What is Scrap Rate?
Scrap rate is a KPI used by manufacturers to measure production quality. The term refers to the percentage of produced units that are defective and have to be “scrapped” (i.e. thrown away). Measuring the scrap rate takes into account raw materials, production methods, equipment usage and more in order to provide information on how efficient the production method is in producing quality products.
A high scrap rate would indicate an inefficiency somewhere in the process resulting in a large number of defective products. Potential causes may include a problem with the raw materials, faulty machinery in need of repairs, or poor production procedures – any of which will lead to increased costs and unsatisfied customers.
A low scrap rate, on the other hand, means that the production process is running smoothly and efficiently.
How to Calculate Scrap Rate
The formula used to calculate scrap rate is:
(Number of units scrapped / Total number of units produced) * 100
The following steps are used in order to use this formula correctly:
- Calculate number of scrapped units – any item produced that cannot be sold or used to fulfill an order due to defects or other errors is considered to be scrapped.
- Calculate number of total units – this number includes all of the completed items that have been validated and meet quality control standards and represents the products that are available for sale.
- Plug the values into the formula – simply divide the number of scrapped units by the number of total usable units and multiply the result by 100 in order to get a percentage. This result is the percentage of produced goods that end up being scrapped.
Using a tool like Matics can make it easier to automatically track both numbers in real time so that the scrap rate KPI can be continually updated.
Benefits of Calculating Scrap Rate
The scrap rate is a crucial KPI that provides important insight into the manufacturing process and can help companies make decisions that will impact their business outcomes. Following are several of the benefits:
- Monitoring resource allocation – a high scrap rate might indicate a need for additional resources in a particular area, signaling to management that it is time to assess the current resource allocation plan and possibly make changes.
- Improving quality control – if good quality control measures are in place, that will be reflected in the scrap rate. If too many defective products are coming off the assembly line, changes may need to be put in place to improve quality control.
- Optimizing raw materials – the scrap rate can help a manufacturer understand how well raw materials are being used. If the rate is too high the reason could be that the raw materials themselves are defective and possibly a switch to a new supplier is in order.
- Assessing equipment – testing different machinery configurations and monitoring the resulting scrap rate can help a company ensure that they are using the best equipment for their production process.
- Better budgeting – a high scrap rate is a strong indication that production costs are higher than they need to be. A deeper analysis (supported by data gleaned from Matics) can be done to identify the specific areas that require cost reduction strategies.
