Effectively Manage Scrap in Your Production Processes

  • by Jawad Akhtar, Head of SAP Delivery, AbacusConsulting
  • February 14, 2013
Discover how you can manage assembly and component scrap at various levels in an SAP system, including the master data and transactional data levels. In addition, see how to record scrap at the cost center level.
Key Concept
Successfully assigning assembly and component scrap in master data enables an SAP system to not only consider scrap during production planning—either by increasing production quantity to account for assembly scrap or increasing the issuance quantity to account for component scrap—but also during procurement planning. During the Materials Requirement Planning (MRP) run, the system takes the scrap percentage into account and reflects it in the planning proposals generated.

Organizations are often faced with problems relating to scrap materials, whether from defective finished goods produced, excess consumption of raw material due to wastage in the production process, or operational inefficiencies. These situations lead production and procurement planners into a quagmire, as they end up having to produce or procure materials to fulfill production targets. SAP offers several options to enter scrap or waste details at every level, be it at the assembly or at the component (raw material) level, so that production and procurement planning is closely synchronized with actual and practical situations. I go over these options, all of which integrate completely with the production process. I also show how you can record scrap details independent of the production or procurement process.

Based on historical data or practical experience, a user can maintain assembly and component scrap as master data, which subsequently facilitates production and procurement processes. Scrap is treated differently in an SAP system than it is treated physically by virtue of its definition. Scrap in real life can be available or even sold, but is not treated as inventory in the system. Assembly scrap is defined as a completely unusable finished or semi-finished product for which the raw material was issued in accordance with a bill of materials (BOM). Assembly scrap is different than co-products or by-products, which are inventory-managed in SAP. A component scrap allows the system to increase the issuance quantity of the component against a production order by the defined percentage to account for scrap or wastage during production.

Note
To learn more about more about co-products or by-products, refer to my article How a Co-Product Differs from a By-Product.

I’ll start by reviewing the master data of both finished goods and raw material to show you how and where assembly and component scrap percentages are defined. After that, I’ll walk you through the BOM of finished goods, the different options available for entering scrap details, and how your system makes scrap calculations. Next, when each change in master data has a defined scrap percentage, I show you how to create a test production order displaying that in the defined master data of both the finished goods (i.e., assembly goods) and component material (i.e., raw material), scrap calculations are made through additional quantities of assemblies or components. Then, during the confirmation against the production order, I will show you the option to enter scrap at both the order level and the operation level. Finally, I describe how goods issuance against scrapping is handled in the cost center with a movement type.

After reading this article, you should be in a position to assess and evaluate the various options available to enter scrap details for both finished goods as well as for raw materials. These details help to optimize the production and procurement processes, as the system will take scrap details into account in all stages of logistics and supply chain management. When the planner runs Materials Requirement Planning (MRP) on the finished goods, the system not only takes the entered scrap details of finished goods, but also that of raw materials, and correspondingly increases the relevant quantities.

Jawad Akhtar

Jawad Akhtar earned his chemical engineering degree from Missouri University of Science and Technology. He has 17 years of professional experience, of which nine years are in SAP. He has completed eight end-to-end SAP project implementation lifecycles in the areas of PP, QM, MM, PM, and DMS in the steel, automobile, chemical, fertilizer, FMCG, and building products industries. He also has worked as an SAP integration manager and an SAP project manager. He has been proactively involved in a business development and solution architect role for seven years. He is the author of Production Planning and Control with SAP ERP, it's filled with in-depth infomation on discrete, process, and repetitive manufacturing types. His profile on LinkedIn is at http://pk.linkedin.com/in/jawadakhtar. You may follow Jawad on Twitter @jawadahl. Currently, he is associated with AbacusConsulting as Head of SAP Delivery.

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Comments

5/2/2016 4:15:04 PM
jhardman

Excellent article with good examples, screen shots, and detail.

Thank You!

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