Scrap Sales Policy & Procedure

Scrap Sales Policy & Procedure

Company Policy: CP011

Revision: 2 Page: 1 of 16

Company Policy
CP011
Scrap Sales Policy & Procedure

Revision: 2
Effective Date: July 1, 2005

Distribution List
Corporate Plant
Group Finance General Manager
Group IT Plant Manager
Group Procurement PPMC
Internal Audit Production
Finance Dept
Purchasing Dept
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SCRAP SALES POLICY & PROCEDURE SUMMARY:

REV DATE DESCRIPTIONS OF CHANGE ORIGINATOR

1 Nov 7, 1984 Initial Release Jett Fung
2 June 2, 2005 Revised Procedure Details & add Celia Chan
illustration

1.0 Objective
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To set forth a procedure

- to better manage company resources, reduce waste & losses
- to provide guideline to approve or remove scrap sales vendors to reach a fair, open
& win-win cooperation
- to meet environmental requirements e.g. ISO16949

2.0 Scope
This procedure is applicable to the sales of all scrap materials, direct or indirect including
used raw materials, defective raw materials, spare parts, WIP, finished products, MRA
boards (including PCBA) occur during production or arising from sub-contraction as well
as discard machineries & equipment.

3.0 Applicable Documents

3.1 Scrap Sales Authorization Form (S.S.A.)
3.2 Gate Pass (carbon copy of S.S.A.)
3.3 Inventory Return Note (IRN)
3.4 Material Review Board (MRB)

4.0 Definition
4.1 Scrap materials ( including but not limited to those exhibit under Attachment 9.2 for
illustrations of scrap materials):
4.1.1 WIP and Finished Goods scrapped during production
4.1.1.1 Normal WIP
4.1.1.2 On hold/Cancellation WIP incld. F/G & JIT Inventory when
authorization to scrap has been approved by the concerned customers and
regional sales manager/vice president.
4.1.1.3 Defective goods returned by customers to plants (MRA)
4.1.1.4 Defective raw materials
Document required for items under section 4.1.1: must have MRB coverage, and IRN
shall be used to document the return of the scrapped materials to the scrap material store.
4.1.2 Defective goods returns for credit: must support by duly approved MRA unless
specified otherwise.
4.1.3 Used drill bits, used spare parts, used chemicals, used indirect materials: must use
IRN to return to scrap material store.
4.1.4 Discard machineries & equipment: must support by duly approved fixed asset
disposition form.
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4.2 Scrap Sales Committee: must comprise managers from material control, production, store,
purchasing & finance department, and be chaired by the General Manager.

5.0 Reference Document

5.1 CP003: Purchasing Policy
5.2 IP001: Procurement of Materials and Provision of Services from Kingboard Group of
Companies
5.3 SPN001: Scrap PN# list (issued by group finance)

6.0 Responsibility
6.1 Scrap Sales Committee: control, evaluate & approve vendors.
6.2 Purchasing Department: prepare S.S.A, negotiate and collect resale price & inform group
procurement of scrap sales price.
6.3 Group Procurement: collect, compile and provide scrap sales prices list to all
manufacturing sites, as well as monitoring price consistency.
6.4 Divisional and Group Finance Department: monitor and ensure compliance with scrap
sales procedures and settlement of account is appropriately dealt with.
6.5 Production: separate and label scrap materials properly before storage.
6.6 Scrap Material Store: maintain correct in/out stock record, prepare monthly inventory
report & perform annual stock take for the scrap material.
6.7 Scrap Material Store, Finance Department & Purchasing Department: determine & verify
scrap sales quantity during the process of scrap sales activities.
6.8 Security guard: check proper documents are completed before allowing the trucks
leave the company premises.

7.0 Procedure
7.1 Scrap Sales Committee
7.1.1 Each plant must incorporate a scrap sales committee to control, evaluate &
approve vendors.
7.1.2 The committee members shall comprise managers from departments of
material control, production, store, purchasing & finance, and be chaired by
the General Manager.
7.1.3 Market price should be reviewed quarterly & renewed at least every half
yearly for presenting to group procurement for comparison.
7.1.4 The confirmed market price shall be valid for no more than 1 year
7.1.5 Vendor performance should be reviewed every half year.
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7.1.6 Finance will monitor and ensure compliance with the scrap sales
procedures including sales proceeds collection.

7.2 Pricing Requirement

7.2.1 Quotation should involve more than one vendor to ensure open & fair competition.
7.2.2 At least two vendors are required to provide quotations and test the content of the
solution.
7.2.3 Sales of laminate are based on the IP price with reasonable discount off the IP
price by comparing with board thickness and prevailing market price from time to
time
7.2.4 Scrap sales committee decides the final selling price. Group procurement will
help coordinate to ensure uniform price is used.
7.2.5 The price will only become effective after General Manager’s approval.

7.3 Duty, Tax & VAT Tax Consideration

7.3.1 Based on company license, identify material nature in order to arrange
proper declaration.
7.3.2 For domestic sales, scrap sales price should take into consideration Duty &
VAT arrangements.

7.4 Vendor Selection / Evaluation

7.4.1 Select the approved vendors with the valid license.
7.4.2 For the collection of hazardous materials, the vendors must possess appropriate
license and are not allowed to resale to third party again.
7.4.3 Must select vendors with reasonable pricing, quality services & background.
7.4.4 Must specify payment terms in the scrap sales contract.

