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Scrap Management

This guide explains how to manage inventory scrap, spoilage, and disposal in Kezi ERP. Proper management of scrapped items ensures accurate inventory counts and correct financial reporting of losses.

Overview

Scrap Management is the process of removing items from your active inventory when they are no longer sellable or usable due to:

  • Damage (broken, defective)
  • Expiry (perishable goods past their date)
  • Obsolescence (outdated technology or styles)
  • Theft/Loss (inventory shrinkage)

In Kezi ERP, scrapping is handled through Stock Moves or Inventory Adjustments, moving items from a physical stock location to a virtual "loss" location.

Key Concepts

Virtual Scrap/Adjustment Locations

Unlike physical warehouses, a scrap location is a Virtual Location. When you move goods here:

  1. They are removed from your available stock.
  2. The system recognizes that they have left the company's asset value.
  3. An accounting entry is generated to write off the asset cost.

Accounting Impact

When you confirm a scrap operation, the system automatically:

  • Credits the Inventory Asset Account (reducing asset value).
  • Debits the Inventory Adjustment/Loss Account (recognizing the expense).

How to Scrap Items

The recommended method to scrap items is by creating a Stock Move with the Adjustment type.

Step 1: Create a Stock Move

  1. Navigate to Inventory > Operations > Stock Moves.
  2. Click Create.

Step 2: Configure the Move

Fill in the following details:

  • Reference: Enter a descriptive reference (e.g., SCRAP/2024/001).
  • Move Type: Select Adjustment.
  • Description: Document the reason for the scrap (e.g., "Broken Pallet", "Expired milk").

Step 3: Add Products

In the Product Lines section:

  1. Product: Select the item to be scrapped.
  2. Quantity: Enter the quantity to remove.
  3. From Location: Select the physical location (e.g., WH/Stock).
  4. To Location: Select the Inventory Adjustment (or Scrap) virtual location.

    Note: This ensures the items are properly written off.

Step 4: Confirm and Validate

  1. Click Save to create the draft.
  2. Review the details.
  3. Click Confirm Movement.

Once confirmed:

  • The stock quantity is immediately reduced.
  • The financial journal entry is posted.

Scrapping vs. Returns

  • Use Scrap: When the item has no value and is being destroyed or discarded.
  • Use Vendor Return: When the item is damaged but can be returned to the supplier for credit (use a Debit Note or Return instead).

Reporting & Analysis

To review your scrap history:

  1. Go to Inventory > Operations > Stock Moves.
  2. Filter by Move Type: Adjustment.
  3. You can also filter by "To Location" = Adjustment/Scrap to see all disposals.

Cost Analysis

The cost of scrapped goods is calculated based on the product's valuation method (FIFO/Average Cost) at the time of the move. This cost flows into your Profit & Loss report under Inventory Loss/Adjustment Expenses.