand periods.

During Covid-19 pandemic, businesses faced significant supply chain disruptions. The pandemic highlighted the importance of having strong supplier relationships and robust communication channels. Companies invested in these areas were able to navigate shortages and delays.

Prediko facilitates easier supplier collaboration by providing an interface where you can see all your suppliers, lead time and currency details.

One can easily enhance supply chain resilience, ensuring operations remain smooth even during unforeseen disruptions.

5. Strategic material sourcing

Material sourcing is a critical aspect of raw material management. It involves identifying, evaluating, and procuring materials from suppliers. The goal is to secure high-quality materials at the best possible price. But it's not just about cost. Timeliness, reliability, and supplier relationships also matter. Strategic sourcing can help you balance these factors. It can lead to better supplier partnerships, improved quality, and cost savings.

6. Selecting right suppliers

Choosing the right suppliers is a critical step. It's not just about who offers the lowest price. Consider factors like quality, reliability, and delivery times. Also, assess the supplier's financial stability and reputation. A good supplier is also a valuable partner. They help you navigate market changes and ensure a steady supply of materials.

7. Diversification of supply sources

Relying on a single supplier can be risky. Any disruption in their operations impacts business. Diversifying supply sources mitigates this risk. It ensures steady supply of materials, even if one supplier faces issues. Diversification also gives you more bargaining power. It helps negotiate better prices and terms.

8. Negotiating terms and prices

Negotiation is a key skill in material sourcing. It's not just about getting the lowest price. Consider other factors like payment terms, delivery schedules, and MOQ. Also, discuss contingency plans for supply disruptions.

Remember, negotiation is a two-way street. Aim for a win-win outcome that strengthens the relationship with the supplier.

9. Train Staff

Proper employee training ensures that staff understands the importance of accurate inventory management and are familiar with the systems and processes in place. This reduces errors and improves overall efficiency. Well-trained staff are equipped to handle inventory-related tasks, leading to smoother operations and fewer disruptions.especially when using material inventory management software that integrates across teams.