The True Cost Of Downtime (And How To Calculate Your Own)

22 Sep
The True Cost Of Downtime (And How To Calculate Your Own)

Do you know the financial impact of machine downtime?

For many manufacturers, it is the largest source of lost production time. However, according to the Business Industrial Network, over 80% of business owners are unable to calculate their actual downtime costs correctly.

Not all downtime is created equal. If you’re planning on routine maintenance or having a machine fixed, you can prepare for the loss of income and make it up accordingly. Planned downtime also has significantly shorter recovery time and recovery costs than unplanned downtime. When a downtime event occurs, you aren’t producing any value, but the cost of overhead operations continues to grow. This ultimately impacts your company’s bottom line.

The Impact of Unplanned Downtime

Filed under the more intangible costs of unplanned downtime, manufacturing companies risk damaging partnerships and customer relationships due to unforeseen delayed order deliveries. This leads to increased stress for all parties, and focusing time and energy on getting a machine up and running again takes away from time and energy that could be better spent building current partnerships, nurturing new customer relationships, and innovating new processes and opportunities.

Unplanned Machine Downtime is Solved With Prevention

Manufacturing machines and parts all have a shelf life, and downtime is inevitable. Even the most simple parts will eventually wear and need to be replaced. The key to mitigating the costly effects associated with unplanned downtime is being prepared with scheduled periods of planned downtime and having resources and processes in place, so you aren’t blindsided by unexpected equipment failures.

● Implement a “Predictive Maintenance” strategy:
● Know Where to Find Qualified Repair Technicians:
    • Machine downtime is exacerbated by communication delays in requesting service and receiving quotes and long lead times to have a repair technician come out. Efficiently submitting service requests, obtaining quotes, employee productivity, and filtering through reviews are critical to expediting your uptime.

Some Facts About Downtime

  1. According to a 2016 study, the average cost of downtime across all businesses was $260,000 per hour. That was a 60% increase from 2014. (Aberdeen)
  2. The cost of downtime changes per industry. For example, in the auto industry, downtime may cost up to $50,000 per minute. This equals $3 million per hour. (Thomas)
  3. A common estimate is that factories lose anywhere from 5% to 20% of their productivity due to downtime. (International Society of Automation)
  4. Human error accounts for about 23% of unplanned downtime in manufacturing. (Business Wire)
  5. Faulty equipment is another common cause of downtime. A 2017 survey found that 70% of companies lack complete awareness of when equipment is due for maintenance or upgrade. (ServiceMax)

How to Calculate Machine Downtime

To calculate your downtime losses, there are several aspects of your business that you need to know first. These include:

Hours of downtime

Average total number of units produced per week

Hours of operation of the machine in question

Gross profit per unit

 

Total Cost of Downtime — Calculator Template

Once you know the above information, you can complete the below equation to find your total losses.

Planned Operating Time Actual Operating Time = Hours of Downtime

Total # of Units Produced/Planned Operating Time = Average Production Rate per Hour

Hours of Downtime × Average Production Rate = # of Units Not Produced

# of Units Not Produced × Gross Profit per Unit = Total Gross Losses

So, let’s say that one of your machines goes down for 3 full days. We’ll imagine this machine only operates 8 hours/day, so that’s 24 hours of downtime out of a 40-hour week.

On an average week, let’s say that the downed machine usually produces 10,000 units.

Therefore, 10,000 units divided by 40 planned hours of operation = 250 units produced/hour.

Now that we know our hourly production rate, we can multiply that by the number of hours that machine was down. 250 × 24 = 6,000 units not produced.

Finally, we can multiply that 6,000 units by your gross profits per unit. For this example, we’ll put that number at $6.

That puts the total gross profit lost due to your downtime at $36,000.

40 hours – 16 hours = 24 hours of downtime

10,000 units/40 hours = 250 units per hour

24 hours × 250 units = 6,000 units not produced

6,000 units × $6 = $36,000 total gross profit lost

Keep in mind: this is just your lost profit. In order to fix the issue, you will most likely need to pay a professional to come and fix the issue, which will cost more. However, the true outage cost is driven by the time wasted.

Solve Downtime Quickly With Up! App

Reducing downtime is the primary goal of The UP! App. We connect experienced industrial machine service providers with people needing industrial service to get you back up and running as quickly as possible.

The UP! App is great for emergency maintenance. It is also an excellent way to find new service providers to help with planned maintenance. Learn more about us here!

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