Raw materials are the main components of a finished product, which physically and by value dominate its composition – for example, leather in shoemaking, steel in mechanical engineering, or flour in bakery production. In SAP Business One, they are designated as components in Production parts lists defined, removed from inventory during the manufacturing process and incorporated into the cost of manufacturing the end product as material costs.
Accounting classification
The correct classification is not just a conceptual refinement – it determines whether costs are captured in expense accounts and the valuation of inventory on the balance sheet, where raw materials are reported under stock. Three categories are to be clearly distinguished:
- Raw materials Main components that enter the final product physically and in terms of value dominance.
- Auxiliary substances Ancillary components that are incorporated into the product but are subordinate in value or quantity — glue, nails, screws.
- Operating materials are consumed, but not physically into the product – machine oil, sandpaper, cleaning agents.
This demarcation is not only relevant for tax and commercial law, but also for cost accounting: raw materials are allocated to direct costs, while auxiliary and operating materials are usually charged as overheads.
Bill of materials role
Rohmaterialien werden als Positionen in der Production bill of materials of the end product is stored — with item number, required quantity and output method. The bill of materials type „Production" is the basis for every manufacturing process and lists all raw materials, as well as any auxiliary materials and resources, required for the production of the final product.
Configuration via: Module → Production → Bills of Materials.
Material Issue and Consumption
material withdrawal Material issue and reduces the stock of components. SAP Business One supports two methods:
- Manual output („push"): The components are explicitly transferred via the voucher „Output for production" booked – before or during manufacturing. Configuration via: Module → Production → Output for Production.
- Automatic Output („Backflush" / „Pull"): The components are automatically de-booked upon completion of the finished product, based on the quantities in the production order's bill of materials. This significantly reduces manual booking effort.
The method is specified in the item master data or in the production order (e.g. „Feedback on completion notification"Manual issue is the only option for raw materials tracked by batch and serial number, as batch/serial numbers cannot be automatically assigned during backflushing.
Cost accounting and inventory valuation
The costs of the consumed raw materials are incorporated directly into the actual costing of the finished product. Upon completion reporting (Module → Production → Input from productionThe system sums the material costs of all raw materials and components used, as well as accounted for resource costs, to determine the purchase price of the manufactured item.
Depending on the valuation method (FIFO, moving average, standard price), changes in raw material prices affect manufacturing costs at different speeds. With the moving average, changes in purchase prices have an immediate effect — with FIFO only when older layers have been used up.
Material Requirements Planning (MRP)
Of the MRP Assistant (Module → MRP → MRP Assistanttakes into account the raw material requirements resulting from planned production orders for finished products. Based on open requirements, current stock levels, open orders, safety stocks and forecasts, the MRP run generates recommendations – either orders from external suppliers or production orders for internally manufactured sub-products.
Precise MRP maintenance is particularly important for raw materials: bottlenecks with a single raw material can bring entire production chains to a standstill, while excess stocks tie up unnecessary capital.
Dismantling and recovery
With a Disassembly Is the production process reversed: A parent item is dismantled, and the contained raw materials are returned to stock. The stock value of the parent item is distributed proportionally to the returned components – according to their current valuation in the system.
Practical tip
Separate raw materials and auxiliary materials into separate item groups and with different cost accounts. This makes it easier to analyse individual material costs, makes the calculation of gross profit more precise, and simplifies reporting to tax advisors or auditors. Operating supplies do not belong in the production bill of materials anyway – record them as separate expense postings, not as bill of materials components.
Demarcation
Raw materials are not the same as Merchandise — these are resold unchanged and do not undergo a production process. They must also be distinguished from Semi-finished goodsThese are already created as an intermediate product in the manufacturing process and can either be further processed or sold as standalone items. They also differ from Operating materials, which are consumed in the production process but do not physically become part of the end product – they do not belong on the bill of materials, but on overhead accounts.
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