Module: 34-Disposal of Obsolete surplus and Scrap
P-1
DO IT-VIRTUAL-UNIVERSITY
School of Science and Applied
Management Economics
>>[MODULE:-34<<
Learning objectives!
Xx
34.1-Introduction!
Although the disposal of obsolete, surplus and scrap is in appearance a sales
function, it is generally handled by the Material Department because of its better
knowledge of the market conditions and of the dealers and users who purchase
such items. Materials Department is also in a position to bring pressure on the
original suppliers to accept the return of surplus stocks. Thirdly, materials which
are surplus to one department may be of use to another and the Materials
Department is in a better position to know about such requirements. Fourthly, the
responsibility for keeping a low inventory is that of the Materials Department and
the disposal on surplus is a part of that process. Further the fact that certain
materials are to be disposed of from time to time induces a greater vigilance on
the part of the Materials Department when making purchases if the disposal is
also handled by them.
34.2-Osolete Items
Obsolete items are those items which have gone out of date because of new
inventions, discoveries, changes in product line, process, materials, etc., and
further use of such items may entail a loss to the organisation. An obsolete item is
not damaged. It has its own economic worth but no longer be used for the
organisation's operations as advantageously as it has hitherto been used.
Though obsolete items have their own economic worth but they do not fetch the
purchase price. Nor they are accepted by the buyers enthusiastically.
34.3-Osolete Items
Surplus .denotes the excess of materials and equipments in the stock either not
required by the units concerned or likely to last longer than a reasonable period
without being put to use. The surplus has no immediate use. But this clearly
indicates that surpluses of today may prove useful tomorrow They may have
usage value in future. During storage and preservation.
Of course, today they are surplus because of faulty materials planning, erroneous
forecasting and unwise purchasing. Surpluses block the capital, increase inventory
carrying cost and pose many a problem
The following are the circumstances which give rise to surplus: -
(a) Where there is over-stocking because of faulty planning or inefficient inventory
control.
(b)-When production programme is drastically curtailed because of circumstances
beyond the control of the management. This results in non-utilisation of materials in
stock.
(c)When wrong items are purchased. This again results in non utilisation of materials
which might have been the result of wrong purchase requisitions submitted to the
purchase department.
(D) When specification goes under change because of change in the policy or because
of unhealthy competition being faced in the market resulting in change of production
policy and programme. When the work is completed and on completion because
of miscalculation and wrong estimates there may remain a surplus.
34.4-Scrap items
Scraps, ordinarily, are those items which cannot be effectively and purposefully put to use
in the organisation. They are technically defined as process wastage. Turnings, borings,
sprues, flashes and other wastages, spoilages, empties, brokens, and worn-out materials,
tools and irreparable materials are categorised as scrap. Scraps do not indicate that they
don't have any end-use in the plant They do have an end-use and that is why they have
economic worth and can have market value. They fetch some value out of them.
34.5-Salvagep items
Salvage and scrap should not be confused. Salvage are those items which cannot be put
to use for the original purpose for which they were procured and they have hitherto been
used. However, parts of the salvaged items may be collected and may be utilised in
repairs, replacement, etc. An aircraft, if met with an accident, may be destroyed
completely and, thus, cannot be used for flying purposes - its original purpose. Some of its
parts, however, such as time recorder, voice-recorder, etc., may be found intact. These
instruments, if found in perfect working condition, maybe utilised in some of the other
aircraft, if need be Thus, aircraft', in this example, is termed as 'salvageable' and time and
voice recorders are termed as 'salvaged items'.

