Unlocking the ROI from Better Scrap Management

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Executive Summary
In many manufacturers, the process for handling scrap and non-conforming materials is itself defective. In a world where manufacturing businesses are striving to be lean, traditional systems for processing scrap and non-conforming materials turn out to contribute heavily to leans classic Seven Wastes. Labor-intensive and inefficient, they act as a serious drag on productivity. Lacking real-time integration with critical business systems, they miss opportunities to rectify quality problems in good time, thereby contributing to a higher-than-necessary defect rate. And their limited connectivity with suppliers leaves the business exposed to performance-sapping shortfalls in replacement materialsas well as unclaimed purchase credits against invoices. Finally, and most critically, traditional scrap and non-conforming materials systems contribute significantly to a fundamental failure of manufacturings core mission: getting products to customers, on-time. With poor inventory visibility, and an inability to reconcile scrapped materials against on-hand inventories, manufacturers find out too late that parts assumed to be good have long since been scrappedthe result: expedited shipments, at expensive premium freight rates. Sounds familiar? Yet it doesnt have to be that way. Zebra Enterprise Solutions Scrap Tracking and Management Solution is designed to streamline the processing of non-conforming materials, thereby eliminating these wastes, and directly improving business effectiveness. Costs and scrap levels come down, labor productivity and yield go up. This white paper explores the weaknesses of traditional approaches to the handling of scrap and non-conforming materials, and highlights the benefits to arise from a real-time, fully-integrated Scrap Tracking and Management Solution.
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Introduction
The scrapping of products, components and raw materials is by definition wasteful. No surprises there, perhaps. But the process through which those products, parts and materials are scrapped is also wastefuladding cost and complexity to the manufacturing operation, while sapping customer service levels and inventory turns. And in todays lean industrial environmentsby now generally considered well-attuned to the elimination of wastethat may raise eyebrows. Yet these hidden wastes are nevertheless as real as they are substantial, adding a significant drag to manufacturing performance. The good news? Zebra Enterprise Solutions Scrap Tracking and Management Solution (STMS) is designed to streamline the processing of nonconforming materials. STMS eliminates error-prone and inefficient manual systems for processing scrap, and replaces them with a real time, highly visible scrap tracking and management tool that provides timely and accurate scrap recording and reporting facilities right across the manufacturing enterprise. The result: a seamless, automated process for handling scrap and non-conforming materialsand one which offers significant reductions in cost, administrative labor, non-adherence to order due date, and inventory levels. To see how, lets first explore the wastes inherent in traditional systems for processing scrap and non-conforming materials.

the quantity involved, the date, and the reason for scrappage or non-conformance, for example. WHITE PAPER Data capturefor entry into an ERP system, for instance might be accomplished by use of an accompanying tear-off two- or three-part form. In such cases, the items stay at the point of scrappage, or are perhaps moved to a holding or quarantine area, while the data form is passed to the person responsible for keying-in the information. In an ideal world, the raising of a scrap ticket would trigger a whole series of actions, more or less simultaneously. Consider, for example, what needs to be done. From a quality perspective, for example, yield figures would be updated, reason codes logged, and rectification or fault analysis actions considered. From the perspective of order due-date compliance, replacement materials should be ordered, and in good time to meet the original to-customer schedule. And in the case of purchased parts or materials, purchasing and accounting systems should be updated, with vendors notified of a need to either provide free-of-charge replacements, or issue a credit against the eventual invoice that will be received. In practice, compliance is patchy. Some actions occur; others dont. And when they do occur, the degree of timeliness is often poor. The result: scrapped parts and materials are effectively sidelined from the flow of parts and product through the plant. Replacements arent orderedor are ordered too late, necessitating costly expedited shipments. Supplier credits arent received, damaging profits margins and cash flow. And quality and purchasing systems arent updated, leading to a misleading view of yield and supplier performance, as well as missed opportunities to take early and effective corrective action. Yet physically, of course, the scrapped parts and non-conforming materials are still there, gathering dust and consuming floor space. Typically, audits show that the manual processing of scrap takes up to three weeks from start to finishwhen all goes well. And when it doesnt go well, of course, the weeks can easily stretch into months. Especially in the context of high-value parts and materials, the financing of scrapped items for even

