How to Calculate the Cost of Downtime in Manufacturing?
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In manufacturing, there is an ever-present and very real scare: machine downtime.
While to outsiders, it may seem like another operational glitch, downtime has profound implications for almost every aspect of a manufacturing business.
This is why Forbes ranks unscheduled downtime just next to an environmental or safety mishap and refers to it as one of the costliest events at a manufacturing plant.
It is a major cause of low productivity, stressful employees, and unhappy customers. But its true cost lies in the loss of revenue, which has been estimated to cost industrial manufacturers as much as $50 billion a year.
Despite its enormous implications, downtime can be managed if you educate yourself and adopt an innovative, strategic, and planned approach to it.
This guide will help you do just that. Once you are done reading this blog, you will learn how to calculate the cost of machine downtime in manufacturing.
What is Downtime in Manufacturing?
At least 82% of companies have experienced unplanned downtime at least once and have experienced the ensuing havoc that it causes.
Although its impact in terms of equipment breakdowns is extremely palpable, most companies tend to underestimate its real-time cost and are unable to calculate the costs correctly.
To prevent this, the first step is to get to know what downtime in manufacturing is.
“Machine downtime simply means when a single or multiple machines stop working and a company’s manufacturing halts. While this means that the production of goods stops, it doesn’t stop here. Downtime has a tendency to compound.”
This is because other activities such as overheads, employees being on work, etc., are still in motion and there is money still being spent.
This compounding may lead to other serious damages to the business. These may include:
Staff security issues
Loss of business
Dent on the goodwill of the business
Data security breaches
Downtime in manufacturing is of 2 kinds- planned and unplanned.
This is when the downtime is planned and budgeted for. It is usually done when a manufacturing unit wants to bring about some changes in the products or for scheduled maintenance including:
1. Cleaning the machines 2. Lubricating the machine parts 3. Making adjustments in the production line
As the name suggests, unplanned downtime is when production stops due to an unexpected reason. This has several tangible and intangible costs of a business.
What Causes Unplanned Downtime?
Unplanned Downtime is not something that you pre-suppose or second-guess. Just like the ramifications of downtime are varied, so are its causes.
Let’s take a look at some of the main causes of unplanned downtime.
Human errors: Whether it is due to negligence or accidental, people make mistakes on the job, leading to human errors. From operating the machines incorrectly, erroneously unplugging a machine, deleting the data, or not following operational instructions, human errors often lead to downtime.
Equipment malfunction: Another major contributor to unplanned downtime is equipment malfunction. For instance, equipment malfunction may happen due to the machine being under constant use. This makes the machine prone to wear and tear, overheating, or parts breaking.
Poor planning: Every machine and equipment needs to undergo a proper maintenance procedure regularly. When you don’t plan properly around this schedule and work without data about the repairs, upgrades, and maintenance, etc., it may lead to machine downtime.
Unavailability of equipment parts: Manufacturing units at times run out of spare parts of machines or other resources like fuel that help in allowing a machine to run smoothly. This may also include problems with software including outdated software, cyber attacks, compatibility issues, system glitches, and more.
Shortage of staff: Another reason that may contribute to machine downtime is when your key employees are not available on the work floor. This is especially common in smaller businesses when only a few select workers have access to machines.
Natural disasters: At times, natural disasters such as floods and earthquakes can not just cause power outages but also damage your machines. When your business is not equipped to manage these disasters, it may lead to long-term downtime periods.
What is the True Cost of Unplanned Downtime in Manufacturing?
Before we understand what unscheduled downtime costs to a business, let’s understand what is the definition of this cost. The true cost of downtime in manufacturing is the impact that this event has not just on your production but also on productivity and employees.
When calculating manufacturing downtime expenses, you must identify all significant key factors responsible for it. These include the duration of the downtime, the number of employees affected, and the specific machinery or processes that were halted. Each factor plays a crucial role in the overall cost calculation. In other terms, it is very essential to optimize your daily operations and make better decisions that will result in fewer downtime events.
