A food manufacturer creates a Bill of Materials (BOM) for a product. The BOM shows that 1,000 units need 500 kg of raw material. During production, the team uses 525 kg. This may happen because of material loss, changes in raw material quality, or unexpected waste.
The question is not only, "Why did we use more material?" It is also, "How should the system record this difference?" In ERP, the BOM provides the planned material quantity for a Work Order. When production starts, the actual quantity issued to manufacturing is recorded through stock transactions.
If the team uses 525 kg instead of the planned 500 kg, the extra 25 kg can be recorded as actual consumption. This keeps the raw material stock and production records aligned with what was used.
What Does the BOM Actually Represent in ERP?
The Bill of Materials (BOM) represents the planned material need for manufacturing a product. It serves as a standard reference for production, costing, and material planning.
- Raw materials required: The components needed to manufacture the item.
- Quantity required: The standard quantity needed for the specified production quantity.
- Finished product: The item being manufactured.
- Production structure: Operations, workstations, and related production costs.
- Multi-level BOMs: Sub-assemblies that form part of a larger finished product.
The BOM defines what should be used. Whereas Production records show what was actually used. This difference becomes important when actual consumption does not match the standard quantity defined in the BOM.
Why Actual Material Consumption Can Differ From the BOM
Differences between planned and actual material use are common in manufacturing.
- Normal Production Loss: Some processes naturally cause material loss. This can happen during cutting, mixing, heating, or evaporation.
- Raw Material Variation: Raw materials can differ in moisture, density, or quality. These differences can change how much material is needed.
- Process Changes: Changes in machine settings, temperature, or production speed can affect material use.
- Scrap and Wastage: Machine problems, damaged materials, and setup losses can lead to extra material use.
- Incorrect BOM Quantities: The BOM may be based on old production data. As a result, its quantities may no longer match current production needs.
Not every variance indicates a problem with ERP. Often, the variance reflects what actually happened during production.
How ERP Records the Difference
ERP connects the planned production needs with the actual material transactions through a series of production documents. Each step has a different purpose.
1. BOM Sets the Planned Requirement
The BOM stores the standard materials and quantities required to manufacture a product. If the BOM requires 500 kg of raw material for a production quantity of 1,000 units, that quantity becomes the planned requirement for production.
2. Work Order Turns the Plan Into Production
A Work Order defines what needs to be manufactured and the quantity to be produced. The required materials are derived from the selected BOM and the production quantity. This gives the production team a standard against which actual material usage can be compared.
3. Recorded Material Consumption
During production, the quantity actually issued to production may differ from the planned quantity. The additional material can be recorded through the relevant stock transaction used in the manufacturing workflow. The actual quantity should reflect what was issued rather than being changed simply to match the original BOM quantity.
4. Inventory Updates
When the material issue is submitted, the stock transaction records the quantity actually moved from the raw material warehouse. This keeps the stock record closer to the physical movement of material.
What If the Extra Material Becomes Scrap?
When material usage increases, manufacturers also need to understand how much material became finished output and how much became scrap.
Planned Material: Standard input defined by the BOM.
- Actual Material Consumed: Material actually issued for production.
- Usable Output: Finished goods that meet the required specifications.
- Scrap / Waste: Material that cannot be used as part of the intended finished output.
- Yield: The usable output compared with the material input or production standard being measured.
This information gives the production team more context than simply seeing that 525 kg was consumed. It can help identify whether the difference came from normal process loss, excessive scrap, raw material quality, or a production issue. In ERP, scrap can be recorded as part of the manufacturing stock transaction. This keeps the material movement and resulting quantities connected to the production record.
How Material Variance Affects Inventory and Costing
Material variance can affect both inventory and production costs. For example, if 525 kg of material is used but only 500 kg is recorded, the system may show more stock than is actually available. Extra material use can also increase the actual cost of production. If this usage is not recorded, the production cost may not show the true cost of the materials used.
Actual stock transactions also affect inventory records and valuation based on the configured accounting method. Recording the actual material used in production makes it easier to review costs for a Work Order or cost centre.
For this reason, material variance should be recorded in the production process instead of being tracked separately in a spreadsheet.
What Manufacturers Should Check When Variance Keeps Happening
When the same material variance keeps appearing, ERP can help trace where the difference is coming from. The main areas to review are the BOM, Work Order, stock records, scrap, and batch data.
1. Review the Work Order
Check the BOM quantity against the actual material used in the Work Order. If the same difference appears across several Work Orders, the standard BOM quantity may need to be reviewed.
2. Check Stock Transactions
Check the Stock Entries used for material issues. The recorded quantity should match the material physically issued to production. This also helps keep raw material stock and production costs accurate.
3. Check Scrap
ERP can record scrap and production output as part of the manufacturing process. Reviewing these records can show whether extra material is being lost during a particular production stage.
4. Check UOM (Unit of Measure)
Review the item setup and UOM used for purchasing, storing, and consuming materials. Incorrect settings can cause differences between the quantity purchased and the quantity used in production.
5. Lot Records
For batch-managed materials, compare production results across different batches. If higher consumption occurs repeatedly with a specific batch, the issue may be related to the raw material.
6. Review Cost Centres
If extra material is used regularly, review the related production costs through job costing and cost centre reports. This helps show how material variance is affecting the cost of individual production jobs.
Setting Up ERP to Track Material Variance
When material variance keeps happening, checking the right ERP records is only the first step. Those records also need to be set up correctly so they reflect the actual production process. This is where the ERP implementation process becomes important. It starts with mapping how materials move through purchasing, warehouses, and finished goods. Work Orders, stock transactions, and production steps can then be configured around this workflow.
Inventory settings are also important. Items, warehouses, UOMs, and batch or lot tracking should be configured correctly. This helps manufacturers trace material from the warehouse to production and identify where differences occur. The costing side also needs to be connected to production. Job costing and cost centre reporting can help show how extra material usage affects production costs. A proper implementation also includes data migration, configuration, testing, user training, and a parallel run before going live.
Production teams can test real transactions during this stage and identify issues before the system becomes part of daily operations. With these areas set up correctly, manufacturers can compare planned material usage with actual usage without relying on separate spreadsheets.
This also helps reduce common mistakes such as changing the BOM after every production run, ignoring scrap, or tracking variance outside ERP.
Common Mistakes When Handling Material Variance
- Changing the BOM Too Often: One unusual production run does not mean the BOM needs to be changed. Look for a repeated pattern first.
- Ignoring Scrap: Not recording scrap makes it harder to see where extra material was used or lost.
- Using Separate Spreadsheets: Tracking material variance outside ERP can separate production data from inventory records.
- Ignoring Repeated Differences: Regular differences between planned and actual usage may show a problem with the BOM, production process, or raw materials.
Material consumption does not always match the BOM; that is a normal part of manufacturing. The important thing is to record the actual material used so inventory, production, scrap, and costing stay accurate. With proper ERP implementation, manufacturers can set up Work Orders and stock transactions to track these differences clearly. This makes it easier to understand why material usage changes and improve the production process over time.
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