Skip to content
Home » Co-products and by-products

Co-products and by-products

Overview

Co-products and by-products refer to different types of secondary products that are generated alongside the main product during the manufacturing or production process. The main differences between co-products and by-products lie in their intentional vs. incidental production, their relative cost allocation and burden, and how they are tracked and managed within the system.

  • Co-Products are intentionally produced alongside the main product and are treated as separate items with their own cost and inventory records. The production of co-products is planned and managed as a joint process, and a proportion of the total product costs is usually allocated to the co-product. Co-products are stored in inventory for use in subsequent productions or sold to customers. For example, when harvesting corn, the corn would be the main product but the co-products might include cornmeal, corn oil, and corn starch. All these products have their uses and will therefore have the production cost apportioned accordingly.
  • By-Products are secondary outputs that are produced alongside the main product and generally have lower value or significance compared to the main product. Unlike co-products, by-products might not be intentionally produced; they can arise incidentally or unexpectedly during the production process. By-products are stored in inventory and might have value and usability, but more typically have no value. Usually, by-products add a cost burden to the production to account for the disposal of the material. For example, in paper manufacturing, the production of paper can yield by-products like bark and sludge, which will need to be disposed of at a cost.
D365 Setup
Setup Co-products and by-products

In Dynamics 365 Supply Chain Management, individual items for each co-product or by-product that requires tracking will need to be created via Product information management > Products > Released products. Each item should have its unique item number, description, and any other relevant attributes. In the Engineer fast tab, select the relevant Co-product or by-product value for the Production type field:

Once the co and by-products have been created, they must be added to the formula version screen by clicking on the Co-products button in the Formula version action pane:

And then click the New button to add any required co-products and/or by-products:

When a batch order with associated co-products and/or by-products is reported as finished, as well as entering the quantity for the main product, the user is prompted to enter the quantities for any associated co-products and by-products:

Cost allocation for co-products

When a co-product is set up, the type of cost allocation can be specified to determine how the production costs are allocated between the main product being produced and any co-products. Cost allocation does not apply to by-products. The following options are available:

  • None ─ No cost allocation is applicable for the co-product item.
  • Manual ─ Use a cost allocation percentage. The percentage is specified in the corresponding Cost allocation percent field. For example, if the total cost of the production is 750, and the cost allocation percent is set to 5%, the co-product will be assigned a cost of 37.5 (assuming it is the only co-product)
  • Total Cost Allocation (TCA) ─ Cost allocation calculations are dynamic based on the quantity that is reported as finished. The percentages are estimated automatically, or the Estimate cost option can be used to check the suggested cost allocation. to use this method the Total cost allocation slider should be set to Yes on the formula version via Product information management > Products > Released products > Engineer > Formula versions:

And then select the Co-products button above to set the Co-product cost allocation field and use the Estimate cost option:

Burden cost allocation for by-products

When a by-product is set up, the type of cost allocation (or burden) can be specified (on the same screen as the co-product cost allocation fields) to determine how the production costs will be increased to cover the cost of the by-products. The following options are available:

  • None ─ No amount is added to the total cost of the production for this by-product line.
  • Percent ─ The burden cost amount is calculated as a percentage of the total cost of the batch order, therefore increasing the cost of the batch order. The percentage that is used for the calculation is entered in the By-product burden amount field.
  • Per series ─ The burden cost amount is a fixed amount based on the standard batch size of the batch order. This amount is independent of the reported quantity in production. The burden amount is scaled up or down based on the ratio of the batch order quantity to the per series on the by-product line. The amount that is used for the calculation is entered in the By-product burden amount field.
  • Per quantity ─ The burden cost amount is a fixed amount based on the reported quantity of the batch order. The burden amount is scaled up or down based on the ratio of material that is actually reported as finished on the batch order and the quantity on the by-product formula line. The amount that is used for the calculation is entered in the By-product burden amount field.
  • Recycled ─ The recycled burden is applied at the standard cost of the by-product but is not counted twice in the cost calculation of the batch order. To use the recycle burden, the by-product must be set at standard cost and have an active cost amount. The by-product must also be included as a formula line to be consumed as a recycled item.

Co-product/by-product variations

There may be times when a batch order produces unplanned co-products and/or by-products due to process deviations. This can be facilitated in Dynamics 365 Supply Chain Management by checking the Co-product variations option in the formula version. When this is checked and the status of a batch order is Created, new co-products or by-products can be manually added to the order by using the Co-Products form, allowing these to be reported as finished.

Planning items

There may be a requirement whereby there are multiple co-products (and by-products) with no main item to be produced, for example, a sheet of metal might be laser cut to produce multiple different co-products – a single batch order with multiple finished items. This can be achieved in Dynamics 365 Supply Chain Management by setting up a Planning item product which acts as a placeholder to create a formula that produces only co-products without a primary item. Planning items are not realised into inventory when the batch order is reported as finished, only the co-products will be reported and all the production costs will be allocated across the co-products.

Learning with Microsoft

Further information related to co-products and by-products can be found on Microsoft Learn via the URLs below.

Coproducts – Training | Microsoft Learn

By-products – Training | Microsoft Learn

Planning items – Training | Microsoft Learn