What is the Cost of Tracking Non-Conforming Product

NikkiQSM

Quite Involved in Discussions
#1
Hello All -

I am trying to standardize our process of holding onto rejected product.

Current process:

1. Part of the lot is rejected
2. It is placed into the NC Area and the rest of the good lot is sent to the customer.
3. The material sits in the NC Area while we wait for another order to come in. (Because we make custom plastic compounds, we never know if a product will be re-ordered or not. So we basically just wait.)

The material will sit in the NC Area until another order is placed. At that time, the material can be corrected into the new lot.

I have some material in the NC Area that has been sitting for years....

I am trying to come up with a cost formula to determine which materials we should hold onto, and what materials are not worth fixing.

Current Formula = Lbs of Material X Price Per Lb (Price we would have charged the customer, not what we really spent on materials to make it) = A

Number of Hours to Correct X Cost of Extrusion per Hour = B

If B is more than A - We should scrap it.

I would like to add in the cost of my tracking this material, but I am lost as to know how to figure that out.

I do a monthly inventory on the NC Area, and update the NC Area list.

Any ideas how I can find out the cost of me tracking this stuff?

Thank you,
Nikki
 
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normzone

Trusted Information Resource
#2
Somebody in your organization will know what the handy figure that is used locally to rationalize the average hourly cost of an employee's time when all is factored in.

It will be $125, or some such number. Add that to your costs.
 

NikkiQSM

Quite Involved in Discussions
#3
Somebody in your organization will know what the handy figure that is used locally to rationalize the average hourly cost of an employee's time when all is factored in.

It will be $125, or some such number. Add that to your costs.
Hi normzone,

Unfortunately, no one here knows that figure. We are small company with less than 50 people.

I was hoping someone here knew the proper way to come up with a cost for tracking, as I have no idea.

Thanks,
Nikki
 

normzone

Trusted Information Resource
#6
Even in a small company such as yours (and mine), somebody has approached this question before us, and has arrived at a ballpark estimate which is accepted as approximately accurate for your purposes.

The trick lies in figuring out who that person is / should be.

Try your finance / accounting people. If they have no idea, then encourage them to come up with a number because your need one, and it's in their bailiwick to do such things.

If they don't want to play, then make one up yourself, and if they think it's not accurate, ask them to do better.

http://www.smallbizclub.com/compone...wing-your-overhead-cost-per-hour-is-important

That link is one of the answers I got to a google search calculating+cost+per+employee+overhead

There's many others, your mileage may vary.

I'd go with the $125 if you want to save some time. For a company of 66 employees selling $15 million a year it worked for us.
 
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