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In our last survey, we asked about production attrition and scrap. Although the levels reported are around expected levels, we were surprised to see just how expensive attrition can be. This is especially true in this industry, which is notorious for slim margins.

For example, a company that averages 65% COGS and 7% profit may have to increase sales by 8.5% just to recover from component attrition of less than 1%.

The case study provides methods to identify and reduce scrap. Will those solutions help you?

As always, we look forward to your participation and feedback as you gain new insights and become a more effective provider of Electronic Manufacturing Services.

Sincerely,

David Sharp
ManEx, Inc.

Business Case - Inventory Control

Production Attrition & Scrap

North Eastern Company* (N.E. Company) shipped over $17M in product last year. This year looks promising, but they have a few months before the next upswing in business. Management wants to use this time to tighten their processes and increase their efficiency and profitability.

One area under review is production attrition and scrap. Production required well over $11M in materials to complete all shipments last year.

Initial analysis showed weighted attrition was just under 1%. While production was pleased they were able to keep attrition and scrap so low, it still resulted in well over $100K in wasted material for the year and that loss came directly off the bottom line. That represents more than 8% of their profit for the year.

Management knows that small improvements can have significant impact on profitability. According to their estimates, reducing scrap by only .43% could increase profits by almost 4%. The same increase would require an additional $1.4M in sales, which would be difficult in today's economy.

How can NE Company better plan for and manage attrition and scrap? What are their most common sources of scrap? What steps can they take to reduce scrap?

* Company name has been changed.

Business Case Solutions

To effectively reduce attrition and scrap, NE Company must be able to identify, track, and eliminate common sources...

Read the full Business Case Solution

ManEx Case Solution

ManEx has several standard and optional features designed to simplify the process of identifying, tracking, and...

Read the full ManEx Case Solution

In YOUR Own Words

PRODUCTION ATTRITION & SCRAP

We track attrition in production with a 100% count upon restocking.

-Tom, OR

Make YOUR Mark

Please share your ideas and insights on a topic below. Use the questions to direct your response. You can submit your thoughts to mym@manex.com by clicking the topic title. Where appropriate and space permitting, we will post responses in a future newsletter so all may benefit.

Work Center Scheduling and Priorities

How do you determine priorities for each work center?

How do you communicate those priorities with each work center?

Do you know when the capacity for each work center will be reached?

How easy is it to update work center schedules and priorities to ensure they are completing the most important jobs each day?

Counterfeit Components

What percentage of your parts are considered at-risk for counterfeiting?

What are you doing to ensure your components are not counterfeit?

Have you been impacted by counterfeit parts? If so, how?

Are you promoting your counterfeit measures to your customers to increase confidence?

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1.1. Business Case Solutions - 16 - Production Attrition & Scrap

Business Case Solutions

To effectively reduce attrition and scrap, NE Company must be able to identify, track, and eliminate common sources. In order to realize a benefit of this effort, they must be able to complete these steps at a significantly lower cost than the cost of the attrition and scrap.

Identify-

Cycle Count and Physical Inventory - Many companies rely on these to find inventory discrepancies. While these methods can keep inventory levels more accurate, they cannot identifying sources of attrition and scrap without additional work. However, companies looking to keep costs down, may use these methods to identify components with the greatest attrition problems. Once they identify a problem part, they can use the subsequent methods to identify sources and reduce or eliminate attrition.
Spot counting components upon kit completion - If companies count components upon kit completion, they will immediately know which kits are responsible for the attrition and scrap. While it doesn't specifically highlight the cause, it does narrow it down and make it much easier to make improvements. This process increases in value if the parts are separated by work center. Ideally, users would be able to choose which parts are counted and which are left for cycle counting.
Process review - Companies should review the production processes for work centers responsible for attrition. Companies should give special attention to identify when the attrition is isolated to a single job or across multiple jobs. Processes that consistently exceed attrition expectations, regardless of the job, should be reviewed and updated or result in an increase in charges to the customer.

Additional methods (if applicable)

Employee review - If needed, companies may need to review the practices of specific employees. This is made easier when defects and shortages can be connected with specific employees.
Machine Information - If available, machine consumption information can be an invaluable tool for identifying attrition and scrap. If done real-time, this may also identify bad feeders, nozzles, programming, etc.

Track-

Once a company identifies a possible source of attrition and scrap, they should make any obvious corrections, and track that source over time. This will indicate the seriousness of the issue and whether additional steps are required. Reports and updates from each of the steps listed above can provide the needed information to view the impact of the issue and the improvements from changes.

Eliminate-

The preferred method for eliminating or reducing the source of a shortage varies greatly depending on the source and situation. Communication is critical to successfully improving attrition and scrap levels. Companies must ensure that production is using the latest process instructions, problem machines, and feeders are avoided, and employees are properly trained.

1.2. ManEx Solution - 16 - Production Attrition & Scrap

ManEx Case Solution

ManEx has several standard and optional features designed to simplify the process of identifying, tracking, and eliminating attrition and scrap. .

Cycle Count/Physical Inventory - built-in physical inventory and cycle counting features enable users to identify discrepancies.
Kitting Module - Closing a kit allows a user to select which components to count and provide actual attrition information, and which parts to accept default attrition settings and leave for cycle counting to update.
Job Costing - The optional job costing module gathers usage data for every part in the kit. This makes it easier to identify excess attrition. Users can also us it to analyze consumption across multiple jobs and review process changes for reductions in attrition.
ECO - If process changes are needed to reduce attrition and scrap, the ECO module is an excellent tool to document the changes, apply those changes to affected jobs, and communicate those changes to production.
Product Routing and Instructions - Users can increase the success rate of process improvements by documenting and distributing the improvements electronically. Providing a central location for employees to access routings and instructions ensures they use the latest procedures and updated methods.
Statistical Quality Control - The optional quality module will allow companies to associate defects with reference designators, AVLs, part numbers, work centers, and employees. This visibility not only provides the ability to identify sources of scrap, but also increase overall quality.
Custom Reporting - Users have the ability to create custom reports using any ODBC compliant report writer. Using a program like Crystal Reports will enable distribution of those reports within ManEx.

In Process Upgrades

IPKey Tracking - Companies electing to implement IPKey functionality will gain the benefit for more streamlined material tracking. This will facilitate easier and faster identification of attrition and scrap sources.
Production Machine Interface - With the completion of the IPKey functionality, users will have the ability to establish communication with production machines. This means consumption information and scrap data can be automatically loaded into ManEx.

CONCLUSION

NE Company has been implementing attrition reduction practices throughout the production process. Over the last six months they were able to identify a machine with double the scrap rate, a work center with inadequate process instructions, and an issue with kitting processes that resulted in nearly a third of all attrition. With minor adjustments to these and other areas, they reduced the weighted attrition to just under .5% and saved an estimated $45K a year in attrition and scrap.

They continue to review their processes and practices and hope to be able to reduce attrition by another $10K per year by the end of the year.