Electronics, chemicals, metal, food... scrap happens in all industries and to some extent, it’s unavoidable. In most production processes, there will always be some amount of unusable product such as subpar raw material, product that was destroyed or damaged during the production phase, or finished goods that did not meet customer specifications. Reducing the amount of scrap or waste produced, as well as dealing with unavoidable scrap effectively, are two keys to reducing production costs.
Alternatives to Saleable Inventory
The goal of the manufacturing process is to produce in saleable inventory. Along the way though, four other possibilities exist:
- Spoilage: Inventory that is substandard and needs to be sold at a lower price or be reworked prior to sale.
- Rework: Inventory that needs to be repaired or redone prior to sale.
- By-product: Saleable inventory resulting from a manufacturing process and is often not the purpose of the manufacturing process.
- Scrap: Material left over from the manufacturing process, which has little or no apparent value.
Steps to Address Scrap
An effective program to control scrap includes the following steps:
- Make sure adequate measuring tools are in place. Cost accounting and the use of an Enterprise Resource Planning system can provide information for each production run. Track material usage variances over time to determine if the process is efficient.
- Turn scrap into a byproduct. Sometimes, this takes some imagination. Ask yourself, “Will the value of the scrap inventory go up if I use it as raw material in another manufacturing process?” The resulting byproduct may not even be used in your industry, but the sales value might increase.
- Keep your eyes on the marketplace for more efficient methods of production. Technology and manufacturing processes change over time. Feeling comfortable about your manufacturing process is a sure way to lose your competitive edge.
Scrap must constantly be evaluated and accounted for to improve the production process and to reduce production costs. It is much easier to reduce the amount of scrap produced when you are fully aware of the amount produced.
Avoid the Pitfalls
When dealing with scrap, avoid falling into common traps.
- Disposing of unsold scrap can be very costly and should not be underestimated. When scrap cannot be sold to a secondary market it must be legally disposed of. Environmental disposal laws must be obeyed. The cost of disposition needs to be factored into the cost of the product in such a situation.
- Accounting information never substitutes for good market intelligence and striving to always make your process more efficient.
- Do not let scrap accumulate. It can become an eyesore and also creates other problems such as material handling issues and potential accidents.
Make scrap work for you by being an unexpected source of income – not an expense. If scrap and waste cannot be completely eliminated from the production process find a buyer that will happily pay for what you no longer need.
You can also reduce waste through more Lean and efficient processes. MMTC offers a variety of Lean Business Solutions. For more information, contact MMTC at 888.414.6682, visit www.mmtc.org or email firstname.lastname@example.org.
Since 1991, MMTC has assisted Michigan’s small and medium-sized businesses compete and grow. Through personalized services fitted to meet the needs of clients, we develop more effective business leaders, drive product and process innovation, promote company-wide operational excellence and foster creative strategies for business growth and greater profitability. Find us at www.mmtc.org.