RE: scrap percentages for MRP -- BPCS-L

Scrap should be defined into 2 categories "normal" and "abnormal".  The
normal srap is that which you incur as a result of a production/packaging
process i.e. 1 in 100 boxes will be spoilt during packing.  This is included
as production scrap in your BOMs and MRP should take account of it when
planning production requirements.  The accounting for it is straight forward
too, if your BOMs scrap percentages are accurate then cost of material
issued (including scrap allowance) = cost of material received from
production (intermediate/finished goods).  Material variances (actual v
standard) can be calculated from your FMA/FSO file and then posted manually
from WIP to Material Usage Variance (MUV).  For material in WIP that has not
been used in finished goods and which maybe held as a buffer by production
but is then periodically sent back to stores then you can create a MUV
adjustment transaction to Dr stock Cr MUV since the original SO is closed
and you probably do not want to distort a current SO with large favourable
MUV.  

If you want to forecast MUV then you can do this by creating a different BOM
method with srap factors set to 1 and roll up costs based on this method.
Then compare the standard costs to the zero scrap costs using the MPS
forecasts (obviously some smoothing may be required but it will give you an
idea of the total cost of scrap in your BOMs and act as a stick to hit the
design/process engineering or R&D bods for further improvements).
Unfortunately we found that once the variances are low/ on budget (yes we
did budget for variances aswell - this was contentious) then
production/engineering/even some finance people were happy.  It is sometimes
interesting to see the total cost of stuff "ending up in the bin".

I hope this helps.

Rgds
John


-----Original Message-----
From: David Baird/NMT [mailto:dbaird@nmtgroup.com]
Sent: Monday, August 07, 2000 7:40 PM
To: BPCS-L@midrange.com
Subject: scrap percentages for MRP


We are version 6.1 full cs running on AS400 v4r3.

We are looking to find some information on how to capture the cost of scrap 
within MRP systems. It has been suggested to us that scrap is captured in 
the bill of materials by inflating the quantity per unit by the scrap 
percentage. So a component with a quantity per unit of 1 and an average 
scrap rate of 2% would have a new quantity per unit of 1.02.

However this will have implications for the current system of inventory 
processing and control (which we are keen to avoid!). Is anyone out there 
currently using or aware of an alternative method? Ideally I think that 
there should be an additional field separate from the BOM that captures 
scrap percentages for MRP purposes.

If anyone out there can offer any guidance or assistance on this one, it 
would be very much appreciated.
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