Scrap KPI measurement
Hello all.
I am looking for benchmark data for scrap KPIs.   Specifically, I am looking to understand how others calculate the metric such as % by cost of goods sold, % by cost of goods produced, or other formulas.  Also if anyone would be willing to provide the current values for their scrap metric and the industry they are in that would be greatly appreciated
2 Replies
Catherine,
Selecting KPI depends on the objectives.  It is hard to trace % by cost of goods sold at operations without coupling the standard costing process.  However, it can be a useful KPI if you want to illustrate the scrap impact from a financial standpoint. 

The practice I grew up with has a high level metric called OROA (operating return against operating asset) against each factories.  Scrap is one element of the operating return which we review the dollar amount and % of contribution on a rolling 12 basis to keep the trend down.  We are responsible for it as the senior leadership level at the factory.  At the factory, the KPI that I used to drive improvement was scrap rate (# of pieces passed against # of pieces produced) for processing operations (machining, welding, etc.).  We use FPY (First Pass Yield) for assembly operations.  Make sure you set up the process to document the failure mode/ categories for continuous improvement propose.

This summary draw from experiences in OEM and managing 120+ suppliers during the same periods.  Most successful operations have a clear purpose in mind when they track scrap and that behavior helped them and us to have a precise definition of scrap.  Hope this very high level summary helps, but there will be lots of twists when put in practice.  Feel free to reach out, connect with me via https://www.linkedin.com/in/chengkaiwen/, or ask follow up questions here.
Duke Okes
133 Posts
I doubt most organizations are willing to share such information.  However, ASQ has books on Cost of Quality and they may include some typical ranges for Internal & External Failure Costs.