Step 1: Identify products with like-packaging.
Let’s assume your company is obligated to report for approximately 100 SKUs of cereal in boxes ranging from 250g to 750g in size. Even though there are several varieties of cereals in several sizes of cereal boxes, all the packaging is composed of the same materials: a Boxboard outer box and an inner liner made from Plastic Laminate.
Step 2: Choose a representative sample of products.
Within your 100 SKUs of cereal boxes, you observe that there are 10 different sizes of boxes. Six of them fall into what you consider “large;” four of them are “medium.” Within the group, you identify one of the boxes as a good representative sample (the circled box below will become your Sample A). You will apply the same principle of observation to select the best sample for the large sized group.
You now have two sample products: Sample A which represents the various cereal boxes in the medium sized group, and Sample B which represents the various cereal boxes in the large sized group.
Step 3: Record the weight of A and B for each of the obligated materials, in this case Boxboard and Plastic Laminates.
You’ve recorded that A’s Boxboard weighs 63.8 g while B’s weighs 98.8 g. For Plastic Laminates, A’s weighs 9.3 g while B’s weighs 11.7 g.
Step 4: Determine your representative samples’ sales ratios relative to one another.
Next you will determine the percentage of total sales of the representative samples with respect to one another. If you determine that your medium cereal boxes (A), for instance, are sold 35% of the time compared to large cereal boxes (B) at 65%, then these are the percentages you will need to calculate your weighted averages.
Step 5: Multiply the weight of each material that you obtained in Step 4 by the representative sample’s percent share of sales.
A’s Boxboard weighs 63.8 g. Multiply that by its percentage of total sales (calculated in Step 4) to obtain a weighted amount for Boxboard. Repeat this step for each applicable product and its packaging material.
Step 6: Sum each material’s weights for each material category.
When you add the weighted material categories for A and B, this should provide you with a weighted average for both Boxboard and Plastic Laminates. As such, 86.6 g and 10.9 g are the weighted averages for each of the respective materials. See chart 188.8.131.52 below for more detail.
Step 7: Multiply the weighted averages for each material category by the total units sold.
- Multiply the weighted average of 86.6 g by the number of units sold that are in your ABOM group, 500,000.
- You should arrive at 43,300,000 g or 43,300 KG as the amount to report under Boxboard.
For Plastic Laminates:
- Multiply the weighted average of 10.9 g by 500,000 units sold.
- You should arrive at 5,450,000 g or 5,450 KG for Plastic Laminates.
For additional information on more complex product groupings, and support on building your company’s ABOMs, please contact Steward Services by email at email@example.com.