Complete Guide to Nonconformance (NCR or DMR) Management

Nonconformance Report (NCR) management or Discrepant Material Report (DMR) management is one of the most critical processes in any Quality Management System. Timely reporting and resolution of nonconformances is critical to minimizing impact to your operations and those of your customers. A well-structured nonconformance process prevents defective products from reaching customers while providing valuable data for continuous improvement.

What Is a Nonconformance?

A nonconformance occurs when a product, service, or process doesn't meet specified requirements. This could be a part that's out of tolerance, a procedure that wasn't followed correctly, or a service that didn't meet customer expectations. Nonconformances can be discovered during incoming inspection, manufacturing processes, final inspection, or even after delivery to customers (for example, during equipment installation)..

Common examples include machined parts with incorrect dimensions, electronic components that fail testing, raw materials that don't meet specifications, assemblies missing required components, or products damaged during shipping. The key is identifying these problems quickly and handling them systematically.

The Nonconformance Process

An effective nonconformance process follows six main stages: NCR Creation, Quarantine & Red-Tag, Triage Team Assignment, Material Review Board (MRB) Disposition, Disposition-Specific Task Execution, and Root Cause Analysis to Prevent Recurrence. Each stage has specific responsibilities and ensures nothing falls through the cracks.

Stage 1: NCR Creation and Problem Reporting

When a defective part is identified during inspection, the technician, operator, machinist or inspector creates a Nonconformance Report (NCR) documenting all relevant information. This includes meta-data such as part number, revision, description, order information like work order and lot number, quantities including lot size, inspected quantity, and defective quantity, supplier name for receiving NCRs, and detection location with creation details.

Users must fill out a detailed problem description using a "should be" versus "is" structure. For example, "diameter should be 2.500 ± 0.005 inches, but is actually 2.515 inches." Users attach photos when available and record serial numbers or sequence numbers for serialized parts to ensure complete traceability.

Stage 2: Quarantine & Red-Tag

Once the NCR is created, defective parts are immediately quarantined to prevent accidental use in production. A red tag is printed with NCR number, part information, problem description, quantity, and barcode or QR code linking back to the documentation. This physical segregation ensures defective parts cannot be accidentally used and meets key regulatory requirements (e.g. FDA requirements) for separating suspect material from good material.

Parts are also moved “digitally” from "WIP Inventory" to a designated "MRB Inventory" status in the ERP system, changing from nettable to non-nettable status. This inventory control prevents the defective material from being accidentally allocated to other production orders while the disposition is being determined.

Stage 3: Triage Team Assignment and Initial Review

Each NCR is assigned to a Triage Team based on the selected NCR type (e.g. manufacturing NCR, IQC NCR, Field-reported NCR etc.). Organizations typically predefine triage team members based on established workflows, though these can be adjusted as needed. Common triage team compositions include Purchasing, Supplier Quality, and Manufacturing Engineering for receiving NCRs; Manufacturing Engineering, Quality Control, and Production for manufacturing NCRs; and Customer Service, Quality Engineering, and Manufacturing Engineering for customer NCRs.

The triage team performs an initial evaluation to determine which expert MRB team is required for each specific defect, preliminary disposition recommendations, and whether additional line items need to be created for complex defects. This step ensures the right expertise is applied to each problem.

Stage 4: Material Review Board (MRB) Disposition Process

For each line item, the triage team assigns the appropriate MRB representative who is authorized to make disposition determinations. The MRB representative selects the appropriate disposition from predefined options, and organizations must establish required QMS roles for approval based on the disposition type.

Common dispositions include Scrap when parts cannot be salvaged and must be discarded, Use As Is when parts are acceptable despite minor defects (requires engineering or customer approval when needed), Rework In-House when parts can be repaired using internal resources, Rework at Vendor when parts are returned to supplier for repair, Return to Vendor (RTV) when parts are returned for credit or replacement, and No Defect when upon further review, parts meet specifications.

Each disposition requires documentation of rationale, approver signatures, and specific handling instructions. Organizations should create an MRB approval matrix showing required approvers, and each must provide approval before the line item status changes to "Disposed."

Stage 5: Disposition-Specific Task Workflows

After a line item disposition is approved, organizations must follow specific steps to execute the disposition. This structured approach ensures nothing gets forgotten and provides clear accountability for follow-up actions.

For "Rework In-House" dispositions, organizations should generate a rework work-order, create rework instructions and procedures, track rework progress and completion, record actual rework costs and time, and verify rework quality before releasing parts.

For "Return to Vendor" or "Rework at Vendor" dispositions, tasks include creating RMA requests with vendors, generating rework purchase orders when applicable, tracking shipping and logistics, monitoring vendor rework progress, recording all associated costs, and verifying incoming reworked or replacement parts.

