Welcome back, Troubleshooters! Today we’ll be looking at the cost of lost production. It’s not exactly news that factory downtime costs manufacturers. But, did you know that downtime consultants say that almost every factory loses at least 5% of its productivity due to downtime, and many lose as much as 20%?
To make things more complicated, 80% of companies are unable to correctly calculate their true downtime costs. Some are underestimating these factory downtime costs by as much as 300%! Without a proper sense of the seriousness of the problem, or even the ability to plan or account for it, there is a lot of profit lost.
The automotive industry is a stellar example of the cost of downtime. It’s estimated that 1 minute of downtime costs automotive manufacturers $22,000 per minute or $1.3 million per hour. Some estimates ran as high as $50,000 per minute. As a smaller manufacturer, you may not be losing those staggering sums, but you do face the same problem. We’ll break it all down for you.
True Downtime Costs
Simply put, “downtime” is defined as the period where machinery and/or equipment are not working, and production is stopped. This could be due to such things as a power outage, an accident on the line, or if a piece of machinery breaks down. A company’s “true downtime costs,” or TDC, are the “total, wasted, business support costs” and the 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. The most obvious one is 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. However, 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 factory downtime costs also include direct labor. During downtime, staff are still on the clock, so the company produces less while using the same amount of labor at the same cost. Downtime also eats up the time of mechanics and technicians who are then 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 are intangible costs. Intangible costs are harder to quantify but may often be costlier 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 that 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 key to a healthy bottom line. To avoid soaring TDC, it’s imperative that those responsible for maintenance to keep the facilities up and running smoothly. If downtime occurs (which it inevitably does), employees should be able to repair machines quickly and safely, which will lower 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.
The Simutech Training System not only helps staff ﬁnd solutions to the electrical problems, but 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.
The 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. 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.
Get a demo today! For more information, click here.
Understanding your factory downtime costs is as important as understanding your return on investments for training. Downtime will happen, but it doesn’t have to drag on for so long. With a well-trained and confident staff, you can get your machinery and equipment up and running in a reasonable amount of time.
1. Dave Crumrine and Doug Post. “When True Cost of Downtime Is Unknown, Bad Decisions Ensue.” 2006.
2. Diane Galligan/Business Insider. “What 1 Minute of Unplanned Downtime Costs Major Industries.” 2016.
3. Advanced Technology Services. “Downtime Costs Auto Industry 22K/minute: Survey.” 2006.
4. John Henry/Frain Industries. “Calculating Downtime’s Costs.” 2011.