Whenever side products, which can further be used, occur in production of end products and material consumption, you can created special types of internal receiving and issue documents.

1. Settings of Items Register

Shrinkage is expressed quantitatively (not as percentage).

Here we can discern:

• end-product shrinkage – Define it in the main section of product specification (for examples see product shrinkage - net value and product shrinkage - gross value).

•   shrinkage of materials used – Define it in line of product specification (for examples see material shrinkage - net value and material shrinkage - gross value).

2. Setting up Document Types Settings

By default you use internal document issue type 69 for material shrinkage. On the other hand, internal document of issue type 71 is used for product shrinkage (see work orders in simple manufacturing | Movemements panel in Document Types settings).

The same warehouse is used as issuing warehouse in document type 69, that is, the WO warehouse. Regardless of the fact that you could create a new warehouse (e.g. warehouse for shrinkage), select WO warehouse as receiving warehouse in document type 71.

3. Calculating Gross and Net Shrinkage

Calculate shrinkage using the following two methods: Select it in the Work Order Document Types settings. The selected method will be used both in calculating material shrinkage as well as product shrinkage. Observe below:

• Deduct from Quantity Used (gross) (no S/N) - To create specification enter quantity of product in production as well as material used in production. Here amount of shinkage is not taken into account. See the following examples for material shrinkage and product shrinkage in continuation. 
• Add to Used Quantity (net) - To create specification enter final product quantity and that of material used in production. Here quantity of material and product shrinkage is added to the quantity in specification. See the following examples for material shrinkage and product shrinkage in continuation. 

It follows from the above mentioned principles and examples that you have to create specification according to the selected method used in relieving inventory.