The “True Cost of Downtime” or TDC is the total financial impact of downtime (or, sometimes, the rate of cost per hour). A TDC analysis seeks to break down this cost for a given machinery or process failure.
Besides lost production capacity, TDC should include things like:
Recovery costs. If machinery needs to be repaired, there is a cost associated. Set-up costs and cost of producing inventory to replace any damaged product also falls under this label.
Labor costs. If your operators and line workers are hourly, they are likely getting paid even when a process is halted. This is labor costs without an associated boost in productivity.
Testing and QC inspection. When a process is back up and running, you will want to do one or more test runs to ensure that everything is OK. QC inspection of product should happen, too. Both of these can take time to execute.
Excessive job changeover. Some downtime in manufacturing manifests not as a complete halt of work, but as excessive time spent in changeover and/or set-up or “make-ready.” Changeover represents time in which product is not being worked on, and so represents a kind of downtime, too. This can be a changeover in equipment, in configuration, or even of operators, if your plant runs multiple shifts. And while a few minutes of changeover here and there might not seem like a big deal, it can add up to days of downtime over the course of a year.
Downstream costs. Suppose a line is halted at the last step in making a product. Even though this is the last step from the product’s point of view, there are still many other steps to getting that product out the door and to the customer (or retailer/distributor). For example, if production is halted, you might have people idle when it comes to QC, putaway, picking, kitting, packing, and shipping.
All of these factors add up quickly, as shown in manufacturing downtime statistics. Conservative estimates put the typical cost of downtime at $10,000 an hour, but this may itself miss several of these factors. The true cost is more likely to be $250,000 an hour and up. Indeed, one 2016 survey by ITIC found that 81% of manufacturers were estimating the TDC to be around $300,000 per hour. This was a three-fold increase from an estimate of $100,000 per hour just two years earlier.
In fact, there have been several more extreme cases where extended downtime in manufacturing led to widescale layoffs, shuttering of operational plants, and asset liquidation…all just to keep cash flow going and avoid bankruptcy.
So what causes such large-scale and costly downtime events?