Total Cost of Downtime
The total cost of downtime extends across the business. In the worst cases, it impacts the entire organisation and customers.
From the moment of failure to the restart of production, no saleable product is made. Instead, money is spent on repairs, with continued fixed costs, and any potential profits that could have been made from saleable products is lost. The graph below illustrates what happens to production time and costs when operations stop due to equipment breakdown (t1). The time and costs required to repair the equipment to operational levels (t2) is unknown at the start of the breakdown.
During this time (t1 to t2) resources and money are needed to return the equipment to operation. Additional costs due to loss of production and therefore potential profit losses are also incurred in this time.
Figure 1. What happens to production time and costs when operations stop due to equipment breakdown.
Costs Incurred due to Downtime
The total costs of downtime due to unexpected failures can include;
- Labour to make the repairs
- Maintenance overtime
- Parts and materials, including shipping costs
- Specialist contractors
- Effort required from operations and maintenance teams, as well as managers from other departments if production does not return soon.
- Dispatch and sales teams are required to contact customers, advising them on the delay, potentially causing lost sales or reduced profit
Listed in the table below are 63 costs that can arise when equipment fails. The losses and cost of downtime accumulates company wide. As such, it can be said that with every equipment breakdown a failure cost surge will go throughout the company.
|Labour: Both direct and indirect||Product Waste||Services|
|Engineering||Handover / hand-back||Utility repairs|
|Overtime / penalty rates||Lost production||Temporary accommodation|
|Lost spot sales|
|Replacement parts||OEM||Replacement equipment|
|Fabricated parts – materials, welding consumables and workshop hire||Energy waste||New insurance spares|
|Shipping||Shutdown||Buildings and storage|
|Storage – space and handling||Handover||Asset write-off|
|Inventory replenishment||Emergency hire|
|Quality control||Damaged items|
|Consequential||Administration||Lost Value from Curtailed Lives|
|Penalty payments||Documents and reports||Lost equipment / materials life|
|Lost future sales||Purchase orders||Labour / resources wasted|
|Litigation and legal fees||Time spent in meetings||Outsourced services value lost|
|Loss of future contracts||Meeting rooms|
|Death and injury||Planning, schedule changes|
|Safety rectification||Investigations and audits|
|Product recalls||Invoicing and matching|
|Idle production equipment|
Recurring breakdowns, where the same item is replaced each time, incur an investment loss as well as the operating losses and costs from the repair. This is termed “Lost Value from Curtailed Lives”. Each time an equipment component does not survive its whole service life the proportion of operating life lost is a loss value from the previous repair. For example, if a part that was meant to last 10 years fails after 2 years, then 8 years (80%) of value is lost. This loss of curtailed value needs to be added to the business-wide losses and costs to repair the failure. Repetitive failure becomes extremely expensive due to this extra loss.
Consequentially, the impact of failures expands to ensure that the repair is made. A company will spend whatever is necessary to get the equipment back into production as quickly as possible. As such, a large amount of money can be paid out quickly, and a far greater value in profit is lost. Ratios of $1 direct expenditure to $30 lost operating profit is common for processing plan breakdowns.
Business-wide losses from a breakdown cannot be escaped. It is important to include all the costs, wastes, and losses from every failure in your Total Cost of Downtime analysis. This analysis allows you to build a clear financial picture of the true cost of failure. As a result, you will be able to create a strong business case to make proactive efforts to stop defects in operating plant and equipment can be made.
The only reason the downtime costs are incurred is because a breakdown happened. No money or time would have been lost if this had never occurred. As equipment fails when a critical working component fails, due to a defect going unnoticed and resolved. It is important to create effective work processes and procedures to catch defect causes (risks) before they cause a failure.