Scrap is a great indicator of a company’s performance. Every piece of scrap in the scrap bin has a story about how it got there. Scrap is a domino effect. A full scrap box can suggest poor operator performance or machining at the very beginning of the production process, leading to rework, bottlenecks, poor quality controls, and eventually, a late or mismanufactured product arriving at your customer’s doorstep. It all adds up. Stop the domino effect. Rethinking how your organization handles its scrap can do more for the bottom line than any other activity. Keep reading to learn the simple steps to reducing scrap and rework in your operation. Download TigerStop's FREE scrap reduction guide below.
1. CHANGE YOUR PERCEPTION OF SCRAP
Scrap is valuable. But by valuable we mean scrap is incredibly costly. It's essentially unused raw material that has gone through an entire life cycle of costs. It is unused material that you have already spent time and money ordering, shipping, processing, and finally disposing of. Even though scrap’s value is sometimes reflected on the monthly operations statement, that number is nothing compared to the cost of all of the value and non-value add processes that have gone into it. Think of it this way: any material that doesn’t go into your scrap box goes directly to your bottom line. Companies tend to have skewed perspectives on scrap, particularly when the scrap has a significant commodity value in the market. Such materials include copper, brass, aluminum, and sometimes even steel and other ferrous alloys.
When a Plant Manager receives his monthly operations statements, he will typically see a cost of goods sold. This whopper of a number is likely the biggest number on any operating statement. As part of the cost of goods sold number, there is usually a line for materials and the percentage of costs against revenue this represents. The larger the number as a percentage, the worse he and his operation has performed.
But wait! There’s more! There is a small, yet significant number that lowers the Plant Manager’s material costs. This is the amount he receives for his scrap. Some Plant Manager’s make the mistake of thinking the bigger the number the better. This is an incredibly dangerous way of thinking.
REDUCING SCRAP WILL INSTANTLY INCREASE YOUR BOTTOM LINE
Let’s presume a company’s scrap is aluminum. It’s standard to buy aluminum extrusions by the linear foot, not by weight. But the scrap is sold by the pound or kilo—not the foot or meter. An easy way to see this, for example, is to take an extrusion that is 1 pound per foot. Typically such an extrusion will cost the buyer around $2.50 a foot or pound. When that pound of extrusion is sold on the scrap market by the Plant Manager, the company will get something like $.50 for it. These prices vary by the extrusion profile, alloy, and the market for scrap. A typical plant may have 60,000 pounds of scrap aluminum per month, putting $30,000 back onto the profit from scrap sales.
Scenario 1: Selling Scrap Aluminum
$30,000 of scrap revenue per month from recycled waste seems like a pretty sweet deal. That's exactly what your scrap recyclers want you to think.
If the Plant Manager could reduce the amount of scrap generated each month by 33%, not an unreasonable amount with the right processes and equipment in place, he could reduce material costs by almost $50,000 per month.
Scenario 2: Reducing the Amount of Scrap Aluminum
In the above two scenarios, Scenario 2, eliminating the amount of scrap produced by 33%, netted a remarkable amount of additional profit. And this doesn’t even account for other savings as a result of implementing the right equipment and processes such as lower labor costs, lower set up times, less rework, better accuracy, reduced handling, and reduced paperwork. These additional savings can be equal or greater than the material savings in most cases.
Nothing is more telling about how your manufacturing is performing than what is in your scrap bin. This is where all mistakes go to die. A careful look can give you a better idea about what is really happening on the shop floor than any number on a chart. You will learn everything from engineering mistakes, order mistakes, over production, mismanufactured parts, rework, inventory mistakes, and a lot of other operational waste, both in materials, processes and labor.
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