# Scrap Reduction Profit Impact Calculator

> Source: https://netray.co/tools/scrap-reduction-profit-impact-calculator
> Publisher: Netray (netray.co), AI and integration engineering for ERP and manufacturing systems.
> Section: Free Tools

## Short answer

Converts a scrap rate target into annual dollars, with a constrained-capacity mode where the saved units are sold at full price.

## Category

quality

## Industry

Discrete Manufacturing

## Audience

- Plant manager
- Quality manager
- Operations director

## Tool

**Kind:** calculator

**Currency:** $

**Inputs:**

#### Units started per year

**Key:** starts

**Type:** number

**Default:** 500000

**Min:** 0

**Step:** 5000

**Unit:** units

**Help:** Total starts, good plus scrap.

#### Material cost per unit

**Key:** mat

**Type:** number

**Default:** 6.5

**Min:** 0

**Step:** 0.1

**Unit:** $

#### Conversion cost at the point of scrap

**Key:** conv

**Type:** number

**Default:** 4.2

**Min:** 0

**Step:** 0.1

**Unit:** $

**Help:** Labor and machine cost already spent on a typical scrapped unit.

#### Salvage value per scrapped unit

**Key:** salvage

**Type:** number

**Default:** 0.8

**Min:** 0

**Step:** 0.1

**Unit:** $

#### Current scrap rate

**Key:** cur

**Type:** number

**Default:** 4.5

**Min:** 0

**Max:** 100

**Step:** 0.1

**Unit:** %

#### Target scrap rate

**Key:** tgt

**Type:** slider

**Default:** 2.5

**Min:** 0

**Max:** 5

**Step:** 0.1

**Unit:** %

#### Selling price per good unit

**Key:** price

**Type:** number

**Default:** 18

**Min:** 0

**Step:** 0.5

**Unit:** $

#### Is capacity the limit?

**Key:** constrained

**Type:** select

**Default:** 0

**Options:**

##### No, demand is the limit

**Value:** 0

##### Yes, every good unit sells

**Value:** 1

**Outputs:**

#### Scrapped units per year today

**Key:** scrap_now

**Expr:** starts * cur / 100

**Format:** integer

#### Scrapped units at target

**Key:** scrap_tgt

**Expr:** starts * tgt / 100

**Format:** integer

#### Scrap units avoided

**Key:** avoided

**Expr:** max(scrap_now - scrap_tgt, 0)

**Format:** integer

#### Net cost per scrapped unit

**Key:** cost_scrap

**Expr:** mat + conv - salvage

**Format:** currency

#### Annual cost of current scrap

**Key:** copq_now

**Expr:** scrap_now * cost_scrap

**Format:** currency

**Description:** Scrap loss only, without rework, returns or warranty.

#### Annual profit improvement

**Key:** benefit

**Expr:** if(eq(constrained, 1), avoided * (price - salvage), avoided * cost_scrap)

**Format:** currency

**Primary:** true

#### Benefit as share of current scrap cost

**Key:** benefit_pct

**Expr:** if(gt(copq_now, 0), benefit / copq_now * 100, 0)

**Format:** percent

**Chart:**

#### Annual profit improvement vs target scrap rate

**Type:** line

**X:** tgt

**From:** 0

**To:** 5

**Steps:** 11

**Series:**

- benefit

**Disclaimer:** Counts scrap only. Rework, expedite, returns and warranty cost would add to the total cost of poor quality.

## Content

**Intro:** Scrap is cost that has already been spent, so every point removed drops straight to the bottom line. This calculator values a lower scrap rate in two modes: when you only avoid wasted starts, and when you are capacity-limited and the saved units become sales.

**Sections:**

#### How to use it

**Body:** Enter units started, not units shipped, so the scrap rate applies to the right base. Use material cost and the conversion cost accumulated at the point where a typical unit is scrapped, not the finished standard cost. Enter any salvage value for scrap metal or reclaim. Choose the capacity mode honestly: if you have idle time and unsold demand is the limit, you only save inputs. If the line is full and orders are waiting, saved units can ship.

#### The method

**Body:** Scrapped units are starts times the scrap rate. Avoided units are the difference between current and target. In the demand-limited mode each avoided unit saves material plus conversion minus salvage. In the capacity-limited mode each avoided unit becomes a good unit sold at price, and you give up the salvage value. The cost of current scrap is the same net cost applied to the current scrapped units.

**Bullets:**

- Use cost at the point of scrap, which rises as units move down the route.
- Salvage reduces the loss and the saving.
- Constrained mode is much larger because it captures margin, not just cost.

#### Reading the result

**Body:** With the defaults, cutting scrap from 4.5 percent to 2.5 percent avoids 10,000 units. In demand-limited mode that is about $0.1 million. In capacity-limited mode it is about $0.17 million. The scale depends on your volume and unit value, so weigh it against the cost of the quality program. The chart shows diminishing returns as the rate nears zero.

#### Common mistakes

**Body:** People multiply scrap units by selling price in a plant that has idle capacity, or use standard cost for units scrapped early in the route. Another error is a target scrap rate with no named cause. Break the current rate down by defect code, work center and part from ERP scrap transactions before choosing a target.

**Cta:** Netray can help report scrap by cause, work center and part from your ERP transactions, so the target is tied to named losses.

**Faq:**

#### Should I use standard cost or actual cost of scrap?

**Answer:** Use the cost accumulated at the point of scrap. Early scrap carries mainly material, late scrap carries most of the conversion cost. A weighted average from your scrap transactions is closer than the finished standard cost.

#### When is the capacity-limited mode correct?

**Answer:** Use it when the constraint is fully loaded, orders are waiting and every extra good unit would ship. If you have idle time or limited demand, use the demand-limited mode, which is the safer assumption.

#### Does it include rework?

**Answer:** No. Rework consumes labor and capacity and often runs larger than scrap. Add it separately as a labor and capacity cost, or run the calculator again with the rework rate as if it were scrap at a lower unit cost.

#### What is a realistic scrap rate target?

**Answer:** It depends on the process and part. Set a target from the biggest few defect causes you can fix, not a general benchmark, and revisit it after the first verified reduction.

## Search terms

scrap reduction calculator, cost of scrap calculator, scrap rate savings, cost of poor quality calculator, scrap cost per year, yield improvement value, reduce scrap profit, scrap rate target

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