This cost can be divided into two- obvious and hidden. Let’s look at these in detail:
Obvious Costs of Manufacturing Downtime
High costs: The first and the most direct impact of downtime is on your business’s finances. When your machines halt, your costs don’t. For instance, your employees will still need to be paid, your raw material may spoil while waiting for production to commence again. Add to this, the expenses that go into maintenance work, repairs, and restoration work. You may also need to discard the first few batches of products after resuming production after a downtime, which further adds to the costs.
Production loss: Another obvious cost of unscheduled downtime is the loss of production for a manufacturing business. Each minute your machine doesn’t work, you lose the revenue that you would have otherwise generated through production.
Shortfall in inventory: Most manufacturing businesses like to maintain a stock of inventory. However, when downtime strikes, it depletes your inventory since you are not producing and would need to use the stored inventory.
Wastage of labor time: When there is no production, the people who operate the equipment or the ones involved in production lines cannot work. So, not only are you not making money, but are also paying salaries to employees who are not working. Add to it the fact that when your machines don’t work, you may have to call more people to join the production work floor. This may cause a strain on other departments where these workers have been called.
Lost opportunities: Experiencing downtime and correcting it is a time-consuming process that may take days if not weeks. This time that you spend identifying what caused downtime, calculating, and rectifying it, cannot be spent on innovating new products, developing new strategies, and finding new partners.
Hidden Costs of Manufacturing Downtime
Indirect costs of downtime: It is important to note that downtime costs are not just about dollars. There are other indirect human costs that manufacturing downtime leads to. These include:
Employee Stress: When your business experiences downtime, one of the biggest indirect costs is stress amongst people who are running the equipment. They try constantly to work on the machines and worry about loss of production and revenues. This may lead to hampering their judgement and poor decision-making.
Lack of Innovation: A business flourishes when it innovates its products and processes. It leads to new product development and reaching new markets and increasing your customer base. When the company is focused on rectifying downtime, there is no time for innovation.
Mistrust: Your customers may associate downtime with a bad experience. And in today’s time when they are spoilt for choice, all it takes is a not-so-good experience to switch to other brands. When your production is down unexpectedly, you don’t just risk loss of production and monies, but also your goodwill for not being there for your customers when they need your products.
Unlocking the Formula to Calculate Downtime in Manufacturing
The only way to track, measure, monitor, and avert downtime is to know its value and how much it is costing your business.
In order to do downtime cost calculation, follow these steps:
Determine the hours of downtime: Subtract the actual operating time of the machine from the planned operating time. This will give you the total hours of downtime.
Calculate the average production rate per hour: Divide the total number of units produced by the planned operating time. This will give you the average production rate per hour.
Determine the number of units not produced: Multiply the hours of downtime by the average production rate per hour. This will give you the number of units that were not produced due to downtime.
Calculate the total gross losses: Multiply the number of units not produced by the gross profit per unit. This will give you the total gross losses incurred due to downtime.
On the basis of above mentioned steps, the formula to calculate machine downtime cost in manufacturing would be:
Unplanned downtime= (Time the asset is not working/ Total time) X 100
Once you know the unplanned downtime, you can also calculate ‘the number of units not produced’ and your ‘gross losses’ using these formulas:
Hours of downtime X Average Production Rate= Number of units that could not be produced
Number of units that could not be produced X Gross profit per unit= Total gross losses
Here are some things that you must keep in mind while doing downtime cost Calculation:
Machine downtime must usually be measured in minutes.
To calculate the real cost of downtime, you should also include the cost of materials, labor, and equipment.
You should also include the cost of loss of goodwill while calculating downtime. This also includes the cost of advertising and marketing to repair the damage to the business’s reputation.
An Example to Understand the Manufacturing Downtime Cost Calculation
Let’s consider a scenario where a machine experiences 24 hours of downtime in a 40-hour week. The machine operates for 8 hours per day.