For "Use As Is" dispositions, organizations should document engineering justification and approval, process customer deviation requests when required, update quality records and certifications, and release parts for use with appropriate notifications.

For "Scrap" dispositions, tasks include obtaining scrap authorization approvals, calculating and recording scrap costs including material and processing costs, executing ERP inventory write-off transactions, and ensuring proper disposal per environmental requirements.

Stage 6: Root Cause Analysis to Prevent Recurrence

The ultimate goal of nonconformance management isn't just to fix individual problems - it's to ensure that defects never occur again. This requires moving beyond quick fixes to understand and eliminate the underlying causes of quality problems.

Many organizations make the mistake of starting with blame assignment, immediately categorizing defects as "our company caused" or "supplier caused" with limited information. This approach is problematic because over half of the problems initially classified as "supplier caused" are typically reversed after detailed root-cause analysis. More importantly, starting with blame creates confrontation between suppliers and customers, making objective problem-solving difficult.

A Better Approach to Root Cause Classification: Instead of assigning blame, begin with an objective preliminary classification. First, review the specification and the defective part together, including drawings, bills of material, and requirements documents. Verify calibration and repeat measurements on the necessary part characteristics. Then classify the defect into two high-level categories:

Inadequate Process: The part does not meet specifications. This indicates that the manufacturing, inspection, or handling process needs improvement.

Inadequate Specifications: The part meets specifications, but the specifications themselves are inadequate. This indicates that the design, engineering requirements, or testing criteria need revision.

This classification works whether a defect is found in manufacturing or in the field, and helps initiate root-cause analysis in a more collaborative manner.

Root Cause Analysis Tools: Different types of problems require different analytical approaches. Use the 5-Whys technique when dealing with linear cause-and-effect relationships where one issue leads to another in a clear sequence. This method works well for process-related problems with single root causes.

Use fishbone diagrams (also called Ishikawa diagrams) when dealing with complex problems involving multiple variables. These diagrams help organize potential causes into categories such as Materials, Methods, Machines, Measurements, Environment, and People, making it easier to systematically explore all possible contributing factors.

Essential Practices for Effective Root Cause Analysis: Treat every defect seriously by ensuring each defect is recorded and reported. The availability of frequency data will help you rank and prioritize your actions. Record measurements by requiring all suppliers to provide actual part measurement data. The availability of specification-level measurement data will speed up your root-cause analysis. Make no assumptions about the accuracy of the specification itself - you will be surprised at how often specifications are incomplete, inadequate, or simply incorrect.

Cost Tracking and Analysis

Effective nonconformance management requires tracking the true cost of quality problems. Organizations should implement cost tracking at the line item level, with costs calculated to include scrap costs for raw material value plus processing costs up to the point of scrap, rework costs for additional labor, machine time, and materials for repair, vendor costs including shipping expenses, RMA fees, and vendor rework charges, and opportunity costs such as production delays, expediting fees, and schedule impacts.

These costs should be rolled up to understand the total cost, maintaining both individual line item costs and aggregate NCR costs to support different levels of analysis. This cost visibility helps prioritize improvement efforts and demonstrates the business impact of quality problems.

Defect Classification for Continuous Improvement

Classification is done at the line item level and enables analysis of which defect types and root causes drive the highest quality costs. This supports continuous improvement initiatives and supplier performance management by identifying patterns and trends that might not be visible from individual NCRs.

Proper classification helps answer questions like which suppliers have the most quality issues, what types of defects are most costly, which manufacturing processes need improvement, and whether quality trends are improving or getting worse over time.

Making Nonconformance Management Work

The key to successful nonconformance management is treating it as a systematic process rather than just fire-fighting. This means having clearly defined roles and responsibilities, standardized workflows that everyone follows, automated notifications and task assignments, comprehensive cost tracking, and regular analysis of trends and patterns.

The most effective organizations use nonconformance data to drive continuous improvement, feeding lessons learned back into their processes, procedures, and training programs. This creates a closed-loop system where quality problems become opportunities for systematic improvement.

Digital Nonconformance Management

While nonconformance management can be handled with paper forms and spreadsheets, digital Nonconformance Management software dramatically improves the speed, accuracy, and effectiveness of the entire process. Digital systems automate workflow routing and notifications, ensuring NCRs are never lost or forgotten. They provide real-time visibility into NCR status and trends, enabling proactive management rather than reactive problem-solving.

Digital NCR processes also eliminate data entry errors and duplicate work, automatically calculate costs and generate reports, maintain complete audit trails for regulatory compliance, and integrate seamlessly with ERP systems for inventory management. Most importantly, digital systems enable the comprehensive analytics and reporting needed to identify patterns, prioritize improvement efforts, and demonstrate the business value of quality investments.