Discrete Manufacturing
ERP
Manufacturing
Quality Management
Scrap and Yield Tracking: Measuring Material Loss in Manufacturing
Last updated: October 8, 2026 · Independent guide · We do not sell rankings or coverage.
Scrap and yield tracking measures how much material you planned to lose on each job, how much you actually lost, why you lost it, and what it cost. Scrap tracking software, whether it is the production module of your ERP or a manufacturing execution system (MES) on the shop floor, does this by holding a planned scrap allowance on the bill of materials or routing, capturing scrap quantities with reason codes at the operation where the loss happens, and posting the cost to the general ledger.
Many results for scrap tracking software describe systems for scrap metal yards. This page covers manufacturing scrap: the material and partly finished product your own plant loses during production.
The scrap and yield tracking process at a glance
- Set planned yield and scrap allowances on the bill of materials (BOM) and routing.
- Define scrap reason codes that operators can apply consistently.
- Capture scrap at the point of loss, by operation, quantity, reason and lot.
- Disposition the material as scrap, rework or use-as-is.
- Post inventory and cost transactions, including any recovery value.
- Compare planned and actual yield and analyze the variance by reason.
- Take corrective action and update standards where the plan was wrong.
Who owns each stage
| Stage | Responsible | Accountable / consulted | Main output |
|---|---|---|---|
| 1. Planned allowances | Manufacturing engineering | A: plant manager; C: cost accounting | Scrap % on BOM and routing lines |
| 2. Reason codes | Quality manager | A: plant manager; C: supervisors | Controlled list of codes |
| 3. Capture | Operators | A: shift supervisor | Scrap entries by operation |
| 4. Disposition | Quality inspector or MRB | A: quality manager; C: engineering | Scrap, rework or use-as-is decision |
| 5. Posting | Production control | A: controller | Inventory and GL entries |
| 6. Variance review | Cost accountant | A: plant manager; C: quality | Weekly yield and scrap report |
| 7. Corrective action | Engineering and quality | A: plant manager | Fixes and revised standards |
In a small shop one person may cover engineering and quality. What matters is that every stage has a named owner.
Stage 1: Set planned yield and scrap allowances
Planned yield is the share of input you expect to come out as good product. You express it in the system as a scrap allowance, and the ERP inflates material requirements to cover it. In Microsoft Dynamics 365 Business Central, the Scrap % field on a production BOM line adds that percentage to the expected consumption quantity, while the scrap percentage on routing lines represents output scrapped before it reaches inventory (Microsoft Learn, July 22, 2026). Dynamics 365 Supply Chain Management separates constant scrap, a fixed quantity per run such as setup loss, from variable scrap that grows with the quantity produced (Microsoft Learn, May 28, 2026). Oracle NetSuite offers a Use Component Yield option on the BOM that calculates allowances for expected raw material loss (Oracle NetSuite Help, no date shown).
Controls: change scrap factors through engineering change control, with cost accounting sign-off, because the factors flow into standard cost.
What goes wrong: allowances are set once at product launch and never revisited, so the “plan” reflects a process that no longer exists. Setup scrap that does not scale with order size also gets entered as a percentage, which overstates material for large orders and understates it for small ones.
Stage 2: Define scrap reason codes
Reason codes turn a scrap quantity into something you can act on. Business Central has a dedicated Scrap Codes page for categories such as defective material, setup error or tool wear, and the code appears on the capacity ledger entry (Microsoft Learn, July 15, 2026). Infor MES documentation lists causes worth separating, including damaged raw material, setup loss, worn tools, destructive tests and operator error (Infor MES documentation, version 2026.x, no date shown).
Controls: keep the list short enough that an operator can pick the right code in a few seconds, and tailor it by work center type so a press operator does not scroll past machining defects. Group codes by category (material, machine, method, operator) and let only the quality manager add codes.
What goes wrong: an “Other” code that collects a large share of entries, codes that overlap so two operators record the same defect differently, and codes that describe the symptom (“bad part”) instead of the cause.
Stage 3: Capture scrap at the point of loss
Record scrap at the operation where it happens, by the person who saw it, during the shift. Each entry needs the work order, operation, quantity, reason code, and lot or serial number where you track them. Business Central lets you register output and scrap for each routing operation, and the scrap quantity posts to the item ledger as a negative adjustment (Microsoft Learn, July 15, 2026). Infor MES records a scrap count as a timestamped entry linked to the material in the machine’s current production order and recommends entering it as soon as possible (Infor MES documentation, no date shown).
