THE COST OF DOWNTIME (AND HOW TO CALCULATE YOUR OWN)

17 Feb
THE COST OF DOWNTIME (AND HOW TO CALCULATE YOUR OWN)

Do you know how much machine downtime is costing your business? 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 true downtime costs correctly.

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

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)

 

Calculating Your Cost of Downtime

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

  • Hours of operation of the machine in question
  • Hours of downtime
  • Average total number of units produced per week
  • Gross profit per unit

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 X Average Production Rate = # of Units Not Produced
# of Units Not Produced X Gross Profit per Unit = Total Gross Losses

So, let’s say that one of your machines goes down for three 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 X 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 X 250 units = 6,000 units not produced
6,000 units X $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 loss is driven by the time wasted.

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 a good way to find new service providers to help with planned maintenance. Learn more about us here!

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