Now You See It – Now You Don’t: Confronting Material Yield Loss

Money Black Hole

In a factory, you see it every day. Its on the floor next to the machines, in the trash can, in the recycling bin, and in a huge compactor out back. It’s so commonplace that everyone just steps right over it and carries on as if they don’t even see it anymore. It becomes “the way it is around here”. And every time you see it, you silently think to yourself, “I wonder how much it costs us to throw away that much material.”

Material Yield loss is a measure of how much of the raw material you purchase actually gets converted into sale-able finished goods. Granted some water-based materials may lose some weight during processing due to evaporation, it is possible to account for every single ounce or inch of raw material that is purchased. An approach called a mass balance can provide some idea for how much of that valuable raw material is lost in some black hole in the production process. A mass balance simply takes the quantity shipped (as finished product) divided by the quantity procured. This provides a yield value measured as a percentage. The remaining amount is yield loss, which is a by-product of the production system. Since material yield can range anywhere from 40 – 80% of the cost of goods sold (COGS), it can quickly become a significant amount of money. For example, a factory with a $25MM operating budget, a 75% Materials COGS, and a 5% yield loss would be throwing away almost $1MM per year in yield loss.

There are ways to recapture some of that yield loss such as setting up recycling programs or selling scraps to the local fabricator. These are work-arounds that tend to mask the problem that your system is oozing valuable product. And when problems get masked, they get worse over time. Besides, why convert good raw material into waste that sells for pennies on the dollar (or even worse, ends up in a landfill), when you can take steps to convert that same lost material into profitable finished product. Now perhaps its not a good time to deal with that now or you don’t have the expertise to get to the root of the issue and implement an effective solution. In those cases, it may make more sense to bring in outside help to get the issue addressed sooner than later. Remember, the longer an issue lives, the strong it becomes and more expensive to resolve. An expert can help cut through the trial and error to get you to the right answer a lot sooner.

© Calvin L Williams blog at [2015]. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Calvin L Williams with appropriate and specific direction to the original content.

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