Mastering Item Management: Strategies for Efficiency and Organization

Published on Mar 2nd, 2025

For eCommerce businesses that manufacture products, item management software can help automate processes and bridge the gaps between order and inventory management. But what exactly is item management?

Item management software, often integrated into Enterprise Resource Planning (ERP) solutions and sometimes Inventory Management Systems (IMS), enables businesses to create product records, define rules for assembling products, and calculate associated costs. These capabilities are generally categorized under two key terms: "BOM" (Bill of Materials) and "COG" (Cost of Goods).

What are BOMS and COGS?

A BOM is simply a list of all component materials and their amount that make up a finished good, also referred to as an assembly item. The component materials are usually a combination of raw materials and non-inventory items sometimes categorized as “consumable” or “expendable”. You can imagine the BOM breakdown for an assembly item looking like a tree when turned on it’s side. It’s important to note that raw materials and consumables are not the only components of assembly BOMS. It is common in these types of software solutions to allow sub-assembly items to be components of other assemblies. This is a standard approach that supply chain and manufacturing teams use to build components across multiple finished goods to ensure quality standards, optimize raw material consumption, and keep product brands similar if they vary on only a few variables like size and price.

A COG is a record associated with an item that tracks the cost breakdown for that item. These costs are all of the direct costs in the form of raw materials, labor, production, overhead, shipping, and perhaps packaging. It’s important when implementing a quality item management solution that indirect costs such as sales and marketing expenses are not associated with item COG records. These fall under operating expenses and there should be a distinction between them. A benefit of having them separate is having a higher inventory valuation accuracy, meaning the per-unit inventory cost is more easily trackable over time. This can lead to a better understanding of the profit margins per product. It’s also a general standard in accounting to split these costs up and creates more accurate financial reporting.

Why are BOMS and COGS important?

Bill of Materials (BOM)

A well-structured BOM ensures that every required item is accounted for. This helps manufacturers plan purchases and production runs efficiently. It allows businesses to:

• Standardize production by maintaining consistency in materials and components
• Reduce errors by ensuring that all necessary parts are available before production begins
• Streamline procurement by automating the submission of work orders and purchases when stock levels are low

Cost of Goods (COG) Management

Effective COG management enables companies to calculate accurate production costs, which is crucial for pricing strategies and profitability. By linking the COG records to inventory items, businesses can:

• Ensure accurate pricing that reflects all direct costs for the item
• Identify cost-saving opportunities by analyzing material usage
• Monitor per-unit profit margins in real-time

Why is Item Management Important?

Without item management solutions, companies wouldn’t be able to automate critical pieces of the inventory and supply chain process. For example, when an order is placed, how can the software update the inventory correctly if it doesn’t know about the raw materials needed to build the product via a BOM? Linking raw materials, non-inventory items, and assembly items together through software is essential for companies that manufacture their own products.

A proper item management system ensures that every component in the Bill of Material is tracked for an assembly item. This allows businesses to efficiently manage stock levels, reduce waste, and prevent production delays. Where this becomes especially important is for companies that rely on just-in-time manufacturing, when accurate tracking of components is crucial for avoiding supply chain disruptions.

Bridging the Gap Between Orders and Inventory

One of the biggest challenges manufacturers face is ensuring that inventory levels are optimized to meet demand without over/under stocking. Item management connects order fulfillment with raw material tracking, ensuring that when an order is received, the system can automatically check if all required components are available.

This connection helps businesses:

• Prevent shortages by tracking raw material usage in real-time
• Reduce excess inventory, minimizing carrying costs
• Improve production planning and scheduling through demand forecasting
• Increase accuracy in cost tracking, ensuring a clear view of profit margins

Versioning

Item management cannot truly be utilized without version management of BOM and COG. Without it, companies struggle to track which parts are being used in specific product batches, making it difficult to manage warranty claims, customer service repairs, and recalls. For example, if a customer reports a defect, support teams must know the exact BOM version used to manufacture their product to provide accurate replacements—whether it’s a specific chip in an electronic device or a brake component in a car. Also, if a supplier issues a recall on a faulty part, businesses need version tracking to identify and isolate affected units, preventing costly mass recalls and ensuring compliance with safety regulations. On the cost side, COGS fluctuate due to raw material price changes, labor costs, and supplier negotiations. Without versioning, businesses can lose insight into profitability shifts, making it difficult to adjust pricing strategies or control margins. Historical reliability of data is a key factor in successful business operations. Additionally, version control ensures multi-site operations and global supply chains remain synchronized, preventing inconsistencies in product quality and customer experience.

Conclusion

For companies managing a manufacturing supply chain, item management is the key to synchronizing order fulfillment with inventory production. By integrating BOM and COG record management, businesses can optimize their supply chain, reduce waste, and ensure that products are built efficiently. In a world where manufacturing efficiency directly impacts profitability, having a robust item management solution isn’t just an advantage—it’s a necessity.