Rework vs scrap: what the decision is
The rework vs scrap cost decision applies to a nonconforming part: redo an operation to recover it (rework) or discard it and make another (scrap). The practical rule is to rework when the expected cost of rework is lower than the net loss of scrapping.
The cost already spent on the part is left out of the comparison, because it is gone either way. What counts is what you will spend from here on along each path.
Visual map: cost to repair vs cost to discard
The map shows the formula, the 100-part example and the break-even point.
The decision formula
Scrap = Crep − Vscr | Rework = Crw + (1 − s) × (Crep − Vscr)
- Crep: cost of making a good replacement part (material + conversion).
- Vscr: salvage value of the scrapped part.
- Crw: cost of one rework attempt (labor, machine, reinspection, handling).
- s: rework success rate. The (1 − s) that fail are scrapped as well.
Rework pays off when Crw < s × (Crep − Vscr). Production costs come from the unit cost and the machine-hour cost.
Example: 100 defective parts
Fictional example. A lot has 100 parts with a defect that can be repaired. Figures per part:
| Item | Breakdown | $ per part |
|---|---|---|
| Crep (new part) | material 12.00 + conversion 8.00 | 20.00 |
| Vscr | scrap sale | 1.50 |
| Net loss if scrapped | 20.00 − 1.50 | 18.50 |
| Crw | labor and machine 5.50 + reinspection 1.00 + handling 1.00 | 7.50 |
| s | rework success rate | 80% |
Expected rework cost per part: 7.50 + (1 − 0.80) × 18.50 = 7.50 + 3.70 = $11.20. Scrapping costs $18.50.
For the lot: scrap = 100 × 18.50 = $1,850.00; rework = 100 × 11.20 = $1,120.00. Rework saves $730.00.
Break-even point
With the same data, two limits show the margin of the decision:
- Maximum rework cost at s = 80%: 0.80 × 18.50 = $14.80 per part. Above that, scrap.
- Minimum success rate at Crw = $7.50: 7.50 ÷ 18.50 = 40.5%. Below that, scrap.
| Success rate | Expected rework cost ($) | Scrap ($) | Better option |
|---|---|---|---|
| 90% | 9.35 | 18.50 | Rework |
| 80% | 11.20 | 18.50 | Rework |
| 60% | 14.90 | 18.50 | Rework |
| 40% | 18.60 | 18.50 | Scrap |
When scrap wins
Another part from the same lot needs disassembly and manual adjustment: Crw = $16.00 and s = 70%. Expected cost is 16.00 + 0.30 × 18.50 = $21.55, against $18.50 to scrap. Here scrapping is $3.05 cheaper per part.
Criteria beyond cost
The math only holds if rework is allowed. Before comparing figures, check:
- Safety and function: rework may be prohibited on safety-critical or performance-critical parts.
- Customer approval: many customers require approval or an approved rework instruction. Check the contract requirement.
- Traceability: a reworked part must be identified and reinspected to the same criteria as a new one.
- Capacity: if the machine is the bottleneck, add the value of the lost hour to rework.
- Lead time: rework can delay delivery, and a new part is not always ready in time.
- Escape risk: rework raises the chance of a defect reaching the customer. Treat it as external failure cost.
Common mistakes
- Including the cost already spent ($20.00) in the comparison, when it is lost either way.
- Ignoring the success rate and assuming every rework works.
- Leaving reinspection and handling out of the rework cost.
- Treating rework as routine: it hides the problem. Record quantities and attack the cause with Pareto, the 5 Whys or 8D.
- Not adding rework and scrap to the cost of quality: both are internal failure.
Frequently asked questions
When is it worth reworking a part?
When the expected rework cost is lower than the net loss of scrapping, and rework is allowed by safety and by the customer.
Does the cost already spent on the part count?
No. It is lost under both options. Compare future costs only.
What is the decision formula?
Rework pays off if Crw < s × (Crep − Vscr), where s is the rework success rate.
How much does the example save?
$730.00 on the 100-part lot: $1,850.00 to scrap against $1,120.00 to rework.
What is the minimum success rate in the example?
40.5%, which is 7.50 ÷ 18.50. Below it, scrap is cheaper.
How do you reduce both?
Attack the cause: root cause analysis, poka-yoke and tracking FPY. See also nonconformance handling.
Sources
- JURAN, J. M.; DE FEO, J. A. Juran's Quality Handbook. McGraw-Hill.
- CAMPANELLA, J. (ed.). Principles of Quality Costs. ASQ Quality Press.
- HORNGREN, C. T. et al. Cost Accounting: A Managerial Emphasis. Pearson.
- ISO 9001:2015. Quality management systems: requirements (control of nonconforming outputs).
Keep studying: trusted sources and links
- Sebrae: gestão, custos e finanças para empresas (in Portuguese)
- CFC: Conselho Federal de Contabilidade (in Portuguese)
- Wikipedia: Cost of poor quality
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About the author
Lean Manufacturing & Behavioral Management Specialist
Over 20 years in the automotive and metalworking industries (GM and Dana), Lean Manufacturing practitioner since 2006. SENAI instructor and mentor in Brazil’s Brasil Mais Produtivo program, delivering consulting, training and audits for 50+ companies, combining quality, productivity and people development.