Hours of downtime = Planned operating time (40 hours) – Actual operating time (16 hours) = 24 hours
Average production rate per hour = Total number of units produced (e.g., 500 units) / Planned operating time (40 hours) = 12.5 units per hour
Number of units not produced = Hours of downtime (24 hours) × Average production rate per hour (12.5 units per hour) = 300 units
Total gross losses = Number of units not produced (300 units) × Gross profit per unit (e.g., $10 per unit) = $3,000
Therefore, in this example, the total gross losses due to the 24 hours of downtime would amount to $3,000.
Now that you’ve gained a comprehensive understanding of downtime costs, let’s unearth 8 different ways to efficiently reduce these expenses.
#Step 1: Implement Preventive Maintenance
Regular equipment maintenance can significantly reduce unexpected breakdowns and downtime. Establish a maintenance schedule and ensure all employees adhere to it.
Regular Inspections: Conduct routine inspections of equipment and machinery to identify signs of wear and tear before they escalate into major issues, reducing the risk of unexpected downtime.
Scheduled Maintenance Tasks: Create a maintenance schedule that includes tasks like lubrication, cleaning, and part replacement at specified intervals to keep equipment in optimal condition.
Checklists and Records: Use maintenance checklists and keep detailed records of maintenance activities to ensure consistency and track equipment health over time.
Equipment Documentation: Maintain comprehensive documentation, including manuals and service history, to guide maintenance procedures and improve the efficiency of service technicians.
#Step 2: Leverage Predictive Maintenance
Utilize predictive maintenance technologies, such as sensors and data analytics, to monitor the condition of equipment in real-time. This enables you to schedule maintenance or repairs when they are actually needed, minimizing downtime.
Sensor Integration: Install sensors on equipment to collect real-time data on temperature, vibration, and other key parameters. This data can be analyzed to predict when maintenance is needed.
Data Analytics: Use advanced analytics and machine learning to detect patterns and anomalies in the sensor data, providing insights into the condition of machinery and predicting potential failures.
Condition-Based Alerts: Implement automated alert systems that notify maintenance teams when certain conditions deviate from the norm, allowing them to address issues before they lead to downtime.
Cost Savings: Predictive maintenance not only reduces downtime expenses but also minimizes over-maintenance, saving money by only servicing equipment when necessary.
#Step 3: Invest in Frontline Employees Training
Well-trained staff can identify and address issues before they escalate into costly downtime. Training programs for your workforce can pay significant dividends.
Skill Development: Invest in training programs to enhance the technical skills of your workforce, making them more proficient in equipment operation and maintenance tasks.
Safety Awareness: Emphasize safety training to reduce the risk of accidents that can lead to unplanned downtime and associated costs.
Cross-Training: Cross-train employees on multiple pieces of equipment, ensuring that there are backup operators who can step in when needed, reducing the impact of employee absences.
Continuous Learning: Encourage employees to stay updated on the latest industry practices and technologies, fostering a culture of continuous improvement.
#Step 4: Establish Quality Control Guidelines
Implement strict quality control measures to minimize defects and rework. High-quality products are less likely to lead to downtime and associated costs.
Process Monitoring: Implement real-time process monitoring to catch defects early and prevent faulty products from entering production, reducing the need for rework or scrapped materials.
Root Cause Analysis: When defects are identified, conduct root cause analysis to address underlying issues and prevent recurrence, improving overall product quality.
Employee Training: Train quality control personnel to be thorough and consistent in their inspections, ensuring that all products meet standards.
Feedback Loops: Create feedback loops between quality control and production teams to quickly resolve issues, preventing defective products from accumulating and causing downtime.
#Step 5: Leverage Automation
Consider automating repetitive and time-consuming tasks to reduce the dependence on manual labor and human error, thus lowering the risk of unplanned downtime.
