Scrap rate

From CEOpedia | Management online

Scrap rate is the percentage of unsuccessful kits or materials that can not be repaired or restored and is therefore condemned and rejected.The scrap rate measures the production quality of the production function. The high value of this KPI is probably indicative of poor raw material inputs, careless production configuration procedures, faulty machines or inefficient production operators, which will increase the company's costs and slow down daily operations.

What is the value of scrap?

The value of scrap is the value of individual components of a physical asset when the asset itself is no longer used. The individual components known as scrap metal are worth something if they can be used for other purposes. Sometimes you can use scrap as such; at other times they must be processed before they can be re-used. The value of the item's scrap depends on the supply and demand for materials to which it can be divided

The scrap rate measures the production quality of the production function. The high value of this KPI is probably indicative of poor raw material inputs, careless production configuration procedures, faulty machines or inefficient production operators, which will increase the company's costs and slow down daily operations. A very high scrap ratio may also lead to the inability to produce enough ready-made products to fulfill customer orders. The scrapping rate can be reduced by increasing the number of training for programmers and operators, documenting product data throughout the process, or using scientific approaches such as Six Sigma or multivariate tests[1].

The Formula For Calculating Scrap Value Is:

Scrap Value = Cost of Asset − (Depreciation x Useful Life)

Negative Scrap Value

The scrap value of an asset can be negative if the cost of disposing the asset results in a net cash outflow that is a contributing factor in the scrap value. For example, consider the value of land owned by a company that only slightly went up in value by the end of its useful life. The scrap value of the land may be negative if the cost of demolishing any building on the land is higher than the cost of the land and the market price for the individual demolished components that can be sold for a value.

Instructions for calculating the KPI indicator Scrap rate

Two values are used to calculate this KPI: the number of units that were scrapped during the production process, and the total number of units produced in the same period of time. Scrapped units are defined as any production output units that are not good units or units that are processed. Good units are defined as units that undergo inspection and are approved for sale or use as a component in another production cycle. Include good units, converted units and scrapped units in the denominator of this calculation[2].

KPI formula:

(Number of scrapped units / total number of units produced) x 100

Examples of Scrap rate

  • Manufacturing: In a manufacturing process, scrap rate could refer to the percentage of raw materials, components, and products that are either damaged or unusable. This rate can be used to measure the quality and efficiency of the manufacturing process.
  • Construction: In the construction industry, scrap rate could refer to the percentage of materials that are wasted during the building process. This could be due to miscalculations, incorrect measurements, or the use of incorrect tools.
  • Food Service: In the food service industry, scrap rate could refer to the percentage of food that is wasted during the cooking or preparation process. This could be due to incorrect portion sizes, over-cooking, or incorrect preparation techniques.

Advantages of Scrap rate

A scrap rate is an important KPI that measures the quality of a production function. It can provide a number of advantages for a company, including:

  • Improved production efficiency: By tracking the scrap rate, companies can identify areas of the production process that are inefficient and need to be improved, leading to better production results.
  • Reduced costs: A lower scrap rate helps to reduce costs as fewer materials are wasted and fewer resources are used.
  • Increased customer satisfaction: A lower scrap rate can also lead to better customer satisfaction as fewer goods are rejected or fail to meet standards.
  • Improved product quality: Tracking the scrap rate can help identify areas where product quality can be improved, leading to higher customer satisfaction and better overall performance.

Limitations of Scrap rate

The scrap rate is a key performance indicator (KPI) that is used to measure the production quality of the production function, however there are several limitations to consider when using this KPI. These include:

  • Lack of visibility: The scrap rate can only be used to measure the production quality of what is already produced and cannot be used to anticipate any future problems.
  • Human error: The scrap rate is also subject to human error, as it is based on manual data entry and analysis, which can lead to inaccurate results.
  • Data accuracy: The scrap rate does not provide a complete picture of the production process since it does not capture any discrepancies between the planned output and the actual output.
  • Context: The scrap rate does not take into account the context of the production process, such as the quality of the raw material inputs, the production configuration procedures, and the efficiency of production operators.
  • Cost of scrap: The scrap rate does not take into account the cost of the scrap materials or the cost of disposing of them.

Other approaches related to Scrap rate

There are various methods of reducing the scrap rate in a production process, such as:

  • Improving raw material inputs - Ensuring that quality raw materials are used in the production process can reduce the scrap rate, as the higher quality of the inputs will result in fewer defects in the final product.
  • Improving production configuration procedures - Establishing a detailed production configuration process can help reduce scrap rate. This includes tracking of all processes, reducing potential errors, and ensuring that all processes are followed correctly.
  • Maintaining machines - Regular maintenance and inspections of the machines used in the production process can help reduce the scrap rate, as any malfunctioning parts can be identified and addressed early on.
  • Training production operators - Training production operators on the proper use of the machinery and production processes can help reduce the scrap rate, as operators will be less likely to make mistakes that result in scrap products.

In summary, there are multiple approaches that can be used to reduce the scrap rate in a production process, including improving raw material inputs, production configuration procedures, machine maintenance, and training of production operators. Implementing these approaches can help ensure that production processes are efficient, reduce the amount of scrap produced, and save the company money.

Footnotes

  1. ↑ Optimal production lot sizing with rework, scrap rate, and service level constrain 2007
  2. ↑ Improved Gate System for Scrap Reduction in Injection Molding Processes 2015


Scrap rate — recommended articles
Overall equipment effectiveness — Uniformity of production — Conversion cost — Inventory value — Indirect material — Productivity report — Optimization of the production run-length — Cost element — Operating supplies

References

Author: Angelina Hebda

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