There are many industries that do not consume all raw materials during a production process, but use those leftover materials in a different or later manufacturing process. A good example of this is plastic thermoforming, where rolls of plastic are stamped into objects, and the remaining plastic from around the edges of the mold become ground up, melted down and reused in the extrusion process to become other rolls of plastic. Another example is in steel or wood manufacturing, where lengths of material are only partially consumed, leaving behind remnant pieces of varying lengths. Unless the left-over material has no value and is tossed into a scrap bin, you are dealing with by-products.
There is a way to handle by-products using the Macola system. First, it needs to be determined if a different item number needs to be used for the by-product item. In the example of thermoforming waste, a separate item is clearly required, since scrap from that process does not have the same form, fit or function as sheet plastic. So, in the case of plastic scrap, a new item number for the resulting “regrind” is assigned and tracked in inventory. But in the case of the cut-off from steel or wood, it most likely would be the same item number – just a different quantity, such as 8 feet instead of 14 feet long. There are many ways that these varying remnant lengths can be handled, such as putting them into “bins” that represented their sizes, which can be used to provide visibility into how many of which remnant lengths are in inventory.
The Bill of Materials is handled by having both items listed as components. For example, the first sheet plastic material item would have the gross amount required called out as the quantity, such as 3.2 lbs. The second item, the scrap item that is destined for regrind, would be entered as a negative quantity, such as -1.1 lbs. The net weight of the product produced would therefore be 2.1 lbs. In the case of lengths of wood, the same component item would be entered for the gross length quantity, such as 16 feet, and then a negative quantity of 4 would be entered to show that what was used was 12 feet, with a 4-foot length remaining in inventory.
Cost is another issue to deal with. The generally accepted practice is that by-products are assigned a unit cost, which is deducted from the total cost of the product being produced. The by-products themselves, therefore become part of the perpetual inventory and carry a value in inventory.
We here at Attivo would love to chat with you about your manufacturing challenges. Contact us to see how we might be able to solve your unique challenges in manufacturing.