For Epicor Prophet 21 users who are trying to do some amount of manufacturing, a common issue that arises is the concept of the remnant. Remnants (also called drops, leftovers, etc.) are raw material stock that were only partially used during the manufacture of the finished item. Tracking these remnants in Epicor Prophet21 can very quickly become a daunting task. Not tracking them can throw your cost way off. So what do you do?
PRO TIP: Choose your base unit of measure wisely. This is how raw material will move in the system. You can always set up a different purchase unit if you need to.
UOMs in Epicor Prophet21
The first key to effective raw material management is a unit of measure schema that lends itself to a clean transaction. You want to avoid a "down conversion" of unit of measure when going from raw material to finished item. For example, you do not want to try and convert a 1 EA block of steel into a 25 cubic inch part.
The reason for this is simply decimal precision and rounding. With a down conversion, you will find yourself trying to move .00234 EA of the raw material, and that is not something that will be intuitive for the user.
Instead, find units of measure that make sense. You can still purchase 1 EA block of steel, but your base unit should be something more precise and sensible. In this example pounds, ounces, or cubic inches might make be easier for the user to work with.
Get the Yield as Close As You Can
Does an inch of raw material really make an inch of finished goods? If you are cutting that raw material with a saw, probably not. Say for example the saw blade is 1/8" thick. That means each cut consumes a little more raw material than the cut length. When setting up a pre-defined route, or entering a process transaction, do your best to account for this. The cost of the cut width does belong in the part.
In this example you would want to set the yield to something like 6.125 inches of raw material to make 1 EA 6" long part. An example of this yield set up in pre-defined routing is shown below.
Notice that your decimal precision when setting up the yield is only 2 decimal places. This is why it is important to choose your units of measure wisely. This helps assure that any rounding performed by Epicor Prophet21 is minimal. Good yield and UOM choices keep costs accurate and rounding error to a minimum.
When Do You Want to Cost the Remnant?
Some companies want to cost the full piece of raw material as soon as they cut into it. Other companies want to cost only the raw material actually used in the part. Then there are still others who need to switch back and forth, depending on the item. For the most part, this is manageable in Epicor Prophet21.
Keep the Remnant out of Epicor Prophet21 Inventory
If you want to cost only full units of raw material and keep the remnant out of inventory, then you will handle this when the process transaction is entered. For example, let's say you use 5-1/2 units of raw material to make 1,000 each finished goods. However, since you cut into a sixth piece of raw material, you want to cost all 6 and let the remnant fall out of inventory. The transaction should look similar to the below.
Keep the Remnant In Inventory
It is also possible to keep the remnant in your inventory. The difference is that your yield in the route or process transaction should be for the exact amount of raw material used. This is likely to result in having fractions of raw material in inventory, which can get messy. This issue is multiplied when you add in the concept of lot tracking.
In these cases, you will want to keep visibility of full units of raw material so that replenishment can take place. I recommend that you segregate the remnants into a separate part number so that you can track it. You can use an Epicor Prophet21 process transaction to move the remnant from the full unit part number into the remnant part number.
Using Remnants Not In Inventory
If you chose to keep the remnants out of inventory until you need them, then you have to bring it back in to keep unit costing right. You do not want a situation where sometimes a part has full cost, and sometimes it has zero cost. That can mess up everything. So how do you manage it?
The easiest way is to use the remnant part number described above. Use an inventory adjustment to bring the remnant into inventory just long enough to execute the process transaction. It might also make sense to bring it into the normal raw material part number if it is only going to be there on a temporary basis. The adjustment will occur at the correct moving average cost, and the "found dollars" will post as a pick up in Inventory Shrinkage. This method keeps your unit cost in line, but also accounts for the remnant coming into the income statement at no cost.
Cleaning Up the Messes at the End
If you do manufacturing in Secondary Process through Epicor Prophet21, you are going to have 2 issues that need to be cleaned up on a fairly frequent basis. The first is process transactions that do not close out due to rounding. The second is the inevitable inventory variance that happens in the raw material because it is an imperfect process.
Transactions that Do Not Close
Unfortunately, a side effect of all of the rounding and decimal precision in process transactions is that sometimes you get a transaction that doesn't close. What happens is that the correct number of finished goods is received into inventory, but there is a small fractional quantity of raw material that does not get consumed. This causes the process transaction to be left open. The easy fix is to create a report that looks for open process transactions which have most or all of the finished items completed. Then you have to go in and cancel those transactions & either return the fraction to inventory or adjust it out (which you can do when you cancel it).
Raw Material Inventory Variances
Manufacturing is, by nature, an imperfect inventory process. Things do not always go according to plan. It is important to decide what an acceptable scrap/loss rate is ahead of time. This allows you to know if you are gaining ground or losing ground on scrap. Once you have done this, a solid cycle count program for raw material is key. I recommend that A item raw material is counted monthly, B items quarterly and C items annually. This keeps your inventory cleaned up quickly on the items that matter most.
Set up a separate adjustment code in Epicor Prophet21 for raw material counts so you can track scrap down to the item level. This can help you identify where loss and scrap are coming from. If you can become very good with this part of the process, you will always know where you stand with your inventory, and the inventory efficiency of your manufacturing process.
TL;DR on Remnants in Epicor Prophet21
If you have to deal with remnants in Epicor Prophet21 for manufacturing, keep the following things in mind.
- Choose your base unit of measure with care, do not try to down-convert during manufacturing.
- Get your yield rates right. Account for cut widths, etc.
- Choose when to cost the remnant, and if the remnant will stay in inventory.
- Use adjustments to bring remnants back into inventory so you cost stays true.
- Close out old process transactions that have rounding issues.
- Cycle Count, Cycle Count, Cycle Count.
For more on Epicor Prophet21, visit our KNOWLEDGE BASE.