Agreed. Scrap as a percentage of business sales is a part of
cost-of-goods-sold, is a deductible loss, and can be reduced from net
sales. Therefore many companies keep track of it as a percentage of
sales for those reasons. However, the amount of scrap as a percentage of
of a process yield is also a compelling metric that shows the process
efficiency or lack thereof. It is an important (and appropriate) metric
from both sales and manufacturing perspectives.
In both cases the cost of scrap is typically a hidden number, as the
real cost of scrap in terms of cost-of-product-lost (the dollar value of
the scrapped material) is usually dwarfed by the real cost of scrap,
which is the cost of replacement of the scrap. If a part is lost due to
a poor process, there is still a requirement to fulfill. Therefore
ultimately someone is going to have to spend time writing up the
inventory reduction ticket, someone will have to enter it into the
inventory control system, someone will have to re-order the quantity
scrapped, someone will have to re-inship the replacement inventory,
someone will have to re-stock the replacement material, someone will
have to re-issue the new material from stock, etc., etc.
That is a lot of someones, and they could all be doing something that is
value-added instead. A one or two percent scrap rate for electronic
parts does not sound like a lot, but with today's tight margins, it can
mean the difference between a company making a huge profit, or going
bankrupt.
-----Original Message-----
From: TechNet [mailto:[log in to unmask]] On Behalf Of John Burke
Sent: Wednesday, April 19, 2006 12:48 PM
To: [log in to unmask]
Subject: Re: [TN] How are PCB & Assembly manufacturers measuring scrap?
Scrap as a percentage of sales is an interesting metric since it
somewhat maps to PBITDA as variations in the selling price - discounting
etc will both impact the scrap value as a sales percentage as well as
the profit figure. Unfortunately so will a lot of other things such as
overhead allocation, market conditions, sales efficiency, marketing
effectiveness etc.
To be realistic, it should be disconnected and measured as a dollar
value which can then be compared as a percentage of the of the cost of
goods produced for any given period, since that is actually what is
being affected by the scrap rate.
To be honest if the scrap rate was ever directly impacting sales it
should have stopped manufacturing some while back.....8-)
John
John Burke
Senior Manager - Operations , Optichron
[log in to unmask]
W: 510 249 5233
M: 408 515 4992
http://www.optichron.com
Profile: https://www.linkedin.com/e/fps/2665502/
-----Original Message-----
From: TechNet [mailto:[log in to unmask]] On Behalf Of Kevin Glidden
Sent: Wednesday, April 19, 2006 10:33 AM
To: [log in to unmask]
Subject: Re: [TN] How are PCB & Assembly manufacturers measuring scrap?
I too have seen SCRAP recorded as a percentage of sales. I am not a
Quality Engineer, but I never fully understood / agreed with this
methodology.
For
one, over a given time period, sales could be low, but scrap high, or
vice-versa, so the metric is not consistent. Also, doesn't it depend on
the cost of your products and qty of sales? If your items cost $5k, and
you only sell one a month, and it gets scrapped, you have 100% of sales!
As a percent of production seems more reasonable to me. I also struggle
with the "target" scrap rate. If your scrap target is X% of sales or
production, does that mean there is an acceptable level of scrap? In
some perfect, mythical world (with free Mountain Dew and endless puns)
shouldn't the goal be NO scrap???
-----Original Message-----
From: TechNet [mailto:[log in to unmask]] On Behalf Of
[log in to unmask]
Sent: Wednesday, April 19, 2006 11:51 AM
To: [log in to unmask]
Subject: Re: [TN] How are PCB & Assembly manufacturers measuring scrap?
Brian Guidi wrote:
>Good morning folks,
>
>We've had some lively discussions regarding the best ways to measure
>scrap within a manufacturing operation. What are some common ways of
>characterizing and measuring accurate scrap levels?
>
>Also, I know this next one is a loaded question but I'll fire it off
>anyway. When scrap is measured as a percentage of sales, what values
>are typical within this industry? One percent? Five percent? Is there a
>significant difference between the value one would anticipate for a
>board fab shop versus an assembly operation?
>
>Brian Guidi
>R&D/Quality Systems Specialist
>Teledyne Printed Circuit Technology
>Tel: (603) 889-6191 X:310
>Fax: (603) 886-2977
>E-mail: [log in to unmask]
>
>Visit us @ http://www.tetpct.com
>
We're an assembly operation and measure raw $$ amounts of scrap. We set
a goal of 20% reduction in scrap/year (we started off with a lot of $$
thrown out in the dustbin). Now that we are down below $3K/ month, we
will be starting to report as a % of total production,although in
previous places scrap was often reported as a % of sales. What's typical
would probably depend on the particular normal yield of the item you are
producing, as something like wafer dies might have a higher scrap rate
than 2 layer PCBs.
John Burris
Mfg. Eng. Mgr.
Automated Logic/UTEC
770.795.4827 (O)
770.795.3527 (F)
[log in to unmask]
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