Not Fit For Purpose

The manual scrap handling system typically found in todays manufacturing plants dates back to the early 1960s. Yet fifty years on, its still in usebypassed almost entirely by the intervening arrival of ERP systems and shop floor data capture applications. Typically, for instance, theres a physical tagusually card-basedwhich is attached to the items in question, and which in addition to a pre-printed serial number contains several data fields for hand-written input: what the item is,

three weeks is not an insignificant cost. Financing over a period of two or three months, especially when financing costs are high, adds to the burden. Eventually, though, action will be taken, prompted perhaps by an upcoming inventory check, or as part of a monthly plant housekeeping. But only, its important to note, at the cost of still more administrative labor and inefficiencyperhaps even paid for in overtime premiums, adding further to the cost.

unnecessary inventory holdings. Viewed in the round, as a total package, these are consequently far more likely to serve as a spur to action.

Waste Elimination
Of the seven wastes classically identified by the principles of lean manufacturing, its clear that the sub-optimal processing of scrap and non-conforming materials can be linked to virtually all of themthe sole exception, perhaps, being the waste of Waiting. Its also clear that the poor handling of scrap and non-conforming materials is at least a significant contributory factor to Over-Production, while the very manual nature of traditional processes leads to Unnecessary Motion. But the biggest impact falls squarely on four wastes: Defects, Non-Value Added Processing, Excess Inventory and Transportation. Here, the costs of poor handling of scrap and non-conforming materials are both significant and easily determined. Defects: The timely identification of scrap and non-conforming materials is a key factor in reducing the incidence of a subsequent recurrence. The sooner a problem is identified, in short, the sooner steps can be taken to eliminate it and prevent it happening again. In the best lean plants, lean thinking embraces this notion in many waysfrom making scrap and yield loss physically very highly visible, to shift-by-shift publication of yield, scrap and quality metrics. In non-lean plants, though, traditional systems for the processing of scrap and non-conforming materials dont really help. The act of tagging defective parts, for instance, while usefully serving to prevent them from being inadvertently used, does nothing in itself to alert the quality or manufacturing engineering functions to a problem. Likewise with non-conforming material identified at the goods inwards stageunless news gets back to the supplier that he has an out-of-control process, more non-conforming materials, subject to the same fault, may continue to arrive. The scale of the opportunity is significant. Typically, customers implementing Zebras Scrap Tracking and Management Solution have achieved reductions in scrap of around 25%in other words, between $420,000 and $1.5 million, a sizeable saving in anyones reckoning. Non-Value Added Processing: As already noted, traditional tag-based approaches to the processing of scrap and non-conforming materials rely heavily on human action:

The Lean Perspective

The conflicts with the precepts of lean production are clear. Lean production abhors waste, and its clear that the traditional manual paper-based approach to scrap and non-conforming materials is far from waste-free. And its worth exploring these wastes through the prism of a lean methodology for two reasons. First, lean provides a common language for manufacturing, quality, purchasing and supply chain personnel to share perspectives on the handling of scrap and non-conforming materials. In short, viewed within the context of a lean program, as a set of wastes that must be tackled, cross-functional remedies can be pursued without turf wars or unnecessary debates as to which function is to blame. The system is broken; it must be fixed. And just as lean provides a cross-functional perspective on the costs of mishandling scrap and non-conforming materials, it also provides a way for diverse functions within the business to identify withand supportthe benefit set that arises from adopting an alternative approach. From production to procurement, and from quality to finance, every function stands to benefit from real-time integration and improved visibility. Second, as we have seen, the failure of traditional systems for handling scrap and non-conforming materials gives rise to a widely-dispersed set of wastes and costs. In the typical manufacturing environment, its rare for any single waste or cost in isolation to act as a burning platform, prompting immediate management counter-action. Even in the case of expedited shipments of replacement parts and materialsa cost that is perhaps most readily expressed in dollars and centsthe sums involved may not be huge. But lean provides a way of drawing together a holistic set of costsand therefore potential benefitsthat includes such dimensions as floor space, excessive re-order points, administrative costs, foregone supplier credits and

