Reduce Costs with Better Handling of Scrap Master Data Elements

  • by Subbu Ramakrishnan, SAP Finance Manager, Sandoz, Inc.
  • April 29, 2009
SAP ERP Central Component 6.0 offers several scrap master data elements. Understand the purpose of these master data elements, how the various scrap fields work together, and when and how to use master data elements to get the desired business results.
Key Concept

Scrap means different things to different people. The most common business meaning of scrap is a product that does not meet the required production quality and needs to be disposed of because it has minimal value. If manufactured products do not meet the required quality standards, there is a loss of component materials as well as the labor and machine time expended in the production process. Another meaning of scrap is a material that is a by-product of production and is disposed of at minimal value. The value of the by-product is not significant in terms of the total cost from a manufacturing standpoint (unless you are in the chemical manufacturing or oil refinery business).

In the manufacturing sector, raw materials account for 50% to 60% of the cost of the product. The remaining 10% to 20% (discounting overheads) is accounted for by labor cost and machine cost. With the cost of raw materials rising steeply in recent years, material scrap reduction has never been more important from a cost controlling standpoint and for sustained plant performance.

Focusing on scrap resulting from poor quality component materials or finished goods, I’ll look at the various scrap master data elements that the system uses to capture the scrap cost in the total product cost as well as for manufacturing resource planning (MRP). This information can help you perform the scrap analysis for future cost reduction.

The various scrap master data elements in SAP systems are:

  • Assembly scrap in MRP 1 view of the material master

  • Component scrap field in MRP 4 view of the material master

  • Component scrap field in the bill of material (BOM)

  • Operation scrap field in the BOM

  • Operation scrap field in the routings

Subbu Ramakrishnan

Subbu Ramakrishnan is a chartered accountant and holds a master’s degree in finance. Prior to 1995, Subbu worked in various finance and accounting roles. In 1995, he began working with FI and CO in SAP R/2 and since then has implemented those and other SAP components in more than 60 manufacturing plants and in a variety of industries. He has extensive knowledge of the FI and CO components in SAP ERP Financials and is an expert in integrating the Production Planning (PP), Sales and Distribution (SD), and Plant Maintenance (PM) components of SAP ERP Financials.

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