Dynamics 365: BOMs or Formulas – What’s the Deal?

For manufacturers using Dynamics 365 for Finance and Operations, Enterprise Edition (D365), understanding the differences between Bills of Materials (BOM) and Formulas is crucial. Both are designed around the same idea, and therefore, share many similar concepts. However, a few key differences must be taken into account when deciding which one to use. This blog will address these differences and provide details on the appropriate scenarios to use each.



In the simplest terms, a BOM is a list of components (such as raw materials and sub-assemblies) required to produce a finished good. Items created from a BOM can usually be disassembled into the original components; generally, these items are not consumed or transformed in the production process. For this reason, BOMs are more common among discrete manufacturers than process manufacturers. Some examples of items that might be created from BOMs are chairs, desks, and manufacturing equipment. A BOM for a desk might look like:

  • 4 legs
  • 1 table top
  • 4 drawers
  • 18 screws

BOMs in D365

Follow the below steps to create a new BOM in D365:

1.) Navigate to Product information management > Bills of materials and formulas > Bills of materials

2.) Press the new button and enter the BOM name, Site, and Item group

  • Note if updating an existing BOM a new BOM version can be created instead

Bills of Materials Dynamics 365

3.) Define components of the BOM on the Bill of material lines section of the form

  • From this screen different items, configurations, warehouses and quantities can be specified for each BOM component
  • Other BOMs or Phantom BOMs can also be added as components

bill of materials lines

4.) After all of the components are added, assign the BOM to a production item. This tells the system which components are required when a producing this item.

Once the BOM has been setup and assigned to an item it can now be used on a Production order. The BOM components will be consumed during the production process depending on their flushing principle.



Formulas, though conceptually similar to BOMs, have a few key distinctions. A few of these differences are outlined below:

  • Unlike BOMs, Formulas are generally used by process manufacturers
  • Formulas are commonly used in Batch order rather than Production orders
  • Instead of consisting of “components”, Formulas more often combine different measurements of certain “ingredients”
    • Since these ingredients are combined, items that are created from a formula cannot easily be broken down into the original ingredients
  • Depending on other factors (order size, raw materials available, etc.), a formula can be scaled up or scaled down
  • Formulas allow the use of co-products and by-products
  • Formula lines can be allocated on a percentage basis vs designated quantities
  • Formulas permit the utilization of catch weight items

What defines an item created from a formula is that each of the ingredients are fully consumed and transformed into a new item. You cannot break an item that is created from a formula back into its original components. Think of using a formula for a production item like following a recipe to bake a cake. Once the ingredients are combined and the cake is baked, it would be very difficult to break the cake back down into flour, eggs, sugar, etc. The same goes for companies that use formulas to produce items such as paper or plastic.

Formulas in D365

Follow the below steps to create a new Formula in D365:

1.) Navigate to Product information management > Bills of materials and formulas > Formulas

2.) Give the Formula a name, define the site and item group

New record formula header dynamics 365

3.) Define the different ingredients that make up the Formula on the Formula line section

  • There are more fields on the formula lines screen than on the BOM line screen. Each item on the formula can be specified as co/by-products, fillers, active ingredients and substitute ingredients. Unit of measure, how many units are created in a batch, and percent of the formula can be specified here. These numbers can be used in conjunction with potency management to model, predict costs, and specify potency percentages.

formula lines dynamics 365

Once a formula has been setup, you can now use this formula in a batch order by navigating to Production control > Production orders > All production orders > New batch order. When a user selects a production item that has an associated setup formula, the formula will automatically populate on the production order.  The order will then consume the formula components to create the new batch quantity.


For simple process manufacturing processes, BOMs might be the better choice. However, Formulas give the user more tools to accurately predict and model their batch order process.  Overall, the decision to use BOMs vs Formulas comes down to how detailed the process should be. Both BOMS and Formulas employ masters, versions and lines in the product structure. However, the Formula approach also supports additional functionality such as substitute ingredients, co/by-products, catch weight items and the coordination of bulk/pack production. Overall, a company should evaluate their needs and requirements for their production process. Formulas provide more tools than BOMs yet BOMs may satisfy a company’s requirements and provide all necessary functionality.

In the next blog, we will discuss the difference between batch orders and production orders!

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