What goes wrong: scrap is written on a paper tag and keyed in days later, or not at all. ArcherPoint, a Microsoft partner, notes that with backward flushing, Business Central calculates component consumption from output quantity plus scrap quantity (ArcherPoint, May 14, 2025). If scrap is not recorded, consumption is understated and the loss later shows up as an inventory shortage instead of a scrap cost. In a vendor case study, Kendrick Plastics credited near real-time data from Plex MES, replacing data up to 24 hours old, with significantly reducing scrap, though no figure is given (Rockwell Automation, October 2, 2022).
Stage 4: Disposition the material
Not every rejected part is scrap. A quality inspector or material review board (MRB) decides whether the item is scrapped, reworked, returned to the supplier or accepted as is. Keep these outcomes separate in the system, because rework recovers the material and scrap does not.
What goes wrong: rework is recorded as good output, which inflates first-pass yield, and material waits in a hold area for weeks without a decision, so it is neither in usable stock nor written off.
Stage 5: Post inventory and cost transactions
The cost of a scrapped unit is the material plus the labor and overhead added up to the last operation it completed, less any recovery value from selling it as recyclable material. Your ERP needs a defined account for this. NetSuite, for example, requires a Scrap Account, an expense account for scrap during work order completion, on assembly items when WIP is used (Oracle NetSuite Help, no date shown). Odoo moves scrapped items to a virtual scrap location so they leave on-hand stock (Odoo 18.0 documentation, no date shown).
The accounting treatment depends on whether the loss was normal. FASB Statement No. 151, Inventory Costs, requires abnormal amounts of wasted materials (spoilage) to be recognized as current-period charges rather than capitalized into inventory (Journal of Accountancy, February 1, 2005). For tax, Treasury Regulation 1.471-2(c) allows damaged or imperfect goods to be valued at bona fide selling prices less direct cost of disposition, requires damaged raw materials or partly finished goods held for use to be valued on a reasonable basis but never below scrap value, and puts the burden of proof and record-keeping on the taxpayer (eCFR, up to date as of October 6, 2026). Agree the definition of “normal” with your controller and auditors; the planned scrap allowance is the usual starting point. Our guide to standard cost vs actual cost explains how the variances flow through costing.
Stage 6: Compare planned and actual yield
Review planned against actual yield weekly by product family, work center and reason code, and monthly in cost terms.
Illustration (constructed numbers): a work order calls for 1,000 good units with a 5% planned scrap allowance, so the system releases 1,050 units of material. Planned yield is 1,000 / 1,050 = 95.2%. The order finishes with 960 good units and 90 scrapped, an actual yield of 960 / 1,050 = 91.4%.
| Reason code (operation) | Units scrapped | Cost per unit at that point | Scrap cost |
|---|---|---|---|
| Setup loss (Op 10) | 45 | $8.00 | $360 |
| Material defect (Op 20) | 20 | $12.00 | $240 |
| Out of tolerance (Op 30) | 25 | $18.00 | $450 |
| Total | 90 | $1,050 |
The plan allowed 50 scrapped units; the order lost 90, so 40 units are excess scrap and the order is 40 units short. Setup loss is the largest reason by units, so a count-only report points you there. Out-of-tolerance scrap at Op 30 costs more because each unit carries three operations of labor and overhead, so the cost view points you at the final operation.
What goes wrong: yield is reported only as a plant-wide percentage, which averages away the problem, and the cost of late-stage scrap is understated because it is valued at material cost only.
Stage 7: Corrective action and updating standards
Take the top two or three reason codes by cost each month into a root-cause review, assign an owner and a date, and check the next month’s data to confirm the fix worked. If actual scrap is consistently below or above the allowance for reasons you accept as permanent, change the BOM or routing scrap factor through engineering change control so planning and costing reflect reality. Link recurring defects to your quality system; our article on quality management in manufacturing ERP covers nonconformance and corrective action records.
What goes wrong: standards are raised to match poor performance, which hides the variance without fixing the process.
Metrics to track
- Actual yield vs planned yield by product family and work center: good output divided by input released.
- Scrap ratio: ISO 22400-2, the international standard for manufacturing operations KPIs, includes a scrap ratio, calculated as scrap quantity divided by produced quantity and the inverse of its quality ratio (ISO, published January 2014, marked for revision August 7, 2023; formula as described in Ramis Ferrer et al., Machines, September 1, 2018).
- First-pass yield: units good the first time, without rework, divided by units started.
