2.5.2 Average Bill of Materials (ABOM) method

The ABOM method is a process designed to help simplify reporting by using averages to determine weights of each material for groups of products with like packaging.

For example, as a grocery retailer and a first importer, you may need to report on several varieties of frozen dinners that come in slightly different sizes (e.g. 150g and 250g). Each frozen dinner has similar packaging: a boxboard outer box, a PET plastic tray and a plastic film cover. Rather than weighing each material for each variety, you may use the ABOM method to calculate the average weights of the various materials of all the frozen dinners (ABOM group) based on a representative sample.

To create an ABOM group it is essential that the packaging of products within the group consist of similar PPP materials. Typically, a company will examine each detailed account level in its detailed chart of accounts (COA is a financial organizational tool that provides a complete listing of every account in an accounting system) to determine if products in a particular group are considered similar in terms of type of packaging materials.

For greater accuracy, once ABOM groups have been defined, they are often divided into sub-groups with a sample product selected from each sub-group. The sub-group samples are used to represent the entire ABOM group.

The section below outlines the steps in the ABOM process using example spreadsheet tables. The ABOM method assumes that the sales quantities of each product within the group are known, allowing for a distribution of packaging and paper product composition to be weighted relative to its percentage of total sales.

CSSA endorses the use of weighted-average ABOMs.  Reports that are based on straight-average ABOMs will be assessed on a case by case basis.

Steps to Build and Calculate an ABOM

Step 1: Identify products with like-packaging

As an example, assume a company is obligated to report on total sales of 500,000 units from 100 SKUs of cereal in boxes of various sizes. Even though there are several varieties of cereals in several sizes of boxes, all the packaging is composed of the same or similar materials: an outer box and an inner liner bag.  Cereal such as oatmeal packaged in a cardboard tube with metal caps cannot be included in this ABOM group as it contains different packaging materials.

It is important to note that it is likely that multiple ABOM groups would be necessary to represent the assortment of packaging materials used for different products sold in each department within a company. For example, a fishing lure with a bag and a sticker cannot be grouped with pontoon boats which would include corrugated cardboard, inner plastic bags, paper instruction manuals, etc. even though they are both sold in the fishing department.

Step 2: Choose a representative sample of products

Using the example of 100 SKUs of cereal, representative samples will need to be selected for the different product sizes and brands. This requires the creation of sub-groups to ensure samples are representative of the entire group. The number of sub-groups in an ABOM group should be relevant and reasonable.

As a starting point, the SKUs can be sub-grouped based on product weight, with consideration to the product packaging dimensions. A 500g box of granola will have a smaller box and bag as a 500g box of puffed rice.

In this example, a review of the ABOM group has identified five sub-groups of different sized products.  From each of the five sub-groups, one SKU should be randomly selected to represent the sub-group’s packaging materials. All packaging items from each sample item need to have accurate weights.

Step 3: Record the sales quantities in each sub-group and determine the weight for each of the sample’s designated materials

For each sub-group, the table below captures the total sales quantity of all SKUs in that sub-group (Column A) and the percentage of the group’s total sales that each sub-group represents (Column B). For each of the five sample SKUs selected from the sub-groups, the table includes the weight in grams of the boxes (Column C) and liner bags (Column D).

 

Step 4: For each sub-group, multiply the weight of each material by the sub-group’s percentage share of sales

Using the data from Step 3, material weights from each sub-group’s sample (Columns C and D) are multiplied by that sub-group’s percentage of total sales (Column B). The resulting amounts are added to get the weighted average of each material to represent the ABOM group.

 

Step 5:  Multiply the weighted average for each material by the total units sold

In this example, the entire ABOM group had total sales of 500,000 units. Multiply the weighted average for each material from Step 4 by total sales to determine total grams of each material.

 

Step 6: Convert to Kilograms

As materials are reported in kilograms, the final step is to divide gram weights in Step 5 by 1,000. The resulting amounts are the weights to be reported for the entire ABOM group.  In this example, the material reporting categories would likely be Boxboard for the box and Plastic Laminates for the bag.

Please contact NSS for questions about or assistance with the ABOM method.