As from batch 360 we also have a scrap functionality in our software. Scrap is not defined in your BOM but can be triggered in the production process by pressing the 'scrap' button in the production order entry screen or by pressing the scrap button in menu path: [Manufacturing / Entries / Receipts Production]. When you press this button you will be able to enter a quantity for the raw materials or finished goods that you wish to define as scrap. In the production order entry screen the scrap button will only become active after you have issued raw materials. In the entry screen for production receipts this button will only become active after you have issued raw materials and you do not enable the view to show 'Parent project' but the view to show 'All'.
In this document we will explain the scrap functionality based on an easy example, including the following steps (you can also use these steps as shortcut to go to the explanation of that specific step):
Example of waste in a production process
Scrap can be considered as an unforeseen loss of materials during the production process because of damage, a defect or the quality is not good enough. When you produce table tops by sawing them out of big plates of wood, it can happen that the original plate was damaged during transport. You can not plan this kind of loss of material and you can not use it anymore in your production process: Scrap.
Important settings
Before you start working with our manufacturing solution it is very important that you link some general ledgers that will be used in the production process. These important links are to be maintained via menu path: [System / General / Settings / General Ledger Settings]:
The only general ledger in the red square that will not be used in this example is the general ledger 'Production: Waste'. You can find an explanation about the waste functionality by using the hyperlink at the end of this document.
Create a BOM
Before we start to plan producing item Z we need to define what this item consists of (which items are used during the production process). You can do this by creating a BOM for the finished good via the item maintenance (tab 'manufacturing') of the finished good or via menu path: [Manufacturing / Setup / BOM]. In this case, the BOM looks like this:
Create reason codes
Via menu path: [Manufacturing / Setup / Reason codes] you can define reason codes. These codes will be used when you enter scrap on a production order. When you enter scrap it is mandatory to select a reason (code) why you enter the scrap. This will allow management to do reporting on loss of unforeseen production costs. The maintenance of a reason code is quite simple and looks like this:
Enter the production order
Via menu path: [Manufacturing / Entries / Production orders] you can start planning the production of finished goods. In this case we enter a production order for 1 finished good 'Z':
As you can see from this screen, the button 'Scrap' is not enabled when you enter the production order. This button will only become active when you have issued raw materials and/or received finished goods.
Issue the production order
At this moment the production is still planning and nothing has been realized yet so there is no direct impact on your financial administration. The first step that will have an impact on your financial administration is the issue of the raw materials. When you issue your raw material, it is considered to be a physical movement of stock. Therefore the system will create a journal entry. In this case we will issue all components, resulting in the following journal entry:
As you can see, the system has created a journal entry, reducing the stock account for the parts and creating work in progress.
Enter scrap for raw materials
Since you have just issued the raw materials, you can now enter scrap. When you open the production order you will see that the 'Scrap' button has become active. When you press this button, the following screen will appear:
In this case we assume that one of the Z-001 parts was damaged. Therefore we enter scrap for 1 x item Z-001 and the reason code is 001 which represents 'damaged parts'. By pressing the 'Scrap' button in this screen, you will confirm the scrap and the system will create the following journal entry:
The system created a journal entry reducing your work in progress and increasing your production scrap account (that you have defined in your general ledger settings). At this moment (batch 360) the system will not change anything about the planned production. This means you will not be triggered to issue new raw material because you had to scrap one. For now scrap is especially useful for reporting purposes. Of course you can enter an additional line in your production order to plan the issue for a replacement item. In this case we will not plan the issue for a replacement item but just produce the finished good with less raw materials.
Receive the production order
Next step in the production process is to receive your finished goods. This is again a physical movement of stock. Therefore the system will create a journal entry that will have an impact on your financial administration and on your stock positions. The financial entry that is created for your receipt will have an impact on the stock GL for your finished good and it will reduce the work in progress:
As you can see from this entry, you will now have a balance on your work in progress account and on your production scrap account. In order to balance your work in progress account, you need to complete the production order.
Complete the production order
The final step in the production process is to complete the production order. You can do this at the time you receive your finished good or you can choose to do this later via menu path: [Manufacturing / To be processed / Complete]. When you complete the production order, you will take the results of this production process and your work in progress account will be in balance again. The system will create the following entry:
After you have completed the production order, the work in progress account will be in balance again, the stock account for your parts has decreased, the stock account for your finished goods has increased and you will have a balance on your production results (because we did not enter an additional line in the production order to replace the damaged part) and you will have a balance on your scrap account.
Enter scrap for finished goods
You can also enter scrap for finished goods in case your finished good got damaged during the production process. You first need to have received finished goods before you can enter scrap for them. You can enter scrap for finished goods as long as the production order is not completed. The entering of scrap can be done via multiple menu paths:
The scrap entry for finished goods works exactly the same as for the raw materials. After you have entered the scrap for your finished good and you have received all other finished goods (in case you did not do that yet), you can complete the production order. Underneath you see an overview of the journal entry created when we use the same BOM but now for a planned quantity of 10 finished goods Z. One of the finished goods Z was damaged during the production process. Therefore we have entered scrap for 1 x item Z.
Complete journal entry after completing the production order:
The steps performed to come to this journal entry:
1. Enter a production order for 10 x item Z:
2. Issue all raw material:
3. Receive the finished goods:
4. Do not complete the production order after receiving the finished goods:
4. Open the production order via menu path: [Manufacturing / Entries / Production orders] or [Manufacturing / To be processed / Complete]. You can not enter scrap for this production order via menu path: [Manufacturing / Entries / Receipts production] because we already received all finished goods. Therefore the production order will not appear in this menu path. When you press the 'Scrap' button you will see that we can now also enter scrap for the finished goods that we have already received (1st line):
5. Complete the production order via menu path: [Manufacturing / To be processed / Complete]
Related documents:
- Scrap and waste, what is the difference? document 11.806.458
- Waste explained, document 11.806.545