I believe you need to re-open the shop order on site 2. Then either report PN 12345 as component scrap on this shop order, and issue another one from stock (once it has been manufactured and shipped from site 1).

Where do you want the scrap hit to occur?  Site 1 or 2?

Do you want to capture any rework for replacing the part, if so in which site?

Lots of ways to go about it really, depends on the intended outcome and how much handling you want to do.

1. Send the entire finished component back to Site 1 and make them fix it and return
2. Get a new 12345 part from Site 1, swap it out with no transactions to the part or shop order itself.  Return the defective 12345 to Site 1 and have them scrap on receipt.
3. Create an MRB case against the shop order to fully document the failure.  Open the shop order, unissue the defective 12345, reissue the new 12345, close the shop order, return the defective one to be processed in Site 1.

It all depends on how you want the transactions to reflect the reality of what you are doing.  If you aren’t actually doing some of the steps, there is no point making IFS look like you did them.  Conversely, if you are doing all of the steps AND want to document everything that happened in a transactional way, then you have to go through all of the transactions to document what you did exactly.

Hello @ShawnBerk we would want the scrap hit to occur at Site 1. Ideally, if Site 2 could send the component back to Site 1 and have them scrap it, that would be what we would want to see in IFS. We do not have the Inventory Part established in Site 1, would we still be able to accomplish this?

No, my scenario number 3 is predicated on the BOM being available in both sites.  I was thinking in the context of how we work, so I made a poor assumption your site setup was the same.

Our Site 2 has all parts and the full BOM because they are the final assembly and selling site.

Our Site 1 has only the parts they machine and assemble at the lower levels but rarely the upper level assembly.  So all subbed machining and assembly work can follow the full scenario number 3 (that is our mode of operation).  

If you have partial BOMs in both sites, then you would need to add in an update mechanism to insert the defective parts as inventory parts at the time they are needed.  But you are starting at a disadvantaged point because you can’t order a new part at the lower level, you can unissue and reissue the part at the lower level until the part has been added as a trasactionable part  

In fact after talking through this...I see why you are stuck in the situation you are.  Without the part available at the start, your options are very limited.

@ShawnBerk Yes, unfortunately this is a scenario we have struggled with. Would the best approach be to disassemble the finished part at Site 2 and move the component part to Site 1 and perform a scrap from Inventory?