During the course of manufacturing a product that the company sells to its customers, there are often additional products that are created in the process. Some of these additional products are of significant financial value and therefore desirable to the company. The company can sell such additional products as standalone products, or even use them in other production processes. Additional products with significant financial value are known as co-products. Undesirable or low-value additional products produced in the manufacturing process are known as by-products. Both of these products are inventory-managed in the system. Co-products and by-products differ from scrap, in that scrap is charged off to the cost of production and is not inventory-managed.
When deciding to categorize an additional product as either co-product or by-product, the person who manages product-cost controlling in the company determines how these products are treated financially. Table 1 can help in the decision-making process and also the efforts involved in some of the relevant settings in the SAP ERP system.
ABOUT THE AUTHOR
Jawad Akhtar is the author of the SAP PRESS book Production Planning and Control with SAP ERP. He is the head of SAP delivery in AbacusConsulting, where he focuses on logistics and SCM issues.
This was first published in October 2013