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The Never-Ending Quest: Reducing Scrap And Rework

May 10, 2007
What's reasonable and how do you get there.

THE LEADING MACHINE SHOPS IN NORTH America — as indicated in the 2006 American Machinist Benchmarking Survey — have about half the cost of scrap and rework while they produce, on average, more than four times the number of units produced by other shops. Also, benchmark shops have been able to increase their total output far more than other shops over the past three years.

What do benchmark shops do to achieve those numbers? Here are some clues:

They provide their employees with more training and have leadership and supervisor development programs in place.

They practice lean manufacturing, 51 percent have some form of formal continuous-improvement program and 47.1 percent practice total quality management.

And, they have specific programs in place that address the costs of scrap and rework.

The costs of scrap and rework come right off a business' bottom line, so shops are always trying to reduce both, but the leading shops in the survey do a better job of it.

The benchmarking survey asked for the percentage of shop sales that is spent on scrap and rework. Benchmark shops, those whose performance puts them in the top 20 percent of all shops, spend just more than half the money that all other shops spend.

While almost all shops report that they have reduced scrap and rework costs over the last three years, the leading shops did it better: Benchmark shops cut scrap and rework costs to 4.6 percent of their sales in 2006 from 6.6 percent three years ago, and all other shops went to 7.8 percent of their sales in 2006 from 9.3 percent three years ago.

Benchmark shops also performed better with finished product first-pass quality yields, which is determined as a percentage of products that pass final inspection.

Benchmark shops said their products pass final inspection the first time on average 94.7 percent of the time, compared to 88.7 percent of the time three years ago. All other shops said their products pass final inspection the first time on average 94.1 percent of the time, up from 89.1 percent three years ago. So, the benchmark shops averaged a 6 percent improvement over the last three years while the other shops managed only a 5 percent improvement.

Benchmark shops also reported higher total output than other shops.The average benchmark shop produces 2,606,439 units per year, compared to other shops that produce 566,934 units per year, and the benchmark shops said they increased their total output by an average of more than 8.6 percent over the last three years. Others increased their total output by only 0.5 percent over the past three years.

Benchmark shops also spend more on capital equipment (as a percentage of sales) than other shops do: 5 percent compared to 3 percent in 2005, and they invest more in advanced technologies. While the survey does not indicate that advanced technologies reduce scrap and rework costs or increase quality and total output, the numbers make such conclusions easy to draw.

These shops consistently report that their performance is much stronger than other shops, and in today's competitive world, the 3.2 percent difference in scrap and rework costs between benchmark and other shops easily could mean making a decent profit and going out of business.

Committed to improving your shop operations?
American Machinist's Machine Shop Workshop is November 7-9, 2007. Learn how to:
Use our benchmark measurements.
Create a strategic improvement plan tailored to your business.
Become more competitive and increase profit.
Register today at: