MaintenanceCircleTeam Page 1 November 29, 2008

Maintenance
NEWSLETTER FOR MAINTENANCE COMMUNITY
circle
Word for the day: COR (COST OF REJECTION)

In any manufacturing setup even though we aim at “zero defect” production, it is very difficult to achieve. In some
production processes, start up and change over rejections are almost unavoidable. Under such circumstances,
maintenance of machines in top condition plays very vital role in getting closer to “zero defect” target. COR or Cost of
Rejection is one of the methods of calculating value of a process, its importance to the end product and accordingly
assign importance to the machine maintenance involved in the process. When we are evaluating the COR we are also
looking at the value – finally influencing product’s selling price – a process adds to the product. Following flow chart
gives an overview of the concept with illustration taken from a continuous process line. Some of the operations may
not be actually happening, but shown here for making the concept understandable. All costs are assumed per piece.

START

STORED IN WARE STORAGE / COST A: RAW MATERIAL

HOUSE EITHER ON ISSUE OF RAW Rs.100
RACKS OR ON FLOOR MATERIAL

PERFORMED ON A CUTTING TO COST B: COST A+

IMPORTED CUTTING REQUIRED CUTTING COST Rs.120
MACHINE DIMENSION (ADDITION: RS.20)

PERFORMED ON A PRINTING COST C: COST B+

IMPORTED MULTICOLOR LABEL ON PRINTING COST Rs.180
PRINTING MACHINE THE SHEET (ADDITION: RS.60)

PERFORMED ON A PROTECTIVE COST D: COST C+

IMPORTED HIGH SPEED COATING TO COATING COST Rs.210
COATER PREVENT PRINTING (ADDITION: RS.30)

PERFORMED ON A
IMPORTED HIGH SPEED PUNCHING THE SHEET TO COST E: COST D+
PUNCHING MACHINE WITH SMALLER DIMENSIONAL PUNCHING COST Rs.310
EXPENSIVE TOOLING END PIECES (BITS) (ADDITION: RS.100)

PERFORMED ON A LOCAL CONVERTING BITS TO COST F: COST E+

SMALL CONVERSION FINAL SHAPE AS PER CONVERSION COST Rs.330
MACHINE CUSTOMER’S DESIGN (ADDITION: RS.20)

SPECIAL PACKING, STORAGE & SHIPPING COST G: COST F+ PROFIT

STORAGE AND SHIPPING TO CUSTOMER WITH MARGIN Rs.360
TO CUSTOMER INVOICE (ADDITION RS:30)

This document contains information for reference only. We assume no responsibility for its implication.
 MaintenanceCircleTeam Page 2 November 29, 2008
From the above flow chart, even though the raw material cost is Rs.100, each process adds certain “value” before it
gets converted into final product, in this case finally priced at Rs.360. From the above chart, note that Cost E is
highest with punching process adding maximum value. This can be because of expensive punching machine,
tooling and skilled manpower to operate the machine. Therefore, more attention should be given to this machine to
avoid costly rejections. Preventive and scheduled maintenance should be strictly followed on this machine without
fail. And, sufficient spares must be maintained to ensure minimum downtime.

Also note that as the product gets closer to its final shape, rejection cost becomes expensive. Additionally, note that if
the finished product is damaged either during storage or transport, in this illustration it equal to Rs.360 per piece. Care
should be taken to avoid rejection at stage F which is equal to Rs.330 compared to rejecting at stage B where it is only
Rs.120. In any organization with maintenance resource limitation, it is necessary to concentrate on more value adding
and expensive processes compared to other activities. In some other processes, the raw material cost itself may be very
expensive – for example, in jewelry industry – compared to its processing. In some other processes – for example,
automobile industry – it may be other way around. A thorough study of the process flow should be conducted to
understand the bottlenecks and eliminate rejections.

400
360
350 Step-E or Punching Process
in this example, should be 310
300 given maximum importance
to avoid rejection
250
210
200
180
150
120
100 100

50
0
STEP-A STEP-B STEP-C STEP-D STEP-E STEP-F

Even though COR or Cost Of Rejection gains importance in a continuous process industry, it can also be equally
applied to a single-machine production system like Stamping Presses, Injection molding machines & others. Here
also, even though there will not be any machines in “series,” it will still have many before & after processes. All of
them must be taken into consideration for identifying the COR & its locations. For example, an injection molded
product might be electroplated or ultra-sonic welded and then dispatched or stored in warehouse. A stamped
component can be subjected to electroplating or sent to an assembly line. Therefore, it is possible to divide any
production process into smaller sub-units & COR can be allocated.

This document contains information for reference only. We assume no responsibility for its implication.