Cost of Rejection

Maintenance circle

 

Word for the day: COR (COST OF REJECTION)

 

In any manufacturing setup even though we aim at "zero defect" production, it is very difficult to achieve. In some production processes, start up and change over rejections are almost unavoidable. Under such circumstances, maintenance of machines in top condition plays very vital role in getting closer to "zero defect" target. COR or Cost of Rejection is one of the methods of calculating value of a process, its importance to the end product and accordingly assign importance to the machine maintenance involved in the process. When we are evaluating the COR we are also looking at the value – finally influencing product's selling price – a process adds to the product. Following flow chart gives an overview of the concept with illustration taken from a continuous process line. Some of the operations may not be actually happening, but shown here for making the concept understandable. All costs are assumed per piece.

 

 

From the above flow chart, even though the raw material cost is Rs.100, each process adds certain "value" before it gets converted into final product, in this case finally priced at Rs.360. From the above chart, note that Cost E is highest with punching process adding maximum value. This can be because of expensive punching machine, tooling and skilled manpower to operate the machine. Therefore, more attention should be given to this machine to avoid costly rejections. Preventive and scheduled maintenance should be strictly followed on this machine without fail. And, sufficient spares must be maintained to ensure minimum downtime.

 

Also note that as the product gets closer to its final shape, rejection cost becomes expensive. Additionally, note that if the finished product is damaged either during storage or transport, in this illustration it equal to Rs.360 per piece. Care should be taken to avoid rejection at stage F which is equal to Rs.330 compared to rejecting at stage B where it is only Rs.120. In any organization with maintenance resource limitation, it is necessary to concentrate on more value adding and expensive processes compared to other activities. In some other processes, the raw material cost itself may be very expensive – for example, in jewelry industry – compared to its processing. In some other processes – for example, automobile industry – it may be other way around. A thorough study of the process flow should be conducted to understand the bottlenecks and eliminate rejections.

 

 

 

Even though COR or Cost Of Rejection gains importance in a continuous process industry, it can also be equally applied to a single-machine production system like Stamping Presses, Injection molding machines & others. Here also, even though there will not be any machines in "series," it will still have many before & after processes. All of them must be taken into consideration for identifying the COR & its locations. For example, an injection molded product might be electroplated or ultra-sonic welded and then dispatched or stored in warehouse. A stamped component can be subjected to electroplating or sent to an assembly line. Therefore, it is possible to divide any production process into smaller sub-units & COR can be allocated.