# Difference between revisions of "Scrap rate"

Scrap rate
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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

## 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

## References

Author: Angelina Hebda