Free-Issue Material Tracking: UK Manufacturer Guide

Free-issue material tracking is how a contract manufacturer keeps control of materials its customer supplies and still owns: sheet, bar, castings, components or packaging sent in for you to process. Each delivery is received and labelled as the customer’s, kept apart from your own stock, issued only to that customer’s works orders, and reconciled so that every unit can be accounted for as finished parts, agreed scrap or a balance still held.

UK subcontract machinists, fabricators, assemblers and finishers handle free-issue material every week. The trouble starts when it is treated like ordinary stock. It gets borrowed for another job, used without a record, or counted in your stock valuation, and the shortfall only appears when the customer asks for their balance back.

Free-issue material in 30 seconds

• Free-issue material is supplied by the customer at no charge for you to process. You charge for your work, not the material.
• Chargeable issue is different: the customer sells you the material and you buy it back as part of the finished price.
• Ownership stays with the customer, so free-issue stock normally sits outside your own stock valuation. Confirm the accounting treatment with your accountant.
• The contract decides the details: scrap allowance, who owns offcuts and remnants, and who pays for losses.
• The control is a reconciliation: material received = material in finished parts + agreed scrap + balance held or returned.

If your works orders, stock records and goods-in sit in different places, that reconciliation turns into a stocktake every time a customer asks. A manufacturing production tracking system keeps material usage tied to each job as it happens.

What counts as free-issue material?

Typical free-issue arrangements in UK manufacturing include:

• a customer sending stainless or aluminium sheet to a laser cutting and folding shop;
• bar stock or forgings supplied to a CNC machining subcontractor;
• castings sent for machining and painting;
• PCBs and components consigned to an electronics assembler;
• branded packaging or labels supplied to a contract packer.

The customer usually does this to control material specification and traceability, to use their own purchasing prices, or because the material is already in their stock.

Free issue vs chargeable issue vs own stock

If you are on the other side, sending your own free-issue material to subcontractors, our guide to subcontract manufacturing tracking covers outbound issues, partial returns and supplier balances.

Why free-issue material goes missing

The same few causes come up again and again:

1. Mixed storage. Customer sheet sits on the same rack as your own material of the same grade and thickness.
2. Borrowing. A rush job needs 2 mm stainless, the customer’s sheets are there, and the intention to replace them is never recorded.
3. No issue record. Material is taken to the machine without being booked against the works order.
4. Scrap not recorded. Setup pieces, rejected nests and damaged sheets are binned without a reason or quantity.
5. Offcuts unclear. Remnants are reused on other jobs without anyone agreeing who owns them.
6. No regular statement. The customer only asks for a balance at the end of a contract, when nobody can reconstruct the history.

Each of these is a process problem, which is why the fix is a workflow first and software second.

UK considerations before you set up the process

Contract terms

Agree the rules in writing before material arrives:

• the scrap or yield allowance for each part or operation;
• who owns offcuts, remnants and swarf;
• what happens if more material is used than the allowance;
• who is liable for loss or damage while it is in your custody;
• how often you will report balances, and in what format;
• what happens to any balance when the order or contract ends.

Stock valuation and insurance

Because the material belongs to the customer, it normally should not be included in your own stock valuation, even though it sits on your shelves. Ask your accountant how it should be treated in your accounts and at year-end stocktakes. Check also that your insurance covers customers’ goods in your custody, and for what value.

Imported free-issue material and inward processing

Where material is imported and processed under HMRC’s inward processing procedure, customs rules add record-keeping requirements. GOV.UK guidance says inward processing requires authorisation before use, and the procedure must be discharged by re-exporting the goods, declaring them to another customs procedure, transferring them to another authorisation holder or destroying them. A bill of discharge must be sent no later than 30 days after the end of the period for discharge, and inward processing authorisation records must be kept for four years. The records must identify the goods and show their location and any movements.

Whether the customer or you hold the authorisation depends on the arrangement. If either does, your material records need to support it, which is another reason to track free-issue stock by customer, order and location rather than in a general stock pool.

The free-issue workflow, step by step

Step 1: Receive against the customer’s delivery note

Book the delivery in against the customer, their order or works order reference, the material specification, the quantity and any heat, batch or certificate numbers. Note shortages or damage on arrival and tell the customer the same day. Our guide to batch and lot tracking covers how to keep heat and batch references attached through production.

Step 2: Label and store it as the customer’s

Every bundle, pallet or tote gets a label with the customer, order reference and a unique receipt number. Store it in a designated customer location, or at least a clearly marked area, so it cannot be mistaken for your own stock of the same grade.

Step 3: Issue only to the customer’s works orders

Material leaves the location only when it is issued to a works order for that customer. The issue records quantity, receipt number and who issued it. If the system will not let a user issue customer material to another customer’s order or to an internal job, borrowing stops being a quiet habit. For the wider works order flow, see our guide to works order processing software.

Step 4: Record good output and scrap on the day

When the operation is complete, record good parts, scrap quantity and the reason for the scrap. Compare scrap with the allowance for the job while the operator still remembers what happened. Our guide to scrap and rework tracking explains reason codes and how to cost them.

Step 5: Handle remnants and returns deliberately

Usable remnants are either returned, held for the customer’s next order with their agreement, or treated according to the contract. Record which. Returned material goes out on a delivery note that references the original receipt.

