Cost of Quality & Scrap
Day 1, Session 5: 9:15-10:15 am
Remington Stewart/ Andrew Larkin
Georgian
The Hidden Cost of Quality
• Quality issues often go unnoticed in profitability reports.
• Tracking inspection failures in Cetec ERP reveals hidden costs like rework and scrap.
• Quality-related rework can quietly consume 2–5% of annual revenue if not measured.
Understanding the Cost of Quality
Three primary cost areas:
• Labor – extra time for rework or inspection.
• Top-Level Materials – scrapped finished goods.
• Sub-Level Components – extra parts used during repair.
ERP-integrated inspection data makes these costs traceable and reportable.
Tracking Failures in Cetec ERP
• Begin with inspection failures: incoming, in-process, or final QC.
• Each inspection is linked to its Work Order or PO.
• Assign failure codes for traceability and cost linkage.
Capturing Labor Costs
• Operators link rework time to inspection failure IDs.
• Time can be logged live or retroactively.
• Each labor entry ties to a failure record for cost visibility.
Capturing Labor Costs
Benefits:
• Traceable rework hours.
• Accurate root cause analysis.
• Supports operator training and improvement tracking.
Capturing Material Costs
• Failed assemblies can be split into clean yield and scrap.
• Scrapped items tagged to failure codes for cost reporting.
Incoming Inspections & Supplier Costs
• Incoming inspections prevent defective material entry.
• Enables supplier performance metrics based on failure rates.
Reporting & Analysis
• Failure cost report aggregates labor + material data.
• Provides financial view of quality performance.
• Exportable for deeper analysis and trend tracking.
Reporting & Analysis
• Identify trends: recurring parts, suppliers, or shifts.
• Integrate supplier performance and customer complaints.
• Enables continuous improvement initiatives with ROI visibility.
Outcomes & Benefits
Visibility – Tie defects to real dollars.
Accountability – Shared data between departments.
Collaboration – Finance, ops, and quality align on metrics.
Goal: Move from reacting to defects to preventing them.
Questions?
Cost of Quality & Scrap
Cost of Quality & Scrap