What is By-Products and Co-Products?
Additional outputs that emerge alongside the main product in a process run, where co-products are intended and valuable and by-products are secondary or incidental.
Definition
In process manufacturing, a single production run often yields more than one output. Co-products are multiple intended, saleable products of comparable value produced together, such as the various cuts from meat processing or fractions from refining crude oil. By-products are secondary, incidental outputs of lower value that result from making the main product, which may be sold, reused, or disposed of, such as whey from cheese or sawdust from milling. Both must be planned, received into inventory, and costed, which raises the challenge of cost allocation: how to split the total batch cost across the main product, co-products, and by-products fairly. Handling these outputs is a defining requirement that separates true process ERPs from discrete systems.
How By-Products and Co-Products Works in ERP
A process ERP lets a formula or batch order define expected co-products and by-products with their yields, then receives all outputs into inventory when the batch completes. It applies cost-allocation methods, such as by relative sales value or fixed percentages, to distribute the batch's total cost across the main product, co-products, and by-products. Each output carries its own lot, valuation, and traceability, and by-products can be valued at net realizable value or zero depending on policy.
ERP Vendors with Strong By-Products and Co-Products
Deacom ERP
Single-system ERP for process and batch manufacturers
BatchMaster ERP
Process manufacturing ERP with formulation and batch management
Datacor ERP
Specialised ERP for chemical, coatings, and process industries
Aptean ERP
Industry-specific ERP solutions for food, beverage, and industrial manufacturers
Frequently Asked Questions
What is the difference between a co-product and a by-product?
Co-products are multiple intended, valuable outputs produced together in roughly comparable importance, like the different fuels from refining crude oil. By-products are secondary, lower-value outputs that incidentally result from making the main product, such as whey from cheesemaking. The distinction matters mainly for how the ERP allocates batch cost and values each output in inventory.
How does ERP allocate cost to co-products and by-products?
Process ERPs use cost-allocation methods to split a batch's total cost across its outputs, commonly by relative sales value, by fixed percentages, or by physical measure. By-products are often valued at net realizable value or assigned minimal cost, with the remainder allocated to the main and co-products. The chosen method directly affects each output's inventory valuation and reported margin.