Meaning
Contractual obligation that defines which party is responsible for the costs associated with defective units produced during the manufacturing process. Yield loss liability is a critical part of the agreement between a device company and its contract manufacturer. It determines the financial impact of low production yields and sets the thresholds for when a supplier must compensate the buyer for lost materials and labor.
Scrap Cost
Value of the raw materials and the assembly time spent on a unit that fails the final test is the primary measure of the loss. When the yield loss liability is assigned to the manufacturer, they must absorb these costs if the defect rate exceeds a predefined limit. This encourages the factory to maintain high standards of quality and to continuously improve their processes.
If the buyer is responsible, they must provide enough extra components to account for the expected number of failures.
Supplier Agreement
Terms of the partnership specify the acceptable yield levels for different stages of the production cycle. A yield loss liability clause might include a tiered system where the manufacturer pays a higher penalty if the yield drops below a certain percentage. These negotiations are based on historical data and the complexity of the product being built.
A clear agreement prevents disputes and ensures that both parties have a shared interest in maximizing the number of good units produced.
Root Cause
Determination of why a unit failed is necessary to assign the financial responsibility correctly. If the failure is caused by a design flaw, the yield loss liability typically falls on the buyer. However, if the failure is due to a mistake in the assembly process, the manufacturer is held accountable.
This investigation requires a detailed analysis of the test data and sometimes a physical inspection of the defective parts. Accurate tracking of the causes of failure is the only way to resolve these liability claims fairly.
