Not all downtime is the same. If you plan on routine maintenance or machine repair, your business can plan for lost income and make up for it accordingly. This planned downtime is also often significantly shorter than the unplanned downtime. When unplanned downtime occurs, the business doesn’t create any value, but the costs of general operations continue to rise. This ultimately affects the company’s bottom line significantly.
Some information about downtime:
- According to a 2016 study, the average cost of downtime for all businesses is $260,000 per hour. That’s a 60% increase from 2014.
- Downtime costs vary by industry. For example, in the auto industry, downtime can be as high as $50,000 per minute. This is equivalent to 3 million dollars per hour.
- A common estimate is that factories lose between 5% and 20% of their productivity due to downtime.
- Human error causes about 23% of unplanned downtime in production.
- Faulty equipment is another common cause of downtime. A 2017 survey found that 70% of companies lack adequate awareness of when equipment is due for maintenance or upgrades.
See also: 8 types of waste in production
How to calculate your downtime costs:
To calculate downtime losses, there are several aspects of your business that you need to know first. Including:
- The number of operating hours of the machine in question
- Hours of downtime
- Average total units produced per week
- Gross profit per unit
Once you know the above information, you can complete the equation below to find your total losses.
Planned uptime – Time actual activity = Hours of downtime
Total units produced / Planned uptime = Average production rate per hour No
downtime X Average production rate = # units not produced
# units not produced X Total profit per unit = Gross loss
So let’s say that one of your machines is down for three days. We would imagine that this machine only works 8 hours/day, so that’s 24 hours of downtime out of 40 hours a week. On average, a week, assuming that the machine breaks down, usually produces 10,000 units. Thus, 10,000 units divided by 40 planned operating hours = 250 units produced/hour.
Now that we know our hourly production rate, we can multiply it by the number of hours that machine has been idle. 250 X 24 = 6,000 units not produced.
In the end, we can multiply those 6,000 units by the total profit per unit. For this example, we’ll set that number to $6. That puts your total lost gross profit due to 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 lost profit
Keep in mind: this is only your lost profit. To fix the problem, you will most likely need to pay for a professional to come and fix the problem, which will cost more. However, the real loss is due to wasted time.
See also: Downtime in production Downtime