How to implement Co- and By-products for quantifying unseen value

Co- and By-products are related to process manufacturing and derives as additional product from formula items being produced. Co- and By-products are often overlooked elements of a production order and can hold value, which need to be considering when calculating the product cost. Co- and By-products are relevant topics when talking sustainability because it helps companies to quantify recycling of material from production orders. This article will briefly explain how formula items works and how D365FO can quantify Co- and By-products.

Process manufacturing is more advanced than normal discrete production and this is expressed in the number of “Production types” related to it. For process manufacturing the following production types are relevant:

• Formula – Is the materials, ingredients used and outcomes of a specific manufacturing process. It is the elements for creating the formula items. Formulas are used to plan and produce products in process manufacturing.
• Co-product – Co-products are items produced together with formula item or other Co-products. These products are additional output form the manufacturing process every time the formula item is manufactured. Co-products have an inventory value and are stored for use in production order or sold for profit.
• By-product – By-products are produced together with formula item or Co-products. The items are outcome of the manufacturing process and cannot be avoided. By-products are stored in inventory but typically have no inventory value. By-products are often scrapped or sold for a loss.
• Planning item – Planning items are not stocked items in inventory but are instead used as a container to house production of multiple Co-products that are always produced together. Planning items are used to identify a formula for production, define the materials that are consumed in the manufacturing process and the route times needed to produce the Co-products. The cost of the planning item formula is allocated to the Co-products being produced.
• None – If a product does not belong to any of the other types. This type is used for ingredients / materials for formula items.

The next step is to look at how to configure a formula with Co- and By-products.

When creating a formula for a process manufactured item the production type must be set to formula. To create a formula, go to Product information management à Bill of materials and formulas à Formulas. Press “New” and go to “Header”. Here the formula can be associated with an item under “Formula versions” this is necessary to do before it will be possible to add a line to the formula. The line represents the items needed to produce the formula item selected under “Formula versions”.

When adding formula lines, you are adding material or ingredients to produce the formula item.

There is also another entry point to creating a formula, a formula version and a route for the formula product. This entry point is the “formula designer” under “Released product details”.

A formula is based on a “Formula size”, which is the “Per series” field under formula lines. This field determines that this formula gives e.g. 200 ea. (depending on the “UOM of formula” chosen) of this item with the “Quantity” specified on the formula lines.

“Formula multiple” is used to determine the Batch order size that is allowed for the production through master planning or batch order. The formula size on the version must meet the multiple requirements.

The “yield” field is a factor for batch order, which is the relationship between “Actual output”/ “theoretical output” multiplied with 100 to get a percentage.

The field “Total cost allocation” is used to allocation total production cost across Co-products and formula item. If it is a “planning item” the cost will be allocated across the associated Co-products. If the “Total cost allocation” is set to “Yes” the Co-products must have a cost price on more than 0. The cost used for total cost allocation is fetched form the active cost version matching the site criteria on the formula version when the formula version is “Approved.”

The field “Use for calculation” determines, which formula size to use if there are a percentage-controlled items on the formula lines to calculate the quantity for the formula line. If the line is “percent controlled” there must be setup a conversion between the line unit and “UOM of formula” or they should be the same unit.

The field “Co-product variants” makes it possible to facilitate the entry of unplanned Co- and By-products, which can emerge from process deviations in a batch order. When this scenario happens the cost allocation must be entered manually.?

There are different fields, which determine what active formula version should be used. The fields are inventory dimension “Site”, “From and to date” and “From formula size”. The “From formula size” is used to apply different formula version to different production order sizes e.g. one version for orders beneath 250 ea. and another for production order over 250 ea.

The field “Scalable” indicates if the formula line is scalable based on the formula size field or other scalable formula lines. If scalable fields change quantity the scalable lines will adjust accordingly to them to maintain the current ratios.

Co- and By-products

Co- and By-products are created as a normal product where “Production type” is set to “Co-product” and the field “Planning formula” is the formula item, which the Co-product derives from. It is important to state that this field (Planning formula) is not available to type information into for By-products.

To add a Co- or By-products to a formula version press “Co-products” in action pane “Maintain formula version”

If the “Total cost allocation” is set to “No” on the formula version the “Co-product cost allocation” will be set to “Manual” and the “Cost allocation precent” must be populated for cost allocation. The “Cost allocation percent” is the cost amount for the Co-product and the “Cost percentage allocated to the formula item” is the cost amount allocated to the formula item.?

It is also possible to select “None” for Co-products if none of the cost should be allocated to the Co-product.

By-products are considered as a burden meaning that a cost burden is added to the batch order for the By-products. There are five methods for burden allocation for By-products. The burden methods are:

• Percentage – Is a percentage amount of the total production order cost to include as a burden rate for the By-product.
• Per series – Is a fixed burden cost per series produced. Means that if the burden is set to 50 USD per 1000. A batch order on 2000 will create a burden cost for the By-product on 100 USD.
• None – Is used when no burden is allocated to the by-product line
• Per quantity – Is used when a burden cost per quantity produced of the By-product needs to be allocated. This means that if a By-product has a burden rate for 25 USD per 100 produced of the By-product and 200 By-product are produced. The burden of 50 USD will be applied to the batch order.
• Recycled – To use the recycled burden the By-product must be a standard cost item with an active cost amount. The burden applied is the standard cost of the By-product in cost calculation for the batch order (It is not used twice in the cost calculation). The By-product must also be included as a formula line in the formula version to be consumed as a recycled item in the manufacturing process.

To understand how cost from Co- and By-products affect the production order cost, a short example will be shown. In this case the By-product is set to add a burden of 10 % of the total production order cost to the production order.

When estimating the production order this burden cost will be found under “View calculation details”

Adding 72,4 + 317,79 + 91,70 = 481,9 and take 10 % of this number gives 48,19.

If the TCA (Total cost allocation) principle is used the calculating are using the dollarized weighting to calculate the cost amount added to the Co-product and subtracted from the formula product. To see the dollarized, precent press “Cost” under “Production details”.

Or press “Estimate cost” under the Co-products form for the formula version.

Now the cost amount is distributed over the Co-product and formula product by this percentage split. Therefore, the Co-product cost here:

Must be added together with the formula item cost here:

To give the total production cost 1580,41 + 53,31 = 1633,73. Taking 3,26 % of this number is 53,25 (please be aware of the rounding and only two decimals visible), which was the cost allocated to the Co-product and subtracted from the formula product production estimated cost.

When a production order is “Ended” the cost of the Co- and By-product will be added to the inventory transaction. It is possible to go to the “Report as finished” journal for the Co- and By-products reported as finished and see the inventory transactions and cost associated with them.

This is the By-product where the cost of inventory is the cost from the costing version multiplied with quantity.

The same goes for the Co-product where the inventory cost is fetched from the active costing version.

Like 6,75*15 = 101,25. There can be some rounding of decimals, which makes the result differ a bit when it is calculated values by D365FO and not a typed value like the cost of the by-product in the costing version is.

To learn more about Co- and By-products and process manufacturing in D365FO like how:?

• Is the TCA percentage calculated??
• To recycle By-products??
• To export Co- and By-products data for ESG reports?
• To apply Co- and By-products??
• To get started with process manufacturing and formula items.

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Reach out and get help.?