Scrap and waste

  • 5 minutes

Scrap, or waste, is excess that occurs during the process of manufacturing an item and cannot be used. It is often factored as an ongoing company expense. Businesses typically strive to design processes that produce the desired quantity of products with minimal scrap and overhead.

Scrap and other overhead costs occur in the following scenarios:

  • Wrong machine types or sizes are used
  • Processes are not controlled correctly
  • Wrong types of materials are used

Supply Chain Management allows you to manage and calculate scrap. However, before applying the settings, you must have a working knowledge of the scrap percentages that exist in your production and the relevant factors that pertain to your process.

Scrap settings

You can apply scrap settings in Supply Chain Management on the following levels:

  • Scrap percentage set on the BOM - This setting is used when the scrap results from the item being produced, not from the machine it is being produced on. The system generates the requirements for production orders based on this percentage, regardless of where the item is produced.
  • Scrap setting configured on the Resource - If you want to define scrap that is produced by a specific machine, the scrap setting must be configured on the resource. You can define the expected over-consumption for an operation by entering a value in the Scrap percentage field on the resource.
  • Scrap set on the route - In addition to managing scrap types on BOMs and resources, you can use Supply Chain Management to manage scrap on routes. To use this method, specify a scrap percentage for operation(s) in which scrap is expected.

BOM scrap

Scrap settings on the BOM are defined as an expected amount of extra material or waste that is left over after the manufacturing of a BOM component. Because it is an ongoing company expense, unused material costs are tracked and calculated.

For example, the production team at a company has been monitoring the scrap that is produced during television production. It seems that as the company's orders have increased, the scrap has increased, but it has not been considered in the cost of the finished goods. The production team has requested a meeting with the design team to set up BOMs with the appropriate scrap.

BOM scrap types

You can specify scrap when calculating the consumption of raw materials that are used in the components of a BOM. Supply Chain Management includes two types of BOM scrap:

  • Constant scrap - Specify the constant value if it is to be calculated only one time on the BOM line, regardless of how many items are produced. Scrap is calculated in the unit that is specified in the BOM line. Scrap is used to calculate adjusted raw material consumption in BOM lines.
  • Variable scrap - Specify a variable scrap value. This percentage value is calculated as a percentage of the BOM line quantity, where 10 percent is written as 10.00. Scrap is used to calculate corrected raw material usage in the BOM lines.

Consider the following scenario for constant scrap:

A company produces t-shirts with a logo printed on them. Every time that a new production is to start, one t-shirt is used as a test first, regardless of the amount produced. In this case, you can specify a constant scrap of 1 by entering 1.00 in the Constant scrap field.

Consider the following scenario for variable scrap:

When you are manufacturing a bike frame, 5 percent of needed pipe ends up as scrap (which cannot be used elsewhere). In this case, you can specify a variable scrap of 5 percent by entering 5.00 in the Variable scrap field.

Resource scrap

You can also specify scrap settings on the resource. To make this specification, define the expected over-consumption for an operation by entering a value in the Scrap percentage field on a resource on the Resource page.

The defined scrap percentage must be positive. The over-consumption is included in the calculation of material consumption and in the resource consumption for the current operation.

Use the error percentage to calculate the quantity to be started for each production. An error percentage means that more materials and resources must be used to produce the scheduled quantity.

After you have defined the scrap settings for the BOM and resource, these settings work together so that production personnel have the correct parts to produce the end items in demand. Without the ability to set up scrap settings in Supply Chain Management, the organization will continuously experience shortages.

Route scrap

In addition to managing scrap on the BOM and in resources, Supply Chain Management also helps manage scrap on the routes. To manage scrap on the routes, you can specify a scrap percentage for each operation(s) in the route on which scrap is expected.

When you specify a scrap percentage for a specific operation in the route, you essentially tell the system that more material and resources are needed to produce the scheduled quantity. When the route is updated, the scrap percentages for each operation are accumulated into a total scrap percentage for the entire route.

Costing of scrap/waste

Costing is used to calculate production costs when it is reported as finished. Costing calculates the actual production costs based on actual material and time consumption. When a production order has error quantities, the scrap method specifies how the item and resources error quantities must be posted.

To set up how scrap should be posted, select Production control > Setup > Production control parameters > Standard update tab. Select the method for posting item and resource consumption that is used for the error reported quantity.

The two possible settings for the Scrap method field are:

  • Allocation - The calculated scrap is allocated as an added expense on the quantity of finished items that are reported as finished.
  • Scrap account - The calculated scrap is posted in the ledger to the specified account.