What is a Scrap rate?
A scrap rate is a manufacturing KPI highlighting the scrap percentage for a specific manufacturing process. It is primarily used to measure the product quality and quantity for particular products. As a scrap rate indicates the efficiency of a manufacturing process, companies can make informed decisions to replace or optimize a process, allowing them to ensure optimal use of resources.
Significance of Scrap rate in an E-commerce Shipping and Delivery
Scrap rate is a metric used to optimize a manufacturing process. The significance of the scrap rate is as follows:
- Increasing material productivity: As a scrap rate is derived from the amount of wasted material, decreasing the calculated scrap rate can ensure better material productivity. Process optimization to reduce scrap rates allows companies to increase the economic output of raw materials at the highest level.
- Competitive pricing: Low scrap rates can decrease the product’s pricing. As fewer raw materials are required to manufacture a product, its making charge declines. Therefore, manufacturing companies and consumer-facing manufacturers can acquire a competitive pricing edge in any industry.
Prerequisites of Scrap rate and How It Works
There are no requirements when it comes to scrap rate calculation. However, it only applies to manufacturers, D2C brands, or companies with in-house manufacturing units.
Scrap rate formula: (Scrap material/Materials intake) X 100
Scrap rates are calculated for one specific manufacturing process. Additionally, these rates are individually calculated for each raw material used in the said process.
Average scrap rate formula: (Scrap Rate1 + Scrap Rate2 + Scrap RateN)/N, where n is the total number of used raw materials.
Use Case with a Scrap rate
Suppose a private-label manufacturing unit in Davao city manufactures non-branded silver ornaments. Given their existing process, 10 kgs of raw silver is used to make 87 units of silver bracelets. Therefore, their scrap rate is 11.49%.