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

For the purposes of this article, I’ll use the BOM structure shown in Figure 1. Material FG1 represents the finished product being manufactured, HALB1 is the intermediate material that goes into the making of finished product FG1, and RM01 is the raw material that goes into the making of intermediate material HALB1.

Figure 1

Example BOM structure

Let’s start with the scrap master data elements from material master.

Assembly Scrap Field in Material Master MRP 1 View

The Assembly scrap (%) field in the MRP 1 view contains the scrap percentage that normally occurs during the production of the material if the material is an assembly (or manufactured material). The system increases the quantity to be produced by the assembly scrap factor, resulting in increased consumption of the assembly’s components. For example, if the quantity to be produced is 200 pieces and an assembly scrap of 10% is specified, the system creates a production order for 220 pieces, resulting in the production of 200 good products. The component quantity is accordingly increased by 10%.

Figure 2 shows the MRP 1 view of the material master. You can create material master data using transaction code MM01 or change it using transaction code MM02. The Assembly scrap (%) field is relevant for MRP, costing, and actual cost confirmation.

Figure 2

Assembly scrap (%) field in MRP 1 view of the material master

Component Scrap Field in Material Master MRP 4 View

Component scrap is the percentage of scrap that occurs during production of the material if the material is a component. This accounts for component material loss during the manufacturing process. For example, if the required quantity for a component material is 300 units and the component scrap is 10%, the system revises the consumption quantity to 330 units for that component.

Figure 3 shows an exploded BOM for assembly material FG1. Assembly material HALB1 is consumed in the making of finished goods FG1 and raw material RM01 is consumed in the making of assembly material HALB1.

Figure 3

Exploded multilevel BOM for assembly material FG1

Figure 4 shows the MRP 4 view of the material master for component material RM01. You should only use the Component scrap (%) field in the MRP 4 view if the component loses the same percentage (material loss) in all the assembly material where it is used.

Figure 4

Component scrap field in MRP 4 view of the material master

Component Scrap Field in the BOM Master Data

Component scrap in the BOM is the same as the component scrap in the material master, except that the percentage is only applied to that particular assembly material. The same component in another BOM could have a different component scrap percentage.

Figure 5 shows the BOM for assembly material HALB1 and component RM01. Assembly material HALB1 goes in the making of assembly material FG1. You create the BOM using transaction code CS01 and change it using transaction code CS02.

Figure 5

Component scrap (%) field in the item data screen of the BOM

The Net ID indicator determines whether the system calculates scrap for the component on the basis of the net required quantity — in other words, quantities calculated without taking into account assembly scrap in the material master MRP 1 view. You need to select the Net ID check box if you want the system to ignore the assembly scrap percentage in the MRP 1 view. You also need to select the Net ID check box if the operation scrap is entered.

Operation Scrap Field in the BOM Master Data

Operation scrap is the expected waste in the production operation as the product moves from one production step to another. You normally enter operation scrap in the finished goods routing against each operational step. You use the Operation scrap in % field in the BOM item only to override the assembly scrap (in the MRP1 view of the material master) for materials of high value (i.e., materials with high per-unit cost). If you are using the Operation scrap in % field, make sure that you have also selected the Net ID check box. Figure 6 shows the BOM for assembly material HALB1 and component RM01.

Figure 6

Operation scrap in % field in the item data screen of the BOM

Operation Scrap Field in the Routing Master Data

Manufacturing assembly material goes through multiple production steps. As the production moves from one operation to another, the yield from a particular operation step may be more or less than the standard expected yield. This causes all the components assigned to a particular operation step to be consumed in excess because otherwise there may be surpluses. The scrap in the operation causes a decrease in quantity in the next operation because the quantity to be processed is reduced by the scrap quantity.

You can create routing master data using transaction code CA01 and change it using transaction code CA02. Every routing contains multiple production or operation steps. You maintain the scrap factor in the routing at the operation level. Figure 7 shows the routing with operation steps. Double-click the operation and select Details > Operation from the menu to get to the operation detail screen (Figure 8). You can see the operational scrap field (Scrap in %) in this screen.

Figure 7

Routing with various operation steps

Figure 8

Scrap in % field in the routing operation details screen

Impact on the Component Requirement Quantity for Costing and MRP Purposes

You have to use the assembly scrap in the material master, the operation scrap in the BOM, the component scrap in the BOM, and the Net ID check box in the BOM in conjunction to arrive at the planned component use. Table 1 lists some scenarios to help understand how all the scrap fields interact.

Let’s take scenario 1 as an example. When the finished goods FG1 is costed with costing lot size 100 EA, the component requirement for material HALB1 should be 10,918 EA. You can verify this by displaying the cost estimate. Figure 9 shows the cost estimate for 100 EA of FG1. Note the required quantity for material HALB1. You create a standard cost estimate using transaction code CK11N or costing run transaction CK40N.

Figure 9

Cost estimate showing component quantity calculation including scrap

You can confirm the scrap calculation when MRP or long-term planning (LTP) is run. Figure 10 shows the result from an LTP run (transaction code MS06) for the planned requirement of 100 EA of FG1. The system has generated a dependent requirement of 10,918 EA for material HALB1, including scrap.