Scrap and rework costs as a percentage of cost of goods sold

This measure calculates the total cost of material that is added into production but is not part of a finished product as a percentage of cost of goods sold (COGS). COGS represents the cost of purchasing raw materials and manufacturing finished products. This measure is part of a set of Cost Effectiveness measures that help companies understand all cost expenditures related to the process "produce/manufacture/deliver product."

Benchmark Data

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Measure Category:
Cost Effectiveness
Measure ID:
105247
Total Sample Size:
4,230 All Companies
Performers:
25th Median 75th
- 5.0% -
Key Performance Indicator:
Yes
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Compute this Measure

Units for this measure are percent.

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The business entity's scrap and rework costs as a percentage of cost of goods sold

Key Terms

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Cost of goods sold (COGS) is the amount on an income statement that represents the cost of purchasing raw materials and manufacturing finished products. This represents specific or direct manufacturing cost of material and labor entering in the production of finished goods. For merchandise companies, cost of goods sold represents the purchase price of items sold, as well as indirect overhead such as freight, inspecting, and warehouse costs. For service organizations, cost of goods sold may be referred to as Cost of Services.

Cost effectiveness measures are those in which two related variables, one of which is the cost and one of which is the related outcome related to the expenditure are used to determine a particular metric value.

The metric value which represents the 50th percentile of a peer group. This could also be communicated as the metric value where half of the peer group sample shows lower performance than the expressed metric value or half of the peer group sample shows higher performance than the expressed metric value.

Measure Scope

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Cross Industry (8.0)