Process Streamlining: Implement automation to streamline repetitive and time-consuming tasks, reducing the risk of human error and associated downtime.
Increased Efficiency: Automation enhances production efficiency by running operations 24/7 without the need for breaks, reducing idle time and increasing output.
Error Reduction: Automated systems are less prone to errors, resulting in fewer defective products and a lower likelihood of production interruptions.
Data Collection and Analysis: Automation systems can collect and analyze data in real-time, allowing for proactive identification of issues and the implementation of preventive measures to minimize downtime.
#Step 6: Periodically Plan Schedule Downtime
Plan scheduled downtime during non-peak hours or low-demand periods to perform routine maintenance and updates, minimizing the impact on production.
Strategic Timing: Schedule downtime during non-peak hours or low-demand periods to minimize disruption to production and customer service.
Maintenance Planning: Use scheduled downtime for preventive maintenance, upgrades, and other necessary tasks to optimize equipment and processes.
Communication: Clearly communicate scheduled downtime plans to all relevant teams to ensure coordinated efforts and minimal surprises.
Backup Systems: In critical operations, invest in backup systems that can temporarily take over during scheduled maintenance, reducing production interruptions.
#Step 7: Foster a Culture of Communication & Collaboration
Foster effective communication and collaboration among different departments and teams within your organization to respond to issues quickly and efficiently.
Cross-Departmental Meetings: Hold regular meetings and discussions involving different departments (production, maintenance, quality control, etc.) to facilitate information exchange and problem-solving.
Leverage AR for Industrial Collaboration: Utilize an AR powered remote collaboration software to effectively collaborate virtually or remotely & to communicate issues by using visual guidance
Collaborative Problem-Solving: Encourage collaboration in resolving complex issues that may impact multiple areas of the manufacturing process.
Training and Awareness: Ensure that employees understand the importance of effective communication and collaboration in preventing downtime, fostering a culture of teamwork and shared responsibility.
#Step 8: Utilize Connected Technologies like AR/ VR, IoT, or AI
Leveraging technologies like Augmented Reality (AR), Virtual Reality (VR), Internet of Things (IoT), and Artificial Intelligence (AI) can significantly reduce downtime in manufacturing and other industries.
Predictive Maintenance with IoT and AI: Implement IoT sensors on equipment to collect real-time data on factors like temperature, vibration, and machine performance & use AI algorithms to analyze this data and predict equipment failures or maintenance needs before they occur.
AR and VR for Remote Assistance: Utilize AR and VR to provide remote assistance and guidance to on-site technicians and operators. These technologies minimizes downtime by accelerating troubleshooting and maintenance processes.
AI-Powered Process Optimization: Utilize AI for streamlining processes & making real-time adjustments to production parameters, such as machine settings or workflow sequencing, to improve efficiency and reduce downtime.
Plutomen – Your Best Bet to Reduce Manufacturing Downtime Related Expenses
Plutomen, the Connected Worker Platform, offers a comprehensive solution to reduce manufacturing downtime expenses by harnessing the power of Augmented Reality (AR), Artificial Intelligence (AI), and immersive training for frontline workers. This innovative platform helps manufacturing businesses conduct preventive maintenance by providing digital information and enhanced visualization, enabling a precise understanding of equipment health. With real-time step-by-step guidance for maintenance personnel, it ensures the accurate execution of maintenance procedures, eliminating inconsistencies and inaccuracies in reporting downtime causes.
In addition to reducing downtime, Plutomen provides better access to information by streamlining communication channels. Maintenance teams can access critical information directly through smartglass headsets and wearables, including equipment history, maintenance records, and virtual service manuals. This direct access enhances their ability to work with greater efficiency, reducing unproductive delays.
With more than 12+ years of experience in the world of enterprises, technology, and metaverse, Keyur Bhalavat is leading Plutomen to gain meaningful partnerships & to have a strong clientele network. He is one of the board members of GESIA (Gujarat IT Association Ahmedabad).
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