Tracking co-products is a vital function in any chemical manufacturing company. Here’s how to do it with and without the help of specialised software.

What are co-products?

Chemical manufacturing often results in the creation of valuable co-products that can be sold or reused in further chemical processing. Unlike waste or by-products with little value, co-products hold significant economic value and are often planned for as part of the production process.

For instance, co-products such as hydrogen or acetone are not only by-products of their respective processes but also critical raw materials for other industrial applications.

Therefore, the co-products of your chemical manufacturing processes should be tracked to maximise resource use and contribute to sustainability goals.

Benefits of tracking co-products in the chemical industry

Incorporating co-products into a comprehensive tracking system is essential for optimising operations and maximising profitability in chemical manufacturing. Accurate tracking enables businesses to reduce waste and allocate costs properly, providing a clear understanding of production expenses.

Effective tracking also facilitates optimised inventory management, preventing shortages or excess stock and improving overall supply chain efficiency. In addition, ensuring traceability for co-products helps chemical manufacturers comply with stringent environmental and safety regulations. A complete overview of all products, including co-products, enables better production planning and resource allocation, allowing manufacturers to meet market demands more effectively.

Furthermore, identifying new markets for co-products creates additional revenue streams, diversifying income and reducing reliance on primary product sales.

How to track co-products manually?

Manual tracking of co-products in chemical manufacturing requires a meticulous approach to record-keeping. Here’s how:

  1. Create detailed production logs. Document quantities of raw materials used, primary products created, and co-products generated in each batch.
  2. Include co-products in inventory records. Maintain accurate records of co-product quantities and update them after production runs or usage.
  3. Ensure traceability. Link co-products to specific raw material batches, ensuring traceability for quality control and regulatory needs.
  4. Allocate costs accurately. Divide production costs between main products and co-products using cost allocation formulas based on relative value or volume.
  5. Physically verify inventory. Regularly reconcile physical stock of co-products with inventory records to identify discrepancies.

Cost allocation example for co-products

For example, imagine that a production run produces a primary product and one co-product. Through analysis you find that the cost per unit of the primary product is 4 times greater than that of the co-product, approximately $40 and $10, respectively.

Next, you should calculate a cost allocation percentage by dividing the cost per unit of the particular product by the sum of the unit costs of all products created during the production run.

Product cost allocation rate = (CPU of product) / (Sum of all CPUs)

The cost percentage of the primary product is therefore:

Primary product = $40 / ($10 + $40) = 40 / 50 = 0.8 = 80%

The cost percentage of the co-product is:

Co-product = $10 / ($10 + $40) = 10 / 50 = 0.2 = 20%

Once this exercise is completed, next time when you have a production run, you can easily calculate actual costs of all products after totaling up production costs. For example:

Total production cost: Direct materials + Direct labor + Overhead = $ 1000
Cost of 24 main products: 24 x 80% x $1000 / (24 x 80% + 4 x 20%) = $ 960
Cost of 4 co-products: 4 x 20% x $1000 / (24 x 80% + 4 x 20%) = $ 40

 

Cost of 1 main product: $960 / 24 = $ 40
Cost of 1 co-product: $40 / 4 = $ 10

 

This approach enables consistent cost allocation between primary and co-products regardless of the number of co-products, variable input costs, and variable produced quantities.

Tracking co-products with manufacturing ERP software

Modern manufacturing ERP software simplifies co-product management by automating tracking and allocation. Key benefits include:

  • Integrated BOM functionality. Define and manage co-products within a single production process.
  • Automated inventory updates. Record co-products and scrap in real time, reducing manual effort.
  • Enhanced traceability. Maintain detailed records of raw material batches, ensuring compliance and quality assurance.
  • Cost allocation automation. Automatically distribute production costs between primary products and co-products based on predefined rules.
  • Real-time data access. Gain a comprehensive overview of inventory levels, production schedules, and supply chain status.

Adopting manufacturing ERP software not only streamlines co-product tracking but also improve decision-making and operational efficiency, enabling chemical manufacturers to remain competitive in a demanding market.

MRPeasy is a manufacturing ERP software ideal for growing chemical manufacturers. MRPeasy users report a 54% average increase in the operational efficiency of their company and a 39% increase in on-time deliveries. More info and a free trial are available at https://www.mrpeasy.com/