- Scrap cost in dollars and as a percentage of material cost or cost of goods sold, net of recovery value.
- Excess scrap cost: actual scrap cost above the planned allowance, which is the number to manage against.
- Share of scrap coded “Other”: a data quality check on your reason codes.
ASQ classifies scrap and rework as internal failure costs, one of four cost-of-quality categories alongside prevention, appraisal and external failure (ASQ, no date shown).
How software supports each stage
ERP production modules cover stages 1, 3 (at work order or operation level), 5 and most of 6. Business Central has native scrap percentages, scrap codes and output journal entry (Microsoft Learn, July 15, 2026). NetSuite has component yield on the BOM and a scrap account for WIP completions. Odoo 18 handles scrap orders and a scrap location natively, but its documentation does not describe reason codes; third-party apps such as INKERP’s Manufacturing Scrap Reason module add them (Odoo Apps, no date shown). The limitation of ERP-only capture is timing, because entries usually happen at operation or order completion.
MES products such as Infor MES and Plex add stage 3 capture at the machine, with timestamped scrap counts in Infor MES and near real-time production data in Plex. The ERP still does the costing. They cost more to implement and need integration with ERP work orders. If you are choosing an ERP with these needs in mind, our guide to ERP software for manufacturing and production planning covers the wider requirements.
Quality management systems support stages 2, 4 and 7: nonconformance records, MRB disposition and corrective action. Decide which system is the record for scrap quantities and make the others read from it.
How we researched this
We reviewed the pages ranking for scrap tracking software; most covered one product or described scrap metal yard software. We then read vendor documentation from Microsoft, Oracle NetSuite, Odoo and Infor, the ISO 22400-2 listing, the eCFR text of Treasury Regulation 1.471-2, and coverage of FASB Statement No. 151. Vendor case studies are labeled as vendor sources. The worked example uses constructed numbers. We checked all sources on October 8, 2026.
Related guides
- Material Usage Variance: Formula, Causes and ERP Tracking
- Co-Product and By-Product Costing: Methods and Entries
- Backflushing: How It Works and When It Goes Wrong
Frequently asked questions
What is the difference between scrap rate and yield?
Yield is the share of input that comes out as good product, and scrap rate is the share that is lost. If you release 1,050 units and get 960 good ones, yield is about 91.4%. Decide whether reworked units count as good and apply that rule consistently.
How do I calculate the cost of scrap?
Multiply the scrapped quantity by the cost accumulated up to the last operation the units completed, including material, labor and overhead, then subtract any recovery value from selling the material.
Do I need an MES to track scrap by reason?
No. Some ERP systems, including Business Central, record scrap quantities with reason codes against production operations. An MES adds machine-level, real-time capture, which matters in high-volume processes such as molding.
Is scrap expensed or included in inventory cost?
Normal, expected scrap is generally part of product cost, which is why scrap allowances feed standard cost. Abnormal amounts of wasted material are recognized as current-period charges under the guidance that came from FASB Statement No. 151. Confirm your threshold for “abnormal” with your auditors.
Sources
- Microsoft Learn: Batch post production output and run times (Business Central), July 15, 2026
- Microsoft Learn: Create production BOMs (Business Central), July 22, 2026
- Microsoft Learn: Set up scrap to calculate raw material requirements (Supply Chain Management), May 28, 2026
- Oracle NetSuite Help: Setting the Use Component Yield preference, no date shown
- Oracle NetSuite Help: Setting up items as WIP assemblies, no date shown
- Odoo 18.0 documentation: Scrap inventory, no date shown
- Odoo Apps: Manufacturing Scrap Reason (INKERP, third-party seller), no date shown
- Infor MES documentation: Scrap count, version 2026.x, no date shown
- Rockwell Automation (vendor): Kendrick reduces scrap with Plex MES, October 2, 2022
- ArcherPoint (Microsoft partner): Managing scrap in Business Central, May 14, 2025
- ISO 22400-2:2014, KPIs for manufacturing operations management, published January 2014, marked for revision August 7, 2023
- Ramis Ferrer et al., Implementing and Visualizing ISO 22400 KPIs, Machines 6(3), September 1, 2018
- eCFR: 26 CFR 1.471-2, Valuation of inventories, up to date as of October 6, 2026
- Journal of Accountancy: FASB Statement No. 151 coverage, February 1, 2005
- ASQ: Cost of quality, no date shown
Sherman Hsieh
Independent analysis of enterprise software — ERP, CRM and more