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finding and locating scrap, tagging it, and placing it in holding or quarantine areas and so on. And in lean terms, none of this adds value. While administratively necessary, and useful from a housekeeping and supplier cost recovery perspective, it serves no useful purpose in generating value for the end customer by moving their orders a step closer to completion. The typical cost of this non-value added activity? Again, customers implementing Zebras Scrap Tracking and Management Solution have typically achieved labor savings of $100,000-$200,000equivalent to a $20,000-$40,000 additional contribution to the bottom line each week. Excess Inventory: In any manufacturing flow, inventory headed for customer orders has the highest velocity of material movement. Material taken out of that flow adopts a more leisurely pace, often remaining in limbo for weeks or even months. But all of that time, its officially in inventoryoften at full standard cost. Worse, such is the time taken to deal with scrap and non-conforming materials that they may be consigned to garbage or recycling before a full reconciliation has taken place, leading to purchased materials and parts effectively being lost.

Transportation: As noted, loss of visibility into scrap and non-conforming materials results in inventory inaccuracies specifically, into the correct status of work-in-process, with manufacturers unable to reconcile reported scrap with reported materials on hand. In short, materials assumed to be on-track towards on-time order completion are discoveredalmost too lateto have been scrapped or rejected instead. The result? The expedited shipment of replacement materials, often at premium freight ratesa direct waste of cash, and a not inconsiderable expenditure. But implement a system for handling scrap and non-conforming materials that provides visibility into true scrap and inventory status, and the need for urgently delivered replacement materials drops. Among customers implementing Zebras Scrap Tracking and Management Solution, reductions in expedited shipment costs of between 5% and 10% have been observed, contributing a direct boost to the bottom line.

The Seven Wastes In Manufacturing

1. Over production: producing more than and/or ahead of demand. The result of producing to speculative (forecast) demand or supposed economic batches, it is visible as excessive, time consuming and costly material stores. 2. Waiting: whether for the previous, current or next step in the process, the result is wasted worker time. The goal is to maximize the utilization and/or efficiency of operatives first and machines second. 3. Transportation: unnecessary transport of materials, WIP (work in progress) and finished goods adds zero value to the product. Instead of improving transportation processes and systems, lean thinking first favors minimizing or eliminating them. 4. Non value added processing: doing more work than is necessary, according to the value principle often due to poor plant layout or misguided attempts to recover expensive machinery costs. Lean essentially advocates using simpler, lower cost tools, cell manufacturing and/or combining steps, where possible. 5. Unnecessary motion: relating to people bending, stretching or walking too far, due primarily to the inappropriate location (and potentially also design) of tools, parts inventories and fixtures. Instead of simply automating wasted motion, lean requires that the operations themselves be improved. 6. Excess inventory: specifically referring to WIP between operations and purchased parts within the supply chain, frequently resulting from overproduction, usually due to excessively large batch manufacturing or processes with long cycle times leading in turn to cost and clutter. This waste also creates additional waste in the form of increased lead times, excessive floor space requirements, extra handling, high interest charges, avoidable people movement and paperwork and, again, the associated costs. 7. Defects: producing defective parts or products results in rework and scrap and invariably adds significantly to manufacturing costs. Lean focuses on preventing the occurrence of defects, rather than improving the processes around finding and repairing them.

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Among customers implementing Zebras Scrap Tracking and Management Solution, annual reductions in material loss amounting to between $187 ,000-$328,000 have been recorded, again resulting in a benefit to the bottom line. Typically, too, inventory reductions of 5%-15% have been noted.

To address these wastes, and to improve the processing and handling of scrap and non-conforming materials, Zebra Enterprise Solutionsa division of Zebra Technologies Corporationhas brought to market a Scrap Tracking and Management Solution. Sarbanes-Oxley compliant, the Scrap Tracking and Management Solution eliminates the traditional manual paper-based tag process, and instead replaces it with a real time, highly visible scrap tracking and management tool that provides timely and accurate recording and reporting of scrap and vendor rejected materials. Highly configurable, and with fast deployment times, the system embraces the entire scrap and vendor-reject material processesas well as any ancillary re-work processesand delivers an ROI measured in months. Typically costing between $50,000 and $200,000depending on the size and complexity of the enterprise in which it is deployedthe Zebra system can be up and running in between two weeks and thirty days, depending on the extent of the desired integration with a customers ERP system. Incorporating as standard options barcode-enabled printed tags, elements of Zebras extensive real-time tracking product range can be added to augment functionality and ease of operationsuch as mobile printers, for example, and barcode scanners. By automating the scrap and non-conforming material management process with greater speed and accuracy, and