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34.6-Manement of obsolete, surplus and scrap
The management of obsolete, surplus and scraps calls for an effective
organisation for location, collection and disposal of obsolete, surplus and scrap
materials. In almost all organisations in Uganda, the responsibility of disposal is
shouldered by the purchase department. The department specialises in the study
of market conditions and thus it is expected of it to do better than any other
department in the matter. It is obviously better positioned to know the prospective
customers and the value which these items can fetch. This is all a purchase
department of an organisation can do in this matter.
But a very pertinent question arises: Why go in for disposal and be dependent on
the purchase department for their disposal? Is it not worthwhile to look for the
minimisation of all these times so that off and on the question of their disposal may
not arise?. Minimisation of these items is worth considering. But alas! the
purchase department is neither equipped with nor is able to suggest the ways and
the means for their minimisation. Moreover, the purchase department cannot
work on full time basis for this purpose. At best it can depute one or two assistants
to look after the problems relating to obsolete, surplus and scrap materials. An
organisation having the duties and obligations:-
(i) to take effective steps to minimise the volume of these items,
(ii) to take necessary steps to locate their place within reasonable time with
minimum efforts,
(iii) to take steps for their collection from their places of occurrence, and
(iv) to take appropriate steps for their disposal with maximum efficiency
with a view to fetch more value from them in the market, would naturally help in:-
(a)minimising their volume and
(b)maximising the efficiency in disposing of these materials.
It is, therefore, advocated to have a full-time organisation for effective
management of obsolete, surplus and scrap materials under an independent
incharge of the department who should be accredited with the job of managing
these items. Such an organisation may be designated as Waste Management
Department and the incharge may be designated as Waste Manager, who should
be answerable to the Production Manager, and who should be asked to work in full
co-ordination with Materials and Purchase Departments. Obviously, such an
arrangement within the undertaking may produce a better result.
Module: 34-Disposal of Obsolete surplus and Scrap
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But to have a full-time department for waste management may prove costly for small and
medium sized undertakings. A large organisation can easily afford the luxury of having a
full-time waste management department. For a small and medium sized organisation, it
is suggested that an expert preferably under Production Manager may be asked to look
after the management of obsolete, surplus and scrap items. Of course, he should be
specially asked to coordinate his efforts with Materials and Purchase Departments. He
then will be able to do justice with his assigned work and help the organisation in the
same manner in which a full-time department in a large organisation does or is expected
to do
34.7-Why the name waste management services
Certainly this is a relevant question. ' Waste' is an item which cannot be put to use
(i) purposefully, and
(ii) advantageously in the organisation, where it has occurred.
However it has some economic worth and can easily fetch some value in the market.
There are three sources of waste in an industry. They are:-
1-Obsolete,
2-Surplus, and
3-Scrap
Since the three constitute the waste in an industry, therefore, the name Waste
Management Department'.
34.8-Identification, control and disposal of waste materials
A combination of
(i) stock records, and
(ii) movement analysis, help in identifying and controlling all the waste materials in the
organisation.
When there is surplus anywhere in the organisation, it is the duty of the concerned unit to
inform the waste management department, or the expert or the purchase department
with all details so as to enable the concerned department to take appropriate and time
action for its collection and disposal The waste management or the concerned
department will then be required to prepare a list of surplus items which are awaiting
disposal at the end of a period - usually a quarter or a year. Care should, however, be
taken to segregate those items which are surplus in character but which can be put to
use at a later date, since such items need no disposal.
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Disposable items should be disposed off at the earliest to avoid unnecessary
locking up of capital and increase in inventory carrying cost on such items. The
surpluses should, as far as possible, be disposed of at the purchase price as the
sale of surplus below purchase price will amount to loss to the organisation.
Scrap items are also to be located, collected and enlisted. All enlisted scraps are
usually stocked at one place. Heavy items, however, may be sold at their location
itself.
Scraps arise both at consumption and generation stage where some residuals, are
left during processing. This cannot be avoided but can easily be minimised by
careful planning, programming, scheduling and above all imaginative personnel
management. During processing scraps tend to go up because of either operators
error or unimaginative personnel management. Unimaginative and stereotyped
personnel management in the plant results in:

Disposal of surplus may be affected by the following methods:- (i) Monotony;

(ii) Frustration;
1-By circulating the list of surplus to intending purchasers by inviting their (iii) Mental strain;
quotations. (iv) Physical fatigue;
2-By advertising in newspapers, periodicals and other media giving details of the (v) Ambiguity in design;
items to be disposed of. (vi) Carelessness;
3-By putting the surplus items to public auction. (vii) Spoilage; and
(viii) Overall workers' inefficiency
In multi-units organisation it is better to circulate the list of surplus materials. The
concerned units should be asked to scrutinise the list honestly, judiciously and An imaginative and better personnel management may help in removing some of the
systematically keeping in mind the organisation's interest and, if need be, ask the above defects which in turn may help in minimising the scrap. This should obviously
department not to dispose off the surplus materials which they can purposefully and be the primary aim of an organisation.
advantageously use in their respective units.
Disposal of scraps may be affected by the following three methods:
The obsolete item needs proper enlisting and scrutiny and expert advice should be
taken before deciding to dispose it off. The waste management department should in 1-By entering into annual contact with intending purchasers.
such cases try to locate the obsolete item as early as possible and get it declared 2-By putting the scraps to public auction.
obsolete, if procedure demands such a declaration. Then the department should 3-By inviting offers from intending purchasers from time to time.
prepare a list and take action to dispose the items off. If, however, they are being .
declared as obsolete due to technical reasons, it is better to write them off the books It is better to ensure within the organisation itself that the scraps cannot be effectively
before the end of the financial year so as to include in the inventory only those obsolete used in different units. Scraps of one organisation may be the raw materials of
items which can still be put to use. another. Therefore, proper disposal of scraps must be arranged Scraps may fetch
good value for themselves and thus the organisation may be benefitted.
The disposal of obsolete item may also be done by the methods discussed for the
disposal of surplus. However, the best disposal method for obsolete items is public
auction as there is every likelihood that they may fetch more value by this method than
any of the other two

Technically, one may be inclined to reclaim the obsolete matenals tor turtner use. This,
in the technical term, may be able to realise the greatest value of items declared
obsolete. However, cost factor in such a decision should be analysed and all aspects
considered well before reclamation is attempted at. It is the expenses of reclamation
and the savings in its (item's) use after reclamation which has to be fully assessed.
Reclamation is better than disposal but only if comparative cost and savings allow the
organisation to decide for reclamation.