Product Recipe (sometimes also called bill-of-materials or simply BOM) is a list of ingredients (materials and subassemblies) and the quantities you use in order to create your product. Recipes can be created for products and their variations. You can create a specific recipe for each product variant.
You can add both materials and subassemblies to your Product Recipes. In Katana, subassemblies are products, not materials. Each product can be a subassembly and also sold to customers simultaneously. There is no difference between products and subassemblies in Katana.
Using Product Recipes enables:
Automatic inventory adjustments - Katana will make automatic inventory adjustments based on the list of ingredients for a product (which is based on the Product Recipe by default) when you create and complete Manufacturing Orders.
Manufacturing cost calculations for your products - the cost of your product includes materials and subassemblies cost, which are calculated based on the quantity used and the Average Cost of the ingredient in stock. The other main part of manufacturing cost comes from your Production Operations.
Checking the availability of materials for Manufacturing Orders - when creating Manufacturing Orders, you can immediately see whether the required materials and subassemblies are available in stock. If ingredients are not available, you can conveniently create relevant Purchase Orders for materials or Manufacturing Orders for subassemblies.
You receive a Sales Order for 1 table and need to start making the product. Let's say your Product Recipe for the table includes 1 tabletop, 4 legs, and 8 screws with Purchases Prices of 100 USD, 20 USD and 0.1 USD, and supply delivery times of 1 day, 2 days and 0.5 days, respectively. In the inventory, you have 3 tabletops available, but do not have any legs or screws.
Note: The ingredients cost of the product is calculated based on the Average Cost of materials and subassemblies in stock. If the "In stock" quantity for an ingredient is zero and, thus, there is no Average Cost, then a default Purchase Price of a material or a manufacturing cost of a subassembly is used in cost calculations. For simplicity purposes in this example, let's assume the Average Cost of materials is equal to the Purchase Price.
The manufacturing cost of your product will include the cost of these materials (100 + 20*4 + 8*0.1 = 180.80 USD). The cost of Production Operations will also be added to the manufacturing cost.
When you create a Manufacturing Order, you can see that you have the relevant amount of table tops available. But you do not have enough legs or screws, so you need to create Purchase Orders for those materials.
When you complete the Manufacturing Order, your inventory will be automatically decreased by the amount of required materials and increased by 1 table.