20.

1.

SURPLUS, SALVAGE & SCRAP DISPOSAL

Introduction: Surplus and scrap are materials and so are a part of the general material managements responsibility. Quite often it is debated, as to why materials management department (purchasing in particular) be responsible for them. Other management areas, which could have handled this task are sales and the production manufacturing department. But sales department who are mainly concerned with finding avenues for end product are not properly geared for this purpose, and their customers rarely fall in line with those who will be using the companys surplus and scrap. Similarly the production/manufacturing department who uses the materials and are responsible for production of scraps does not have the contact or avenues for disposal of such items. Again, the task of surplus, and scrap disposal hardly justifies the existence of a separate department. The performance of the materials management department is judged by the financial, as well as physical aspects of inventory. Surplus and scrap materials are a liability and should be eliminated, since those materials were produced by purchasing (a part of Materials Management) so the recovery of value for such scrap and surplus materials can logically be considered as an off setting factor of materials cost, a responsibility of purchasing. The nearness of the purchasing department to market and also to consumer of similar type of materials is another factor which stresses the need that scrap and surplus disposal be handled by the purchase department. For best results i.e. maximum recovery of value from its scrap and surplus i.e. maximum recovery of value from its scrap and surplus (whose market is volatile) purchasing can correlate market fluctuations and demand in the best possible way.

2.

Scrap: There are basically two types of scrap, one that arises almost on daily basis as and when production is on and is directly proportional to the production of finished product, e.g. purchased sheets, steel, swart, cast iron borings, etc. The other types of scrap arising is for reason of faulty manufacture or used materials like worn out spares, tools etc.

Before scraps are disposed, it is essential to investigate whether the scrap material could be used and where else in the factory. For example, a punched sheet can be used for a smaller pressed component. The next step would be to investigate whether the scrap could be converted into any useful product for the company e.g. if we have a foundry and a machining section, aluminium swarf can be converted into aluminium alloy ingots of required specification. The cost could be considerably cheaper than buying alloy ingots from outside. Inviting suggestions from workers would be helpful in putting the scrap into more effective use. If all these efforts fail, scrap disposal to outside parties must be considered. The first step would be to ensure that the scrap is segregated properly so that it can fetch the maximum price. It is also worthwhile to install oil reclamation facilities, especially in view of the present high price levels. In addition to getting reclaimed oil from swarf, the scrap is likely to fetch a better price when it is free of oil. Where the scrap arising is considerable, one may consider going in for scrap handling equipment like Fork Lift with special turning attachment and also baling presses for swarf. As far as possible, it is better to sell the scrap to the main user than to the intermediaries like scrap dealers. 3. Surplus & Scrap disposal programme: To prevent generation of scrap of surplus items, efforts must be made to eliminate it at the source. This could be accomplished by a. b. Careful screening of requisitions in relation to the need as that no overbuying takes place. Check specification of items properly and ensure better quality control, so that no unwanted material is bought and no inferior quality material is accepted.

c.

Purchasing of materials in such a form or dimensions as to minimize waste. If possible, try to get required materials in the required dimensions and designs e.g. timber plants, etc. Variety reduction and standardization. Slight design changes may also enable great economies. Check estimates of projects, expansion programmes etc. so as to prevent overbuying. Abandonment of projects may also increase the surplus. Proper identification of stores and proper storage.

d. e.

f.

Though the above points are simple to state, they rarely come to light by themselves. A comprehensive system of control has to be initiated, which can be taken in three ways. a. Periodic Review Review of stock records are made on a systematic basis taking a specific section each week or month, so that the entire list is covered once or twice a year. Analysis of Physical Inventory at the time of stock verification. Standards can be set up to indicate the basis upon which an item should be declared surplus e.g. materials not issued for 2/3 years quantities in excess of requirement of 6/12 months etc. Periodic clean up campaign.

b.

c.

The disposal of scrap and surplus can be done in either of the ways: a. Utilise as a substitute material or in some other model or product may be done in cooperation with design. b. Transfer to some other department/factory under the same management. c. Return to supplier or sale it to a consumer organisation. The latter method pays more money.

d. Sale as a surplus material through advertisement, tenders are invited or by direct bidding. e. Sale as a scrap may be through scrap dealers. Since scrap market is of fluctuating nature, it may prove to be helpful to hold up the scrap for some time to get the maximum price. Storage in such circumstances may pose a problem. In the scrap market buyer is more informed than the seller. In order to offset the scrap buyers advantage of a more intimate knowledge of types and prices, some company employ commissioned agents. These agents are paid commission on the sales of scrap and recommends measures of segregating scrap, grading, handling, weighing and accounting for scrap. This procedure frees purchasing agent for concentration on his more important activities better control over this fringe business. 4. Procurement by Salvage: Before declaring material as scrap it is always better to examine possibilities of salvaging some of the material so that it can be reused. Further more, an item, which is declared scrap in one department, may be usable as raw material in another one. In case of tipped tools reshaping tip or filling it to another shaft, may adapt it satisfactorily for another operation. Cutting coils can be reclaimed and reconditioned a second or third time. Worn out insulated wires, after salvaging gives useful copper scrap. But in all types of salvaging it should be carefully examined that the cost of salvaging should not exceed the cost of the material, otherwise, it would not economical to salvage the material. 5. Procedure for Scrap Disposal: Usually, purchase department is entrusted with the responsibility of Disposal of scrap. Purchase officers intimate knowledge of the price trends may be a possible reason for this. Their familiarity with the needs of all departments may prove useful in suggesting alternative uses of the scrap material in some other department where it is required, within the organisation. It is also argued that placing the responsibility on the purchasing officer broadens his outlook by giving him some idea of his vendors.

There are usually two methods followed in the disposal of Scrap (1) Tender System & (2) Negotiations. In both the systems, enquiries are sent to the various scrap users and dealers indicating the likely arising, period of contract and earnest money to be deposited by the intending bidders, and last date for receipt of tender. In the tender system, the date of opening of tender will also be intimated. The list of parties will be based on their financial soundness and ability to clear the materials in time. In the tender system offers are received in sealed covers and on a specified date they are opened in the presence of various tenderers, and the one who has offered the highest price is given the contract for a period of 3 months, or 6 months or one year, as the case may be. The company however reserves the right not to enter into contract in case even the maximum offer is not acceptable. This system has an obvious disadvantage where the various scrap dealers can manipulate the offers by forming themselves into a cartel. This system is however, found to be viewed favourable both by the tenderers as well as the company management since there is no chance for a shady deal. In the other system viz. Negotiations System, offers are not opened in the presence of the intending tenderers, but are opened by a responsible senior officer of the purchase department and various offers are tabulated. The highest bidder is offered the contract or in case the prices are not upto the expectation, the highest few bidders for each item are called for negotiations and final prices arrived at.