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Glossary · Operations

What is Defect Rate?

Defect rate is the percentage of units sold that turn out to be faulty. The difference from shipping damage is that the fault is in the product itself, meaning it originated in manufacturing or sourcing. It is the most objective measure of supplier performance, and tracked per batch it makes visible which shipment was the problem.

Detail

The rate has to be measured per batch; a catalog-wide average hides one bad batch. Once acceptance criteria and a maximum defect rate are written into the supply contract, batches over the threshold become grounds for a return or a price reduction. Running incoming quality control on a sample of each batch catches the defect in the warehouse and stops it before it reaches the customer. Once a defect does reach the customer, the cost is not only the product; it is return shipping, a negative review and a lower store rating.

Formula

Defect rate = Faulty units ÷ Units sold × 100

Example

If 35 of 500 units in a batch come out with stitching faults, the rate is 7 percent; if the contract threshold is 2 percent, the difference can be charged back to the supplier.
FAQ

Common questions on this topic.

How is Defect Rate calculated?

Defect rate = Faulty units ÷ Units sold × 100

If 35 of 500 units in a batch come out with stitching faults, the rate is 7 percent; if the contract threshold is 2 percent, the difference can be charged back to the supplier.

Why does Defect Rate matter?

The rate has to be measured per batch; a catalog-wide average hides one bad batch. Once acceptance criteria and a maximum defect rate are written into the supply contract, batches over the threshold become grounds for a return or a price reduction. Running incoming quality control on a sample of each batch catches the …

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