material cost of non-quality

Core meaning

Material cost of non-quality commonly refers to all material-related costs that arise because products, lots, or components fail to meet specified quality requirements. It quantifies how much additional material is consumed, wasted, or written off due to quality problems, beyond what would be required in a stable, conforming process.

It is usually expressed as a monetary value over a defined period (for example, per shift, month, or year) or per unit (for example, cost per finished part).

Typical cost components

While exact definitions vary by organization, the material cost of non-quality often includes some or all of the following:

– **Scrap material**
– Cost of raw materials, components, and intermediates that must be discarded because they cannot be reworked to conforming status.
– **Rework material consumption**
– Extra materials used to repair or rework nonconforming units (for example, additional components, adhesives, or consumables).
– **Downgraded or diverted material**
– Loss in material value when products are sold at a lower grade, used internally instead of sold, or diverted to alternate uses.
– **Material write-offs and expiries**
– Cost of materials that expire, become obsolete, or are quarantined and later discarded due to quality concerns or investigations.
– **Nonconforming returns and replacements (material portion)**
– The material value of replacements, remakes, or repairs for returned or recalled products, excluding labor and overhead.

Organizations may choose to include or exclude some items depending on accounting policies. A clear internal definition is essential for consistent use as a KPI.

Boundaries and exclusions

The material cost of non-quality:

– **Includes**
– Material purchase cost or standard cost associated with nonconforming units and extra material usage.
– Loss of material value due to scrap, rework, downgrade, or expiry linked to quality issues.
– **Commonly excludes** (unless explicitly defined otherwise)
– Direct labor cost (operators, inspectors, engineers).
– Overheads such as energy, equipment depreciation, or facility costs.
– External failure costs not directly related to material (for example, penalties, legal costs, or service labor).

Some companies roll all of these into a broader **cost of poor quality (COPQ)** measure. In that case, material cost of non-quality is a defined subcategory focused only on material value.

Use in manufacturing workflows and systems

In industrial and regulated environments, the material cost of non-quality is often calculated and tracked using data from:

– **MES (Manufacturing Execution Systems)**
– Records of produced units, scrap quantities, rework transactions, and material consumption by batch or order.
– **ERP systems**
– Material master data, standard costs, purchase prices, and inventory write-offs.
– **QMS or LIMS**
– Nonconformance records, lot dispositions (accept, rework, scrap), and deviation investigations.

Common practices include:

– Calculating scrap and rework costs by multiplying recorded scrap quantities and extra consumption by standard or actual material cost.
– Reporting material cost of non-quality by product, material family, production line, or plant.
– Using it as a KPI alongside yield, scrap rate, and rework rate to understand the financial impact of quality problems.

Site context: link to material waste reduction KPIs

In the context of material waste reduction, material cost of non-quality is often used to:

– Translate **scrap, rework, and yield losses** into a monetary measure that can be compared across products and lines.
– Prioritize improvement work where material-related quality losses are highest.
– Align OT and IT data (MES, ERP, QMS) so that physical material waste recorded on the shop floor is consistently valued in financial systems.

For regulated manufacturing, definitions may also consider traceability requirements, controlled disposal of nonconforming material, and validated data sources when calculating the KPI.

Common confusion and related terms

Material cost of non-quality is often confused with, or used interchangeably with, several broader terms:

– **Cost of poor quality (COPQ)**
– A broader concept covering internal and external failure costs, appraisal costs, and sometimes prevention costs. Material cost of non-quality typically represents only the **material-related portion** of COPQ.
– **Scrap cost**
– Refers only to the cost of discarded material. Material cost of non-quality may be broader, including rework material, downgrading, and write-offs.

When using the term, it is useful to specify whether it is intended as:

– A **narrow measure**, limited to scrap material value; or
– A **broader material-focused measure**, including all material value losses due to nonconformity.