It’s not exactly news that production line downtime eats into profits. Manufacturers know that. The problem is, it’s much worse than they think.

Downtime consultants say that almost every factory loses at least 5% of its productivity due to downtime, and many lose as much as 20%.¹ That’s sobering enough in itself. But even worse, 80% of companies are unable to calculate their true downtime costs correctly. Some are underestimating them by as much as 300%!¹ That translates to a lot of profit lost—without a proper sense of the seriousness of the problem, or even the ability to plan or account for it.

The automotive industry is a stellar example of the cost of downtime. In 2006, automotive manufacturing executives in the United States estimated production line downtime costs at about $22,000 per minute, or $1.3 million per hour. Some estimates ran as high as $50,000 per minute.²

Smaller manufacturers may not be losing those staggering sums, but they do face the same problem on a lesser scale. And it’s critical for them to know what they’re up against.

True Downtime Costs

Downtime is simply a period during which machinery or equipment is not working and production is stopped. It could be due to a power outage, or a piece of machinery that breaks down, an accident on the line, and so forth. A company’s “true downtime costs,” or TDC, are the total wasted business support costs and lost business opportunities sustained while production is on hold, as well as the resources needed to fix the cause of the downtime incident. Generally, downtime is divided into two categories: tangible and intangible.

Tangible Downtime Costs

Tangible downtime costs are relatively easy to quantify. For starters, there is the most obvious one: lost production. Every minute of downtime is a minute when the company is not creating a product that contributes to profit.

Here’s a simple formula for calculating lost production that will give you an accurate picture of the costs you incur when your lines are down.

First, take the time the company planned to operate and compare it to the time the company actually operated. The difference is the total downtime the company experienced:

Planned operating time − Actual operating time = Total downtime

Find your average production rate by dividing the number of units produced by the actual operating time:

Total number of units produced/Actual operating time = Average production rate

Then, multiply the company’s total downtime by the average production rate to get the number of units you were unable to produce:

Total downtime × Average production rate = # of units unable to produce

Finally, multiply the unproduced units by the gross profit per unit in order to find the TDC.

# of units unable to produce × Gross profit per unit = True downtime costs

This formula will give you a very clear idea of the cost of production loss during downtime, but unfortunately, it doesn’t stop there. A related tangible cost is lost capacity. When a plant is running at capacity, the business may need to expand—to hire more people, buy more machinery, etc., all of which costs money. Reducing downtime creates extra revenue that can be used to build additional capacity; experiencing downtime takes away from that ability to expand capacity.

Tangible downtime costs also include direct labor. During downtime, staff are still on the clock, so the company produces less using the same amount of labor at the same cost. Downtime also sucks up the time of mechanics and technicians forced to put out (figurative) fires instead of using their time to make permanent repairs and improvements to the equipment.

Intangible Downtime Costs

The more elusive aspect of true downtime costs is intangible costs. Intangible costs are harder to quantify, but may often be more costly to the company overall.

Here’s an example. Downtime affects responsiveness; less downtime allows a company to be more responsive, enabling it to satisfy its customers more efficiently.

And then there’s stress. Increased downtime causes stress for both machines and employees. Everyone performs best in a stress-free environment—the stress downtime causes prevents a company’s employees from functioning as efficiently as possible.

Downtime can also dampen innovation. When everyone is stressed out and playing catch-up, they don’t come up with great new ideas that could bring down costs or increase staff productivity. These intangible costs, although much harder to quantify than the tangibles, affect a company’s performance just as negatively.

How to Prevent TDC from Sky-Rocketing

Reducing downtime is obviously key to a healthy bottom line. To avoid soaring TDC, it’s imperative that those responsible for maintenance keep the facilities up and running smoothly. If downtime occurs (which it inevitably does), employees should be able to repair machines quickly and safely, lowering the entire TDC. The less downtime a company has, the more efficient its production. Having staff who are trained to assess and troubleshoot electrical issues is a critical aspect of reducing downtime.

The problem for some manufacturers is the lack of trained electricians on staff to handle problems as quickly as they arise. One way around this shortage is to give general maintenance staff the skills to do the repairs themselves. Simulation training software can recreate a downtime situation in a controlled environment and at the same time train general maintenance employees to troubleshoot safely and effectively.

Simutech Multimedia’s Troubleshooting Skills Training System not only helps staff find solutions to the electrical problems, it also measures the performance of each employee as they use the system, assessing whether or not they are ready to troubleshoot in a live environment.

Simutech’s Troubleshooting Skills Training System gives users the equivalent of years of hands-on experience in a matter of hours by simulating real-world scenarios for them to practice in. There are a lot of training tools on the market, but Simutech is the only company to offer a complete electrical troubleshooting skills training system. We’ve been servicing Fortune 500 companies such as Toyota, Kraft, Nestlé, Michelin, Dannon, and more for twenty years. Ultimately, the system equips employees to respond to downtime incidents as efficiently as possible, reducing the company’s true downtime costs, and bumping up profits.

Downtime will happen, but it doesn’t have to drag on so long.

 

Sources:

1. Dave Crumrine and Doug Post. “When True Cost of Downtime Is Unknown, Bad Decisions Ensue.” 2006.
2. Advanced Technology Services. “Downtime Costs Auto Industry 22K/minute: Survey.” 2006.
3. John Henry/Frain Industries. “Calculating Downtime’s Costs.” 2011.
4. Don Fitchett/Business Industrial Network. “What is the True Downtime Cost (TDC)?” 2017.

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