Step 6: Send a regular balance statement

Send each customer a statement at an agreed interval, for example monthly, showing material received, issued, consumed in good parts, scrapped, returned and still held. A statement the customer can check is the best protection against a dispute at the end of the contract.

A worked GBP example

The figures below are hypothetical and illustrate the arithmetic. They are not an OpsMavix client case, and the prices are not market benchmarks.

A sheet metal subcontractor in the Midlands receives 120 sheets of stainless steel free-issue from a customer for an order of 1,000 brackets. The customer’s declared value is £85 per sheet, so the material on site is worth £10,200. The subcontractor charges £3.20 per bracket for laser cutting and folding, so the processing invoice is £3,200.

The nest gives 10 brackets per sheet, so 1,000 brackets need 100 sheets. The contract allows 3% scrap: 3 sheets. Maximum agreed usage is therefore 103 sheets.

Consumption is 104 sheets against an allowance of 103, so 1 sheet is over allowance. Depending on the contract, the subcontractor may have to pay for it: £85.

Now suppose 6 of the customer’s sheets were borrowed for an urgent internal job and never recorded. At the reconciliation, the customer expects 16 sheets back and only 10 are on the rack. If the subcontractor has to replace them at its own buying price of £92 a sheet, that costs £552.

• Over-allowance sheet: £85
• Replacement of borrowed sheets: 6 × £92 = £552
• Total: £637

That is 19.9% of the £3,200 processing invoice (£637 ÷ £3,200), lost on a job that was priced correctly. The borrowing probably felt harmless at the time.

What free-issue tracking software should do

Can your existing system do it?

Many stock and ERP systems can hold consigned or customer-owned stock in some form, and some do it well. Common gaps in smaller systems are: no way to stop customer material being issued to the wrong job, no scrap allowance per job, and no customer-facing statement without exporting to a spreadsheet. Test those three things before assuming your current system is enough. If the problem is wider stock control rather than one customer’s material, look at how an inventory automation system would handle ownership, locations and goods-in for your whole operation.

Costs, limitations and implementation

The cost depends mostly on how much you need to change. Adding customer-owned locations and labels to an existing system may be a configuration job. Enforcing issue rules, scrap allowances and statements usually needs either a system that already supports them or a custom workflow around your works orders.

Some limits apply whatever you choose:

• Physical separation still matters. Software cannot stop someone picking up the nearest sheet if both piles look the same.
• Recording must be quick. If booking an issue takes longer than the cut, operators will skip it. Scanning a label beats typing a reference.
• Contracts differ. Each customer may have different allowances and remnant rules, so the system needs per-customer or per-order settings.
• Customs and accounting rules need professional input. Use this guide for operational design, and take advice on inward processing, stock valuation and insurance.

A sensible rollout

1. Start with the customer whose free-issue material is highest in value or most often disputed.
2. Agree scrap allowances and remnant rules with them in writing.
3. Count and label everything you currently hold for them, and agree the opening balance.
4. Run the receive, issue and scrap workflow for one month.
5. Send the first balance statement and resolve any differences.
6. Extend to the next customer.

FAQ

What is free-issue material in manufacturing?

It is material a customer supplies at no charge for a manufacturer or subcontractor to process. The customer keeps ownership, and the manufacturer charges only for the work.

Should free-issue material be included in our stock valuation?

Normally not, because the material belongs to the customer. Your accountant should confirm the treatment for your accounts and stocktakes.

Who owns offcuts from free-issue material?

Whoever the contract says. If the contract is silent, agree it with the customer before production, because remnants of expensive material are a common source of disputes.

What is a reasonable scrap allowance?

It depends on the material, process, part geometry and batch size. Agree a figure for each part or operation with the customer, then track actual scrap against it so you can show the evidence if the allowance is wrong.

How often should we report free-issue balances to customers?

At whatever interval the contract or customer requires. A monthly statement is a common choice and makes differences easier to resolve than an annual reconciliation.

Does free-issue material need special treatment if it was imported?

If it is held under inward processing, customs rules apply, including authorisation, discharge deadlines and records that identify the goods, their location and movements. Check GOV.UK guidance and take advice from a customs specialist.

Conclusion

Free-issue material looks like a convenience: the customer sends the metal and you do the work. In practice it is someone else’s stock on your premises, and every unrecorded use, unexplained scrap or borrowed sheet becomes your cost. A simple rule set fixes most of it: receive and label it as theirs, store it apart, issue it only to their orders, record scrap on the day and send a statement they can check.

Start by picking one customer and producing their balance today: received, used, scrapped, returned and held. If that takes more than an hour, the process needs attention before the next order arrives.

How OpsMavix can help

OpsMavix builds production tracking systems for UK job shops, fabricators and make-to-order manufacturers, with every job’s stage, due date and cost visible on one live view. Explore manufacturing production tracking, then contact OpsMavix with one customer’s free-issue arrangement and how you track it today. We will map where material drops out of the record and what a controlled receive, issue and reconcile workflow would need.

Sources and further reading

• GOV.UK: Moving processed or repaired goods into free circulation or re-exporting them. Inward processing discharge, bill of discharge timing and record-keeping requirements.
• OpsMavix: Manufacturing production tracking. Current service information.
• OpsMavix: Inventory automation system. Current service information.

GBP figures in the worked example are hypothetical. This guide is general operational information, not legal, tax, customs or accounting advice; check your contracts and seek professional advice for your circumstances. Published 24 October 2026.