7.5 Scrap Materials Handling

7.5.1 Production must separate and label their scrap materials daily & move to
scrap material store for storage.
7.5.2 If external store is required, it should be managed by both finance &
material control department. Each of these departments shall keep the door
key and representative from both departments must be present when
removing the scrap materials from the store.
7.5.3 Recycle materials must be stored in scrap material store and not to be
used/moved without permission. Must also maintain a complete in/out
stock record.
7.5.4 If customs clearance is needed, e.g. copper foil, Shipping department will
inform the manager in charge of scrap material store the declared scrapped
quantities.
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7.5.5 If customs clearance is not required, scrap material store will inform
purchasing department the scrap sales quantity to arrange the resale
document.

7.6 Sales of Scrap Materials

7.6.1 Weight Measurement within Factory Premises
7.6.1.1 Scrap material store, finance & purchasing department shall
weight & verify the quantity together. Finance department
should compare the figures with scrap material store’s record &
approved S.S.A. form.
7.6.1.2 Purchasing department will provide the latest price agreed by the
Scrap Sales Committee.
7.6.1.3 “Gate Pass” is also prepared by purchasing department &
approved.
7.6.1.4 Security guard should only allow the goods to leave the company
premises with the approved S.S.A. form & Gate Pass.

7.6.2 Weight Measurement outside Factory Premises

7.6.2.1 Scrap material store, finance & purchasing department should
monitor the loading of the truck & obtain the approved Gate Pass
before leaving for outside measurement.
7.6.2.2 Purchasing department will prepare the S.S.A. form based on the
weight for approval.
7.6.2.3 Security guard should only allow the goods to leave the company
premise with the approved S.S.A. form & Gate Pass.

7.6.3 Special Materials

7.6.3.1 Production will collect used gold solution regularly and must
inform finance department to monitor the process. The laboratory
will measure the concentration of the solution before sealed and
properly labeled before moving to storage.
7.6.3.2 Scrap sales committee must select the right vendor collectively and
prepare formal sales contract for the selected vendor.
7.6.3.3 The sales contract must be signed by both the Chairman of the
scrap sales committee and the representative of the vendor.
Validity of the sales contract shall not be longer than one year.

7.7 Payment Collection

7.7.1 Revenue from scrap sales must be tightly controlled in order to minimize any
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risk involves with cash management. Thus individual plant must have contract
coverage on one of the following payment methods with their scrap sales vendors:

7.7.1.1 Scrap sales amount equal or above RMB1,500: scrap vendor must
deposit the amount in the Company’s designated bank account
first, then present the receipt to finance to issue general invoice.
Finance department will provide the general invoice and S.S.A to
vendor as a form of approval to allow bringing the scrap materials
outside the company premise.
7.7.1.2 Scrap sales amount below RMB1,500: vendor can pay cash at
finance department. Again, the finance department will issue
general invoice together with S.S.A to vendor as a form of
approval to bring the scrap materials outside the company premise.
7.7.1.3 The scrap sales vendor could place certain amounts of deposit with
the designated bank account of the selling entity and these deposits
would apply against the proceeds of each scrap sales. When the
deposit fall below the scrap sales proceeds, the scrap vendor must
top-up the shortfall at the designated bank account to cover the full
amount before the selling entity will release the scrap sales
materials.
7.7.1.4 Finance department will issue general invoice for all scrap sales
activities. For other administrative cash receipts, finance
department will issue official receipt as Documentary proof.

7.7.2 All the above scrap sales activities & cash payment must complete during office
hours (except scrap solution) for better monitoring and control, this will allow
finance department to record all transactions on the same day. Scrap sales
proceeds will be kept under lock at finance department‘s safe deposit box
together with other cash on hand for monthly petty cash spending. If on hand
dollar value exceeds the upper limit of cash on hand set under the Group policy,
the finance department is responsible for depositing the surplus into the
designated bank account.

7.8 Monthly Report

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Regular reports are needed for purpose of monitoring & control. Scrap material store will
issue monthly stock report to monitor stock status and purchasing department will
monitor total scrap sales of the month. Group finance department will oversee the
Group’s procedural compliance as a whole.

7.9 Annual Scrap Material Stock taking

An annual scrap material stock taking exercise shall be conducted at once a year or as and
when the management deemed appropriate.

8.0 Records retention

Documents Resp Dept. Retention

Quotation Purchasing Dept 2 year
S.S.A. Accounting Dept 7 year
Gate Pass Accounting Dept 7 year
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9.0 Attachment
9.1 Scrap Sales Procedure
Scrap sales committee Accounting Vendor Purchasing Shipping Scrap material store Production Security

Keep Record Separate &

No label scrap
material
daily

Select right Apply

Special vendor & ask Declaration Req. Identify
Yes
material for quote customs special
? throung declaration material
bidding

No Yes
No Yes
Prepare SSA Ask lab to
Test the measure the
content concentration

Move to
Prepare Prepare storage with
quotation summary label
price with
minimum two
Review & vendors
decide final
selling price

Approved by
GM

Prepare
contract Yes Special
material

No

Signed by Arrange Identify the

GM collection scrap material
date

C B A
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Scrap sales committee Accounting Vendor Purchasing Shipping Scrap material store Production Security

C B A

Compare
weight Measure
YES
against SSA in plant

No

Endorsed Finalize price Load material

SSA with & qty to truck
company
chop

Ask scrap Prepare gate

material store pass
to prepare
gate pass

No

Monitor
outside Weight Check
No Yes
measure finished SSA &
gate pass

Yes

Receive Arrange Release truck

payment payment

End
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9.2 Scrap Sales Authorization Form (S.S.A.)

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Sample

9.3 Gate Pass

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Sample
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9.4 Inventory Return Note (IRN)

Sample
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9.5 Material Review Board (MRB)

Sample
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9.6 Illustration of Scrap Materials – see PDF file “Scrap Sales Photos CP011”
9.7 Scrap Material Part No. List – see excel file “Scarp matl part nos.”