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What are By-Products?
By-products are secondary outputs generated during a production process, alongside the primary product. For instance:
- In the chemical industry, manufacturing a specific chemical might also yield smaller quantities of another useful chemical.
- In the steel industry, producing steel can generate slag or mill scale as by-products.
By-products hold economic value and must be managed effectively within the production planning framework. Proper handling of by-products in SAP PP ensures accurate cost calculations, inventory management, and process optimization.
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Key Features of By-Products in SAP PP
- Costing and Valuation
- SAP PP allows for the inclusion of by-products in production orders and their valuation based on predefined costing methods. This ensures that the production costs are apportioned accurately between the primary product and its by-products.
- Inventory Management
- By-products can be tracked and managed in inventory, enabling their reuse in subsequent processes or sale to third parties.
- Integration with Bill of Materials (BOM)
- By-products are defined in the BOM of a material, specifying the proportion and quantity expected during production.
- Flexible Consumption
- By-products can be consumed internally or transferred to other plants or storage locations, streamlining supply chain processes.
Configuring By-Products in SAP PP
To configure and manage by-products effectively, several steps need to be followed:
- Define the Material Master
- By-products are created as separate materials in SAP’s Material Master with appropriate material types (e.g., HALB for semi-finished goods or HAWA for trading goods).
- Include By-Products in the BOM
- In the BOM of the primary product, define the by-products with negative quantities. This indicates that the materials are outputs rather than inputs.
- Assign By-Products in the Routing
- In the production routing, specify the operations that yield by-products. This provides a detailed view of the production process and helps in accurate reporting.
- Configure Costing
- By-products can be assigned a valuation type to determine their cost. Standard costing or moving average price can be used depending on the business requirement.
- Production Order Execution
- During production order execution, by-products are automatically accounted for in the system. The system deducts their cost from the primary product’s production costs, offering a clearer financial picture.
Business Benefits of Managing By-Products
- Enhanced Cost Accuracy
- By-products reduce the overall cost of the primary product by offsetting the value generated, leading to precise cost management.
- Resource Optimization
- By-products can be repurposed or sold, optimizing resource utilization and reducing waste.
- Compliance and Reporting
- Proper by-product tracking ensures compliance with regulatory requirements, particularly in industries with environmental or hazardous material concerns.
- Sustainability
- By-products’ reuse contributes to sustainable manufacturing practices, aligning with modern ESG (Environmental, Social, and Governance) goals.
Real-World Applications
Chemical Industry:
- A petrochemical plant produces ethylene as the main product and captures propane and butane as by-products. These by-products are either sold or used in other chemical reactions within the plant.
Food Processing:
- In a sugar production plant, molasses is a by-product that can be further processed into ethanol or sold as raw material to other industries.
Automotive Industry:
- During the production of aluminum car parts, scrap metal is collected as a by-product. This scrap is melted and reused, minimizing material wastage.
Challenges and Best Practices
While by-products offer immense benefits, managing them comes with challenges such as:
- Accurate Forecasting:
- Estimating the quantity and value of by-products can be complex, especially in processes with variable outputs.
- System Configuration:
- Configuring SAP PP to handle by-products requires expertise to avoid errors in cost calculation and inventory management.
- Integration Issues:
- Ensuring seamless integration with other SAP modules (e.g., MM and FI) is critical for end-to-end visibility.
Best Practices:
- Leverage SAP’s advanced analytics to monitor by-product generation trends.
- Regularly update BOMs and routing to reflect process changes.
- Train personnel to understand and use SAP PP functionalities effectively.
Conclusion
By-products are an integral part of production processes in various industries. Their proper management in SAP PP not only enhances operational efficiency but also contributes to cost savings and sustainability goals. By understanding and leveraging the by-product functionality, businesses can unlock hidden value in their manufacturing operations, paving the way for increased profitability and strategic growth.
For organizations embarking on or refining their SAP PP journey, focusing on by-products is a crucial step towards operational excellence. Ensure your SAP setup is optimized for by-product management to stay ahead in today’s competitive manufacturing landscape.