Calculating Manufacturing Downtime Costs

June 18, 2018

 

No business wants to experience downtime. When in manufacturing, the financial cost of downtime can be significant.  To satisfy financial goals and keep bottom line strong, understand how much downtime costs, as well as how to reduce it.

 

The average manufacturer deals with 800 hours of downtime per year. That is more than 15 hours per week. Just for perspective, the average automotive manufacturer could lose $22,000 per a minute of downtime.

 

Downtime is a part of doing business in an imperfect world where hundreds of variables are uncontrollable. Below are some of the direct and indirect costs associated with downtime.

 

Lost Production

 

The most direct impact of downtime lost production. If 600 units per hour are produced with an average profit per unit of $50, a single hour of downtime costs a company $10,000 in lost revenue.

 

Wasted Labor

 

When equipment goes down, the result is wasted labor costs.

 

It is not just the employees who are directly responsible for equipment. When there is a major breakdown, all hands are on deck. This causes a chain reaction where other areas of the business become strained – such as customer service.

 

Depleted Inventory

 

In many businesses, there needs to be a certain amount of product in the warehouse to keep operations running smoothly. Downtime prevents from reaching these goals and depletes inventory. Considering there are production limits when all equipment is fully operational, it can take days, weeks, or even months to catch up.

 

Stress

 

One of the biggest indirect costs comes in the form of stress – both on the equipment and the people running the equipment. When a machine stops working properly, it puts a strain on other parts of the system. This stress can cause further problems down the road. This puts added stress on the people

operating the machinery and leads to poor decision making and mistakes.

 

Lack of Innovation

 

When all of the company’s focus is on fixing equipment and solving problems, there is no time or energy left for innovation. This cost might not be felt in the moment, but the long-term impact cannot be denied.

 

Erosion of Trust

 

When the financial cost of downtime impacts customers, they start to lose trust in the band. A lack of dependability becomes obvious, and they begin to think about pursuing other options. 

 

6 Tips for Reducing Downtime

 

1. Risk Audit

Conducting a risk audit is the fastest and most effective step to reduce the risk of the financial cost of downtime.

 

In terms of equipment, a risk audit can point out pending obsolescence and help understand when to replace equipment.

 

2. Preventative Maintenance

It is best to schedule regular preventative maintenance for each piece of technology or equipment that is integral to your manufacturing processes. It may seem wasteful to slow down production for preventative maintenance, but it is critical to reducing and eliminating future downtime.

 

3. Proper Training

Sometimes equipment malfunctions or breaks down, but, not all downtime can be blamed on system errors. Sometimes lack of training is to blame.

 

Operator errors are extremely common in manufacturing and have a tendency to be repeated over and over again until the root problem is addressed.

 

Training should be tailored to each and every employee, accounting for their strengths and weaknesses. A good operator should not only know how to operate machinery, but also how to fix and maintain.

 

4. Cross-Train

Over the years, manufacturing has become a very specialized field. One of the best things to prevent downtime – or at least mitigate the negative repercussions of downtime – is to cross-train employees. First, it ensures more employees can come to the rescue and solve a problem. Secondly, it allows to displace employees and use them in other areas. This reduces wasted labor costs and limits the “downstream” effects.

 

5. Invest Smart

Implement a strategic modernization enrollment plan that can be structured using insights gained from risk audits. Move in waves, rather than replacing all technology at once. By integrating one new system at a time, it allows time to study impact and make necessary tweaks.

 

If financial impact of integrating new equipment into operations budget is a concern, consider equipment financing.

 

6. Collect Data

Every action you take or process you complete can be analyzed and measured using thousands of data points. But, it is not enough to collect data –it needs to be used in the right way.

Insights need to be derived in real-time – or at least within minutes. This is the only way to understand what is happening and put a significant dent on downtime.

 

Putting it All Together 

 

By confronting big issues on the front end and setting up progressive strategies and techniques for dealing with potential problems, the possibility of downtime can be reduced.

 

Daisyme, Peter. (2018). “Understanding the Financial Cost of Downtime in Manufacturing”. Retrieved from https://due.com/blog/understanding-the-financial-cost-of-downtime-in-manufacturing/.

 

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