Repetitive Assembly and/or Manufacturing Environments, with: * Large production volumes * Numerous differentiated part numbers * Extensive supplier base

Typical industries: * Automotive * Aerospace * Industrial * Defense

at the same time providing improved visibility into the status of components and non-conforming materials, the Zebra system reduces the amount of scrap, inventory on hand, freight costs and material losswhile enabling gains in labor productivity and supplier cost recovery. Whats more, its small footprint immediately impacts the scrap and non-conforming materials processwithout requiring extensive investment in capital equipment such as servers, and using existing factory floor IT infrastructure such as printers to print out system-generated tags. And better still, it has been optimized for efficient human interaction, boosting productivity even higher. Typical data entry optimization measures include context-specific auto-completionsuch as auto-suggesting only milled parts in a milling department, and auto-suggesting the most-commonly scrapped parts first.

Scrap Tracking and Management In Operation At Jaguar

Formerly owned by the Ford Motor Company, and now part of Tata Motors, UK-based Jaguar Land Rover is one the worlds premier manufacturers of iconic luxury vehicles. Real-time systems and technologies from Zebra Enterprise Solutions have been an aspect of the Jaguar Land Rover success story since 2002, in the shape of Zebras Material Flow Replenishment and wireless parts call solutions. And in 2009, after a nine-month proof of concept trial period, the company went live with a third Zebra materials management solution Zebras Scrap Tracking and Management Solution. Within a week of implementation, it was clear that the an ROI of 100% was a genuine prospectand one that was achievable within a year. The nine month trial period had shown that real time, plant wide visibility of defective material could be achieved, and that achieving it contributed to operational and business success. In particular, it soon became clear that expedited freight costs could be reduced, and by a potential of 5-10%. Furthermore, implementing Zebras Scrap Tracking and Management Solution also achieved a reduction in material loss and scrap, as well as improving productivity and inventory accuracy. Easy to deploy, the system was implemented in just a week.

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Introducing Zebra Enterprise Solutions Scrap Tracking and Management Solution

Zebra Enterprise Solutions Scrap Tracking and Management Solution is appropriate for:

Conclusion
For manufacturers, the management of scrap and non-conforming materials is both a problem area and an opportunity. Getting it wrong adds to cost, comprises on-time delivery performance, and saps productivity. Getting it right not only eliminates significant wastes within the enterprise, but contributes to an enhanced overall business performance. Through its Scrap Tracking and Management Solution, Zebra Enterprise Solutions leverages its extensive real-time tracking offerings and technologies to provide a highly-scalable and cost-effective scrap management capability that can be implemented in an exceptionally short timescale.

The result: a seamless, automated process for handling scrap and other non-conforming materialsand one which offers significant reductions in cost, administrative labor, non-adherence to order due date, and inventory levels. And in todays tough business climate, that has to be good news.

Zebra Enterprise Solutions, a division of Zebra Technologies Corporation, extends Zebras reach beyond passive RFID by employing state-of-the-art software and hardware solutions to locate, track, manage, and optimize high-value assets, equipment and people across the worlds largest supply chains. Whether tracking containers through a port, optimizing parts for manufacturing, or managing ground support equipment at an airport, the real-time asset management solutions from the combination of Navis, WhereNet, proveo, and Multispectral Solutions provide improved visibility and velocity to gain measurable business improvements. Utilizing products that are based on ISO/IEC 24730-2, Cisco CCX Wi-Fi, precision GPS, and UWB technologies, Zebra Enterprise Solutions offers a wide range of location solutions that are application matched, enabling its customers to put the right asset in the right place at the right time. For more information about Zebra Enterprise Solutions visit http://www.zebra.com/zes

For more information please contact us at 1-510-267-5000 or visit us at www.zebra.com/zes

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Eliminating error-prone and inefficient manual systems for processing scrap, it replaces them with a real time, highly visible scrap tracking and management tool that provides timely and accurate scrap recording and reporting facilities right across the manufacturing enterprise.