The true cost of downtime

It’s said that almost every factory loses at least 5% of its productivity because of downtime–with some losing as much as 20%.

But even worse, 80% of companies cannot calculate their downtime correctly. Some are underestimating them by as much as 300%.

This translates to a lot of profit loss–without understanding the seriousness of the problem, or even the ability to plan or account for it.

To keep unplanned downtime from eroding profitability and performance, we can work the true cost of downtime out by this simple formula…

Downtime £’s = Tangible Costs + Intangible Costs

So, what are tangible costs? 

• Lost production – All production is seen as potential profit – so profit being lost whilst costs remain high can hit a company’s bottom line hard during downtime.
• Lost capacity – When demand for the manufactured product increases, production can scale up to accommodate demand. A recent survey found that 29% of companies could not service or support specific equipment or assets during downtime. As a result, fewer operational systems make production up-scaling far more difficult to accomplish.
• Direct & indirect labour – Employees are usually still being paid during downtime, especially during unplanned downtime. During this time, they’re operating at reduced capacity, or not working at all, whilst costing the company just as much to pay them during working hours. Even if the employees can still work at reduced capacity, the issue causing the downtime often distracts employees. Plus, there may be other employees that need to take on extra work to resolve the problem.
• Wastage costs – This is a big one, especially in the food and beverage manufacturing industry. There may be raw materials, such as perishables, now deemed as unusable. Also, don’t forget about any materials that need to be scrapped because of the failure.
• Machine repair – Determine the costs related to repair of the machine, either temporarily or permanently. Costs could be even more significant if the machine-produced inaccurate products over a long period. Costs may also include scrap expenses, additional parts, and delivery costs.

What are the intangible costs? 

• Customer service – or lack of – 46% of companies experiencing downtime couldn’t serve their customers’ needs. If manufacturing downtime has a financial impact on customers, trust in the company will fade, and they may lose customers.
• Responsiveness – less downtime allows a company to be more responsive, enabling it to satisfy its customers more efficiently.
• Stress – both on machines and employees – When machines are experiencing issues that cause downtime, other machines in a manufacturing facility need to work more quickly and/or work longer hours to make up for the decreased production. This puts stress on a machine and increases the likelihood of machine malfunction. Also, employee fatigue, because of downtime stress, can lead to lower productivity levels.
• Brand reputation – The digital world we now live in means word-of-mouth can spread faster and further than ever before. Above all, customers expect you to deliver on your promises. If you haven’t got a contingency plan, or the same issues crop up again and again, then you’re on very shaky ground.
• Innovation – When everyone is stressed out and playing catch-up, they don’t come up with great innovative ideas that could bring down costs or increase staff productivity.

Money is lost every minute a machine is down.

By responding to potential failures quickly allows maintenance to be carried out as soon as something isn’t quite right.

Also, by understanding the viable lifespan of a machine – by utilising performance data – you can build a picture of overall health for each machine. This will ensure cost efficiency for determining when parts may need repairing.

Don’t let downtime be your downfall.

(Source: International Society of Automation (ISA))

(Source: ServiceMax, Definition of Downtime Blog)