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Industrial wastes and scraps include spoiled raw materials, defective parts, rejected components, production wastes, etc. that holds a commercial value, and therefore, they should be discarded at periodic intervals and the amount should be accurately recorded into the books of accounts. Therefore, waste management plays a key role in proper management of operations. Waste materials can be classified into three categories:
Obsolete – These materials / equipment hold an economic value and are not damaged, but are not useful to the company for a longer duration for its operations on account of reasons, such as changes in process, product line, materials, etc.
Surplus – These materials / equipment do not have immediate use, but have been amassed due to faulty planning and purchasing. But they do have a usage value in the future.
Scrap – This refers to the process wastage, such as borings, turnings, flashes and borings, which have an end use and hold commercial values. So, they need to be discarded periodically.
Rationale for generating and accumulating Obsolete, Surplus and Scrap Items
Changes in Product Design – This can result into some of the items becoming invalid as far as the final product is concerned. Consequently, the entire stock of such items becomes either surplus or obsolete.
Rationalization – At times, raw materials are rationalized in order to reduce variety and simplify the procurement process. The process of rationalization regards some items to be surplus or obsolete.
Cannibalization – At times, it is possible to troubleshoot a machinery breakdown by using parts of a similar machine not functioning owing to several reasons. The process of cannibalization is prevalent in many project-oriented industries. If not checked on continual basis, it can result into obsolete or scrap items.
Faulty Planning – In the event the marketing department has made a wrong projection on sales that could be on the higher side, material planning needs to focus on sales forecasts that can lead to generating surplus items. Another cause of accumulation could be wrong indenting through user departments.
Wrong Purchase Practices – Sub-optimizing decisions taken without having to taken care of related factors also lead to obsolete and surplus stock items. For instance, buying products in bulk quantities to compensate for discounts and economic transportation without considering factors like their shelf life, storage space requirements and technological changes again, can leader to accumulating surplus and obsolete stock items.
Other reasons – Some of the items are stored in the form of insurable spares for long periods even if they are not in use. Faulty stored methods without their proper preservation, often leads to spoilage, owing to poor materials handling, improper codification and poor manufacturing methods, and consequently, result into obsolete, surplus and scrap items. Such poor maintenance of machine tools can also lead to their excessive wear and more scrap.
