I am not aware of any standard report by SAP on this but if you have worked for a manufacturing client then you might have been asked to create a similar report. It is the report to measure the operational efficiency by calculating quantity and cost of the waste produced in a manufacturing process. The complexity of the report will depend upon the requirement and on the complexity of the manufacturing process. One can have a report at every plant level and/or at every process level. However, the basic logic remains same. It can be calculated by either estimating the quantity of waste or by estimating the cost of waste produced. Following formulas can be used:
1) Process_Waste_Quantity(ratio) = (Input_Quantity – Output_Quantity)/Input_Quantity
2) Process_Waste_Value(ratio) = (Input_Value – Output_Value)/Input_Value
The higher the value of the above ratio the poorer is the operational efficiency.
For ease of further discussion let us go with the value of process waste. Which can be described as:
Value_of_Process_Waste = Value_of_Input – Value_of_Output — (1)
Again, the higher the value; the poorer is the operational efficiency.
The value of process waste can be decreased by recycling. It is important to note that recycling should be done only to the extent till which the quality of output is not significantly impacted and the cost of recycling is less than the value added by the recycled input i.e. if the below result in a positive value.
Value_Added_By_Recycling = Value_of_Recycle_output (Standard quality) – Cost_of_Recycle_Input
Thus, it modifies equation (1) as shown below:
Value_of_Process_Waste = Value_of_Input – Value_of_Output – (Value_of_Recycle_output (Standard quality) – Cost_of_Recycle_Input)
Value_of_Process_Waste = Value_of_Input – Value_of_Output – Value_of_Recycle_output (Standard quality) + Cost_of_Recycle_Input — (2)
Further, the value of process waste can increase due to degradation of input material or rejection of output. Thus equation (2) can be further modified as:
Value_of_Process_Waste = Value_of_Input – Value_of_Output – Value_of_Recycle_output (Standard quality) + Cost_of_Recycle_Input + Value_of_Degraded_Input + Value_of_Rejected_Output — (3)
Calculating value of degraded input will vary from industry to industry and raw material to raw material. For example, the raw material can degrade if the moisture content has increased from the standard. In that case, one might have to measure the moisture content with respect to the standard.
The complexity of the report the will depend upon:
- Complexity of the manufacturing process
- Detail and accuracy required
- Level at which the calculation is required (plant, process or Both)
Before agreeing on creating this report on has to be very careful with the estimation of the cost involved in creating this report, the degree of accuracy required and the amount of detail required. I have seen projects where it has been done in few months and also where it took more than 2 years to get it right.
I believe this blog will help you to get a good idea and understanding of the basic concepts behind it. Please do share if you know of any alternative to this report. Thank you for reading it. Have a great day ahead.