To handle scrap and by-products in ERPNext, you add scrap items to the BOM's scrap section with a valuation rate, define a scrap warehouse, and record actual scrap when a Work Order completes. For expected process loss, you set a scrap percentage so material planning provides for wastage. This keeps both your stock and your costing accurate.
Every real production line loses material — offcuts, trimmings, filings, spillage — and some lines produce saleable by-products. If ERPNext does not account for these, two things break: your stock overstates raw material, and your finished-goods cost is wrong. Handling scrap properly is less about the scrap itself and more about accurate costing and inventory.
Scrap in ERPNext is a costing decision, not a warehouse afterthought. Recognised scrap either reduces finished-goods cost (if saleable) or documents expected loss (if pure wastage) — either way it makes your numbers honest. I am Manoj, an ERPNext and Frappe implementation consultant at MithTech in Bengaluru, and this guide explains the options.
How do I add scrap or by-products to a BOM in ERPNext?
You add scrap or by-products to an ERPNext BOM by entering them in the BOM's scrap items table, each with a quantity and a valuation rate. The valuation rate is what tells ERPNext the scrap has value — a recyclable offcut or a saleable by-product — which then reduces the net cost of the finished goods produced from that BOM. Scrap with no value is entered at a zero rate purely to record the quantity.
This is the right approach when the scrap is predictable and quantifiable per production run, such as metal filings from machining or fabric offcuts from cutting. The scrap items sit alongside the raw materials in the BOM, so every Work Order created from it knows what by-products to expect.
Skimmable summary: Add scrap to the BOM's scrap items table with a quantity and valuation rate — a value reduces finished-goods cost (saleable by-product), a zero rate just records quantity (pure wastage). Every Work Order from that BOM then expects the scrap.
What is the difference between a scrap warehouse and scrap percentage?
A scrap warehouse is where ERPNext stores recovered scrap as stock, prompting you to record actual scrap quantity when a Work Order finishes; a scrap percentage is a planning figure that provides for expected material wastage before production even runs. They solve different problems — one records what actually came out, the other plans for what you expect to lose.
| Feature | Scrap warehouse | Scrap percentage |
|---|---|---|
| Purpose | Store and value actual recovered scrap | Provide for expected wastage in planning |
| When it applies | At Work Order completion | At BOM / material planning |
| Effect | Adds scrap to stock, adjusts cost | Increases raw-material requirement |
| Best for | Saleable or recyclable by-products | Predictable process loss |
Use both together when appropriate: the percentage plans enough material for expected loss, and the scrap warehouse captures the recoverable portion as valued stock.
Skimmable summary: A scrap warehouse stores actual recovered scrap as valued stock at Work Order completion; a scrap percentage plans for expected wastage by increasing material requirement. Use both — one plans loss, the other captures recoverable scrap.
How does scrap affect finished-goods cost in ERPNext?
Saleable scrap reduces the finished-goods cost in ERPNext, because the value of recovered by-products is netted against the total production cost. If a run consumes ₹100 of material and produces ₹10 of saleable scrap, the finished goods carry roughly ₹90 of material cost rather than ₹100. Pure wastage, by contrast, stays in the cost — the lost material is simply consumed.
This is why the valuation rate on scrap items matters. Set it accurately and your finished-goods cost reflects reality; leave it at zero for genuinely valueless waste and the cost correctly absorbs the loss. Scrap handling is really a lever on costing accuracy, which is why I cover it alongside the full finished-goods costing guide.
Skimmable summary: Saleable scrap nets against production cost, lowering finished-goods cost; pure wastage stays absorbed in it. The scrap valuation rate is the lever — accurate rates give accurate costs, zero rates correctly absorb genuine loss.
When should I not model scrap in ERPNext?
You should not model scrap in ERPNext when the amount is immaterial, irregular, or not worth the data-entry effort to track. Adding scrap items and warehouse prompts to every Work Order has an operational cost, and for negligible or unpredictable waste that overhead outweighs the accuracy gained. The goal is honest numbers, not tracking every gram.
Model scrap where it is material to cost or where the by-product is genuinely saleable — machining, textiles, food processing, metal fabrication. Skip it where waste is trivial or where a simple periodic stock adjustment is enough. A good partner will tell you which of your BOMs actually need scrap modelling and which do not, so you are not burdening operators for no benefit.
Skimmable summary: Skip scrap modelling when the amount is immaterial or irregular — the data-entry overhead outweighs the accuracy. Model it where scrap is material to cost or genuinely saleable; use periodic stock adjustments for trivial waste.
Want your ERPNext costing to reflect real scrap?
I configure BOMs, scrap handling, and costing in ERPNext so your finished-goods cost is accurate to the rupee. See the ERPNext product page or the ERPNext manufacturing guide.
Frequently asked questions
How do I add scrap items to a BOM in ERPNext?
Enter the scrap or by-product items in the BOM's scrap items table, each with a quantity and a valuation rate. A valuation rate tells ERPNext the scrap has value and nets it against finished-goods cost; a zero rate simply records the quantity for a valueless waste. Every Work Order created from that BOM then knows what scrap to expect at completion.
How do I record actual scrap during production?
Define a scrap warehouse in Manufacturing Settings, and ERPNext will prompt you to record the actual scrap quantity when a Work Order is completed. The recovered scrap is added to the scrap warehouse as valued stock, so you can later sell or reuse it. This captures what actually came off the line rather than only the planned figure.
What is a scrap percentage in an ERPNext BOM?
A scrap percentage is a planning figure in the BOM that provides for expected material wastage, increasing the raw-material requirement so production plans have enough to cover normal process loss. It is used for predictable wastage — trimming, evaporation, offcuts — and works before production runs, unlike the scrap warehouse which records actual scrap afterwards.
Does scrap reduce my product cost in ERPNext?
Saleable scrap reduces finished-goods cost because its value is netted against total production cost. Pure wastage does not reduce cost — the lost material stays absorbed in the finished goods. The determining factor is the valuation rate you set on the scrap item: an accurate rate gives an accurate, lower cost; a zero rate keeps the loss in the cost.
Can ERPNext handle saleable by-products?
Yes. A saleable by-product is modelled as a scrap item with a realistic valuation rate, stored in a scrap warehouse as stock, and then sold like any other item. ERPNext nets its value against the finished-goods cost and lets you invoice it separately. This suits industries such as metal fabrication, food processing, and textiles that generate valuable by-products.
About the author
Manoj is an ERPNext and Frappe implementation consultant at MithTech in Bengaluru. He configures BOMs, scrap handling, and manufacturing costing in ERPNext so Indian manufacturers get finished-goods costs that reflect reality.