Everyone knows that 'downtime is expensive', but how costly is it really? The first step in reducing costs is being able to quantify them. You may find that starting with our blog post, the Definition of Downtime is a useful foundation as you study the costs of downtime.
Costs of downtime
There are many different ways downtime can negatively impact a company, but most of the negative effects can be classified into two types of cost. Tangible costs are very evident and measurable costs that hurt the company, while intangible costs are impossible to quantify, but can do as much or more damage to a company than the tangible costs.
Tangible
The most obvious example of a tangible cost during downtime is the lost production within the company. When downtime occurs, companies simply can’t produce as much product as they can under normal operating conditions. All production is seen as potential profit, so profit being lost while costs remain high can hit a company’s bottom line hard during downtime.
Similarly to the issue with lost production, manufacturing capacity is reduced during downtime. When a manufacturing facility has all manufacturing systems online, it is usually operating below maximum capacity. When demand for the manufactured product increases, production can be scaled up to accommodate demand. The ServiceMax study mentioned in the Definition of Downtime blog found that 29% of surveyed companies were unable to service or support specific equipment or assets during downtime. As the study shows, fewer operational systems makes production upscaling far more difficult to accomplish for many companies.
As mentioned before, labor during downtime is also a serious tangible cost. Employees are usually still being paid during downtime, especially during unplanned downtime. During this time, they are operating at reduced capacity or not working at all, while costing the company just as much to pay them during working hours. Even if the employees are still able to work at reduced capacity, the issue causing the downtime often distracts the employees, as it must also be dealt with as they continue to complete their normal tasks.
Intangible
As you can imagine, Intangible costs are more difficult to see and quantify, but can have a significant impact on your business.
One of the most glaring intangible costs of downtime is the lack of customer service provided by a company. As operations are diminished, most of the attention in a manufacturing facility shifts to fixing the issue causing the downtime, and less attention is sometimes paid to communicating with and assisting customers. In fact, a study found that 46% of companies experiencing downtime couldn’t serve their customers’ needs at the time. If manufacturing downtime begins to have a financial impact on customers, trust in the company will fade, and customers may be lost.
Stress, both on the machines manufacturing product and on the employees, is also an intangible cost to manufacturing companies. When some machines are experiencing issues that cause downtime, the other machines in a manufacturing facility need to work more quickly and/or work longer hours to make up for the decreased production. This puts stress on the machinery and increases the likelihood of machine malfunction. Employees are also under increased stress during downtime, as they are often preoccupied with trying to fix issues causing downtime while also trying to perform their normal job requirements. Employee fatigue as a result of downtime stress can lead to lower productivity levels.
A final intangible cost of overtime is decreased company innovation. During downtime, as mentioned before, a lot of focus shifts to eliminating the problem causing downtime, and just as customer service is lost, company innovation is lost. Brainstorming to come up with new product and project ideas is vital to a company’s relevance in their market, but during downtime, most attention needs to be focused on “putting out the fire”.
Downtime can damage companies in many ways, and cost companies millions of dollars per year, and yet many companies don’t track their downtime well enough. A possible cause of this is that companies underestimate the damage being done to them by downtime. ISA, the International Society of Automation found that many facilities underestimate their Total Downtime Cost by 200-300%. Companies won’t try to fix a problem if they don’t think there is one, so better methods for tracking downtime are needed to help these companies find places to improve. If downtime goes unnoticed, time will continue to slip through the cracks, and money will slip through the fingers of these companies.
Beyond measuring, quantifying and reducing downtime, there are lots of great business reasons to get onboard with automatic factory data collection.
Learn more in our guide here:
