How do you benchmark and compare your rework and scrap costs with industry best practices and competitors?

I am not in the management aspect of my job, but I’ll share my thoughts from a common-sense and layman direction. From my experience, there are given risks that all companies should know that will contribute to scrap and rework. From machine set-up to project changes and customer changes. Those cannot be avoided, but can sensibly be budgeted into a project or job shop. What I see too often is, companies putting out unrealistic expectations, going forward before the quality of the parts, capabilities of machines, and customer expectations are completely tried and tested. Half the time they will be ok…but the other half could prove debilitating for future opportunities. I’ve seen a dramatic loss in common sense approaches to issues.

To effectively benchmark rework and scrap costs, adopt a structured approach by first gathering accurate data on current rates by type and cause. Engage in peer comparisons through industry forums or partnerships to gauge typical loss percentages, and implement standard metrics such as the Cost of Quality, which encompasses prevention, appraisal, and failure costs, including both internal and external failures. Continuously apply Root Cause Analysis to identify primary cost drivers, integrate industry best practices for process improvement, and regularly measure progress against established benchmarks.

Data is key. The most important aspect of data is accurate data. If your data isn't accurate, it's not effective. Accurate data will steer you in what direction you need to spend the resources and time to improve capacity and the bottom line. You need to always calculate scrap and rework data to capture labor cost, material cost, and production lost. This can effect your capacity and your ability to deliver product on time. I currently double the cost of material if it is scrap and not able to perform rework. I calculate labor at 2x min the cost of hourly rate for that particular machine or resource. You can also track hours to how many hours your company spends a month in rework and scrap parts.

The comment mentions rework, which I perceive as off grade material being blended into good product. I am adamantly opposed to this practice. If a company makes off grade it is their responsibility to handle it. The obvious solution is to not make it to begin with. Blending it into my product that I paid full price for is absolutely not acceptable.

To benchmark rework and scrap costs, start by gathering detailed internal data on your costs, segmented by department or product line. Identify key metrics like total scrap costs as a percentage of production value. Next, compare this data with industry standards from trade associations, consulting reports, and competitor performance, using public filings or surveys. Analyze the differences to identify gaps and improvement opportunities. Implement Six Sigma or similar analytical tools to refine processes and reduce costs. Regularly update and review your benchmarking data to stay aligned with best practices and enhance efficiency.

To benchmark rework and scrap costs effectively, start by identifying key metrics such as total scrap costs as a percentage of production value, and gather detailed internal data segmented by department or product line. Compare your findings against industry standards from trade associations or consulting reports, and analyze competitor performance through public filings or surveys. Use analytical tools like Six Sigma to assess data, implement improvements, and establish a regular review cycle to align with industry best practices and enhance productivity.

In my experience, i have found these two critical pieces of process improvement vital, One is Involving the right stakeholders, these will be usually be a cross functional team that has input in the process (Eng, Finance, Material mgt, QC and Safety..) and most importantly the team that runs the equipment, in most cases considered to be part of the problem. In comparison rarely do we know much about a process or equipment compared to a person who works it 8-12hrs a day 3 -4 days a week , Secondly, making observations at the source of the defect, this can be through human observation or the deployment of high speed cameras, a combination of these two on top of the RCA tools has proven time and time again proven to bear fruit in the process.

Stop this madness, this entire article is wrong about RCA. This is not how you apply or perform RCA. This does not represent our methodology or how to apply it, and we do not approve of this. Remove immediately

Benchmarking rework and scrap costs involves analyzing industry standards and competitor data. In renewable energy projects like offshore wind power, compare costs of turbine repairs with industry averages. For grid code compliance studies, assess expenses related to rectifying non-compliance issues against sector benchmarks. In battery storage, compare scrap rates with industry leaders to identify areas for improvement. Benchmarking enables cost optimization and competitiveness.

Directionally speaking, I agree with Anthony Lenarz's comments. However, for processes that run the same product 24x7 or identical production lines that make the same product reliable data is often easy to obtain for quick study and perhaps find low hanging fruit. In more than one 24x7 organization I worked the midnight shift often had the greatest production output with "average" scrap, often with the least experienced people. This could be a red flag or the gift of a golden egg. Which one or both is it? I suggest if the answer is not clear then it suggests a better understanding of what is happening in one's own house may be useful. Prioritize customer complaints/defects first, scrap second.

In my view, gather appropriate data sources that provide reliable and comparable information, such as industry best practices from trade associations or research reports, competitor data from public or private sources, or internal data. Ensure that the same definition and method of calculating rework and scrap costs are used across the data sources, and that similar products, processes, and markets are compared. Also, take into account external and internal factors such as customer requirements, quality standards, regulatory compliance, or production capacity. Finally, use root cause analysis (RCA) to identify and address the root causes of rework and scrap costs, such as design flaws, process errors, human errors, external factors.

I chuckle at the concept of benchmarking rework and scrap costs. Sounds like waste upon waste. I would rather put the effort and energy in the root cause efforts of getting rid of the costs.