What Is Scrap Rate?

Scrap Rate Explained

The basic calculation is scrapped quantity divided by total quantity produced, but the useful version is weighted by value. A part scrapped at the first operation has consumed only material; the same part scrapped at final inspection has consumed every operation's labor, machine time, outside processing, and often expensive purchased components. A plant with a two percent unit scrap rate concentrated at final assembly can lose far more money than one with a six percent rate concentrated at first cut, so where scrap occurs matters as much as how much.

Scrap is a capacity loss before it is a cost. Every scrapped unit consumed constrained machine hours that produced nothing sellable, and when scrap is detected after the constraint, that lost capacity is unrecoverable for the period. This is the reasoning behind inspecting before the constraint rather than after: it costs the same inspection labor but prevents the bottleneck from spending time on parts already destined for the dumpster.

In ERP, scrap enters planning through scrap or yield factors on the item, routing operation, or bill of material component. Infor SyteLine and LN both support this. The mechanism inflates planned order quantities so that expected scrap still leaves enough good parts, which is correct as far as it goes. The failure mode is that these factors are rarely reviewed. A five percent scrap factor entered during a problem year and never removed permanently overbuilds every order, quietly generating excess inventory and absorbing capacity for years.

Scrap reporting discipline determines whether any of this analysis is possible. Unreported scrap produces inventory that does not exist on paper, negative on-hand balances, job cost variances that appear at close with no explanation, and MRP that plans against phantom supply. Reason codes are equally important: a scrap total without cause codes tells you the size of the loss and nothing about how to reduce it.