KIE Factory Stories: Why Did the Finance Manager Visit the Scrap Yard?

The Production Manager was surprised to see him there.

“What are you doing here? Looking for something?”

The Finance Manager pointed at a pile of rejected metal parts.

“I want to know how much money is lying here.”

The Production Manager smiled.

“We already calculate our scrap cost every month.”

“Do we calculate what happens before the scrap reaches this yard?”

That question changed the discussion.

They traced the journey of a rejected part.

The factory had paid for raw material.

The part had consumed machine time, electricity, operator effort and inspection time.

Some parts had also used expensive bought-out components.

By the time a defective part reached the scrap yard, the factory had already spent money at several stages.

The monthly scrap report showed only the final material loss.

It did not show the full cost of producing something that could never be sold.

The team started tracking defects by process stage and calculating the cost of failure, including the work already invested in each rejected part.

They discovered that a small number of recurring defects accounted for a large share of the loss.

Now they knew where to focus their improvement efforts.

This is the idea behind Cost of Poor Quality.

Quality failures cost more than rejected material. They can also consume labor, capacity, energy and time before the defect is discovered.

Scrap is not just material thrown away.

It is money the factory spent without creating a saleable product.