What Is Supplier Defect Rate? Definition and Examples of the Important KPI

Supply Chain

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In manufacturing, it’s crucial to offer customers a high-quality product. A key element of customer satisfaction is that the product is not easily damaged or broken. Moreover, poor quality negatively impacts manufacturing operations as it can cost more to rework items not meeting quality requirements. 

Therefore, during the manufacturing process, quality metrics must be tracked.

Measuring supplier quality is essential for manufacturers that use outside suppliers for either materials or parts. Supplier defect rate measures the percentage of material received from suppliers which don’t comply with required standards. 

Monitoring material is more challenging for industries with multitier suppliers in their supply chain, such as the automotive, electronics, aviation, and defense industries. As a result, organizations in these fields have responsibilities that extend beyond simply managing suppliers’ quality to measuring the suppliers’ overall quality. This rate is essential to track as a part of your company’s quality management process.

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Supplier Defect Rate Formula

The formula is the number of defective products divided by the number of units tested. It is the number of defective products/number of tested units written mathematically.

The defect rate is typically given in defects per million, which shows how many products out of one million would be defective at the current rate. To calculate the defects per million, you multiply the rate by one million.

The percentage of defects in the tests is the number of defective products compared to unit tests. If a unit has 10 out of 200 defects the defect rate is 10 divided by 200 or 5%.

Defect rates are usually stated as defects in millions. For example, if you have a 4% defect rate, the defects per million are 40,000.

Supplier Defect Rate Example

There is no agreed upon acceptable defect rate for every manufacturer in every industry. Lower rates are of course ideal, but companies have to decide on their own what their target defect rate is to meet quality standards.

Say a company has been getting some negative customer feedback, with customers saying their product is faulty. They aren’t sure if products are being damaged during shipping or if they’re manufacturing faulty products. They perform quality tests on 1,000 products, and 200 products turn out to be faulty. This means the company has a defect rate of 20%. Per million products produced, 200,000 would be faulty or defective in some way, which the company deems unacceptable.

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What Is the Average Defect Rate in Manufacturing?

Modern quality goals require more rigorous external quality standards, and Six Sigma-based culture quality is the de facto standard in dozens of the best manufacturing facilities. However, as mentioned above, there has yet to be an agreed upon fault rate.

Generally, shift rates have been set at 1.5 sigma. Minor defects are unlikely to reduce the product’s usability in their intended use, but they are different from the specified standards that customers may still purchase.

Regarding benchmarks for Six Sigma’s percentage defect rate, the level 3 defect rate is 66,807 PPM and the best is level 6 at 3.4 PPM.

What Other Industries Use Defect Rate?

Every business that produces a product and uses outside suppliers should look at its supplier defect rate, no matter the industry. Two industries where defect rates are especially important are the medical device and automotive industries, where a faulty finished product could lead to loss of life.

What Other Quality Metrics Are Similar or Related to Supplier Defect Rate?

During the manufacturing process, it’s important to verify the quality of the final output to ensure internal and external standards are met. There is always room for improvement.

Some related KPIs, or key performance indicators, are yield, first pass yield, scrap rate, supplier chargebacks, and customer complaints. Each of these are essential KPIs used to track product quality and to create a reliable business.

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