Introduction – What is ‘scrap’ in manufacturing?
In a lot of manufacturing process we have a side-product that can be used again. We call such products ‘scrap’. The best example is sawdust that appears as a wood processing result, and it can be used for making Particle Boards.
In this blog, we will take this exact example and explain the processing flow through ERPAG.
In order not to explain everything from the beginning, we created a few items in our products and services list.
Note: ‘Scrap’ and ‘Reverse – bill of materials’ shouldn’t be mixed up, as those are two entirely different processes. You can read more about reverse option on this link: https://www.erpag.com/news/reverse-bom
Defining Scrap in BOM
In order for an item to be ‘scrap’, first you have to create it as a regular product.
You don’t have to define a supplier for this product, or create a BOM for it. If you sell scrap to a third party, you can define a selling price.
Defining scrap takes place in each BOM (bill of materials) where the product is actually a side-product (scrap). In finished product (or sub-assembly) you defined it’s side-products as well. In ERPAG, we allow one finished product to have more than one side-products.
We are defining which product is a ‘scrap’ in BOM by making a selection in the ‘type’ column. After that, you choose the product from the drop-down list. In our example, we will choose ‘Sawdust’, while the finished product will be ‘Board’. The component will be ‘log’ and the work operation will be ‘sawing’.
After recording the item, you will notice that the quantity of ‘scrap’ is a negative number.
We did this intentionally, to inform you that this product will increase your stock. It’s a reversed product from decreasing your stock. When you are in the ‘edit mode’, enter the positive values, while ERPAG will turn them into negative ones when upon recording the changes. This might seem a bit confusing someone who is not an experienced mathematician, but, in the further manipulation it will be more logical. We promise!
Scrap doesn’t have an estimated cost and amount, because we don’t want it to affect estimated cost of the finished product.
The picture above is an example of a multi-level BOM (bill of materials). Where scrap is a part of a sub-component.
Standard work order and scrap
There are two types of work orders in ERPAG – ‘Standard’ and ‘Based on – BIll of materials’.
‘Standard’ work order is a custom work order. It gives you the ability to select an item that has a related BOM (bill of materials). You can select practically unlimited number of different BOM based products here.
In our example, we added 2 pcs of ‘Board’ item.
Item ‘Sawdust’ will be added as a scrap in the ‘output items’ (reversed from ‘input items’ / negative value in BOM setup).
Note: Scrap doesn’t have a stock price (it’s equal to 0) when it arrives to stock, as work order result. That’s because it’s complete value is included in the finished products. Otherwise, the cost would be double.
Scrap in BOM based work order
Unlike the previous one, this type of work order should have only one finished output (or sub-component).
In our example, we will take a multi-level item ‘The red board’.
And we will mark it as ‘exploded’ so our BOM expands to a work order with direct components.
In this case, in output items we will get our related scrap.
Through the option ‘deliver finished goods’ we are delivering output items to our stock (both finished product and scrap).
Note: Through delivering output items to stock, the quantity can be different than the planned one. With this option, we are enabling the scrap amount to vary, if it’s higher or lower than planned amount. The appropriate quantity will land to our stock!
What to do next with our scrap? Write it off, sell it or re-use it? It depends from company to company.
In our example, we will re-use it as a component to build a new product!
We achieve this by taking the item (which was a scrap in previous BOMs), and selecting it as a regular component.
In work order, we are doing everything regularly, just like with other finished products.
Note: Estimated cost on a scrap item should be 0, in most of cases. But, if you get this item from your supplier, then you should also enter the purchase price, in order to have more precise costs. Actual cost will be generated according to the stock card. Eg, when producing it it will be 0, and when it’s supplied by a vendor it will be calculated according to the inventory costing method (weighted average of FIFO).