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Production personnel may face materials shortages due to any number of materials planning oversights. One area that planners often overlook is accounting for scrap. Scrap is the excess material, or production waste, created during various production steps. For example, producers of fruit juices or tomato ketchup always find rotten or unripe fruits or vegetables that they must discard.
Scrap differs from a co-product or a by-product, which is an additional product created during the production process. Co-products and by-products are inventory-managed and are considered part of the cost of manufacturing the primary product. In contrast, a scrap is non-recoverable material loss that adds to the cost of production. Scrap is not inventory-managed.
To account for materials waste, planners can maintain information on different scrap types in SAP ERP. This information may be based on past experience or on available historical data. SAP Materials Requirements Planning (MRP) automatically accounts for various scrap types and creates procurement or production proposals (commonly known as planned orders).
Take a look at the following three scrap types that occur during production, which the SAP ERP system can track and use to improve materials planning:
- Assembly scrap is waste that occurs during the production of an assembly, which is a group of components that form a whole product or component of a product. To produce 100 bottles of tomato ketchup with 2% defined as assembly scrap increases the quantity of tomato ketchup to be produced to 102 bottles. Correspondingly, accounting for assembly scrap can increase the raw and packing materials required.
- Component scrap is the waste of raw material during the production of a product part. If the planner tracks component scrap, then the system automatically increases the amount of raw or packing material required to produce a product by the predefined percentage, but does not increase the quantity of the finished good.
- Operation scrap refers to the specific operation or production step during which the material waste occurs. This enables the system to plan for additional material requirements whenever a product goes through a specific operation.
Later, when production users record the actual scrap quantities that occurred during production, material planners can use reports and analysis to compare the planned quantities versus the actual quantities. This comparison helps in making informed business decisions and can improve the accuracy of materials planning data.
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