  • 4.3.1 - Schedule production (10303) - Scheduling the production of final products. Generate a detailed schedule plan. Create and release production orders and lots. Schedule the planned and unplanned maintenance orders.
    • 4.3.1.1 - Model and simulate plant (19563) - Creating a representation of plant facilities to optimize material flow, resource utilization, and logistics for all levels of plant planning from global production facilities, through local plants, to specific lines and enabling the comparison of production�alternatives,.
    • 4.3.1.2 - Generate line level plan (10306) - Initiating the line-level plan for production. Break down the production schedule into specific lines, specifying the various objectives the production schedule.
    • 4.3.1.3 - Generate detailed schedule (10307) - Broadening the line-level plan. Specify all the individual production processes, along with the timing and the duration to come up with a working schedule that tracks the whole process and any deviations that might occur.
    • 4.3.1.4 - Schedule production orders and create lots (10308) - Creating a schedule to commence production of orders received, and creating lots to consolidate the processing. Plan when the production orders are to be initiated by commencing the operations for processing products/services. Specify which materials to produce, where to produce them, which operations will facilitate this, and on which date production is to start. Define the size of production lots, demarcating the durations of batch production.
    • 4.3.1.5 - Plan for preventive maintenance (10315) - Scheduling planned maintenance of the production equipment.
    • 4.3.1.6 - Request unplanned maintenance (10316) - Scheduling requested maintenance in order to address breakdowns where repairs or corrective remedies are needed immediately. Create a scheme for undertaking unplanned maintenance work on equipment/machinery that has come to be in urgent need for it. Express turnaround to redress using specialized personnel.
    • 4.3.1.7 - Release production orders and create lots (10309) - Initiating the delivery of production orders, and creating lots. Communicate the order that specifies which material to produce, where to produce it, which operations to require, and on which date production takes place. Define how to settle the order costs. Create production lots, which is a particular production unit of an assembly that is planned and manufactured.
  • 4.3.2 - Produce/Assemble product (10304) - Manufacturing the product. Convert the raw materials to develop consumer-ready products. Manage the raw materials to implement the detailed production schedule. Reproduce defectives to establish and remediate cause. Ensure production optimization and benchmark performance.
    • 4.3.2.1 - Manage raw material inventory (10310) - Administering the inventory of raw materials. Manage the total cost of all component parts in stock but not yet used. Manage the cost of the direct materials (i.e., materials incorporated into the final product) and indirect materials (i.e., materials not incorporated into the final product but consumed during the production process).
    • 4.3.2.2 - Execute detailed line schedule (10311) - Creating and implementing the detailed line production schedule on the ground level.
    • 4.3.2.3 - Report maintenance issues (10319) - Recording and reporting any deviations or issues in the maintenance schedule, in the performance to the production management team, and for unplanned maintenance.
    • 4.3.2.4 - Rerun defective items (10313) - Reproducing the items produced defectively. Assess the produced items by conducting quality and standardization tests in order to diagnose any discrepancies. Reproduce defective items.
    • 4.3.2.5 - Monitor and optimize production process (19566) - Integrating different resources in the production process: material, personnel, equipment, robotics, etc. Includes automating and controlling the plant, performing advanced process control and real-time optimization. This activity also includes managing plant alarms and alerts.
      • 4.3.2.5.1 - Automate and control plant (19567) - Creating and applying technology to monitor and control the production and delivery of products and services. Automation involves a broad range of technologies.
      • 4.3.2.5.2 - Perform advanced process control (19568) - Including a broad range of techniques and technologies implemented within industrial process control systems that are routinely reviewed, audited, and improved, advanced process controls typically address particular performance or economic improvement opportunities. An advanced set of process control measures can be used to reduce variation and identify primary improvement options. Results of analysis are fed back into process design for incorporation into production.
      • 4.3.2.5.3 - Perform real-time optimization (19569) - Helping organizations increase performance and efficiency, real-time optimization is a category of closed-loop process control that aims at optimizing process performance in real time for systems. It is normally built upon model-based optimization systems and is usually large scale. Real-time optimization automatically detects errors, and can modify and eliminate both random and non-random errors, as well as analyze and monitor all systems involved.
      • 4.3.2.5.4 - Manage plant alarms and alerts (19570) - Applying human factors and instrumentation engineering and systems thinking to manage the design of an alarm or alert system to increase its usability. Typical challenges include having too many alarms in a plant, poorly designed alarms/alerts, improperly set alarm/alert points, unclear alarm/alert messages, etc. Poor alarm management is one of the leading causes of unplanned downtime.
    • 4.3.2.6 - Assess production performance (10314) - Analyzing and benchmarking the production process to judge its effectiveness and efficiency. Create production metrics to numerically calculate the performance of the production process.
  • 4.3.3 - Perform quality testing (10369) - Executing tests to evaluate the quality of the products manufactured. Calibrate the test equipment. Conduct the actual tests. Record the results and outcomes of the quality test conducted.
    • 4.3.3.1 - Calibrate test equipment (10318) - Regulating the equipment used for performing quality tests. Assess correspondence between the quality testing equipment and the desired quality standards. Ensure the calibration standard is more accurate than the instrument being tested.
    • 4.3.3.2 - Perform testing using the standard testing procedure (10374) - Performing testing using calibrated equipment and in consent with the standard testing procedure, including testing time.
    • 4.3.3.3 - Manage quality samples (20956) - Selecting a set of elements from a product lot to draw conclusions or make inferences about the quality of the product lot from which the sample is drawn. Sampling is frequently used because gathering data on every product produced by a company is often impossible, impractical, or too costly to collect.
    • 4.3.3.4 - Record test results (10375) - Documenting the results and outcomes of the quality tests. Track the performance of the production process. Record/Document it to evaluate the qualitative efficiency of the production process. Use electronic devices and software in order to ensure effectiveness in recording the results and outcomes of the test.
    • 4.3.3.5 - Track and analyze non-conformance trends (12045) - Managing and monitoring the occurrences of problems with a process or product. It is important that nonconformance occurrences are tracked in a standardized way so the data can easily be reviewed to assess the impact of the problem. Ongoing analysis of trends in nonconformance gives an organization the ability to make process changes to reduce the incidence and cost of nonconformances.
    • 4.3.3.6 - Perform root cause analysis (12046) - Using a technique that helps people answer the question of why a problem occurred in the first place. It seeks to identify the origin of a problem using a specific set of steps, with associated tools, to find the primary cause of the problem to determine what happened, why, and how to reduce the likelihood that it will happen again.
  • 4.3.4 - Maintain production records and manage lot traceability (10370) - Perpetuating the production records by systematically documenting and using it to ensure the effective management of lots. Determine the lot numbering system and its use. (The lot number enables tracking of the constituent parts, as well as labor and equipment records involved in the manufacturing of a product. It enables manufacturers and to perform quality control checks, calculate expiration dates, and issue corrections of their production output.)
    • 4.3.4.1 - Determine lot numbering system (10376) - Allotting an identification number to a particular quantity or lot of material manufactured. Assign lot numbers on the basis of specific production units, material similarity, etc. Place lot numbers on the outside of packaging.
    • 4.3.4.2 - Determine lot use (10377) - Identifying the use of production lots. Define where, how, and when to use a specific production lot.