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Estimating the True Cost of Downtime

Markus Larsson

Markus Larsson,

Co-Founder and CEO of Novity

Every plant manager is well aware that factory downtime isn't just a temporary pause in production; it's a complex challenge with far-reaching financial implications. From labor and spare parts to maintenance and lost revenue, understanding and calculating these downtime costs is essential to understanding how to best address them. This post is crafted with them in mind, offering a guide on how to calculate these costs accurately. Moreover, I’ll explain how predictive maintenance can help reduce downtime and its associated costs.

Breaking Down the Downtime Costs

Downtime costs can be broadly broken down into two categories – direct and indirect costs. There are components of each that are easier than others to quantify, but you can only understand the full extent of the costs with a principled and comprehensive approach to evaluating them.

Direct Costs of Downtime

  • Lost Revenue

    If your main limitation to revenue growth is production and not sales, this factor typically dwarves the rest. What proportion of your potential production volume is not realized due to downtime? It is not uncommon that about 10% of productivity is lost. Most plant managers know this number for their factory. Do you? It is also not just about today's lost production; think about the ripple effects on client relationships and future orders that could be jeopardized.

  • Labor Costs

    Even during downtimes, your team's clock is ticking. While machinery is idle, the cost of labor continues. As a manager, quantify this by multiplying the hourly cost of your team by the duration of the downtime. Include all departments impacted, from production to maintenance, recognizing that every idle hour is an unproductive expense to the company.

  • Direct Maintenance Costs

    • Planned Maintenance: Regular upkeep is a necessary expense, but are you being efficient in your planned maintenance spend? The best-run factories spend 2% of RAV (Replacement Asset Value - the cost of replacing the assets) on maintenance.  Can you shift some of your time and usage-based maintenance to on-condition or predictive maintenance with the benefit of extending the time between maintenance outages?

    • Unplanned Maintenance: These are the surprises that throw a wrench in your production schedule and that can be prevented most effectively by predictive maintenance strategies. To understand these costs, tally up everything from the repair expenses to the additional labor costs for overtime or rush-order parts.

Indirect Costs of Downtime

These costs are generally hard to quantify but are nonetheless significant factors to consider in your evaluation. For some, these are the main motivation behind improving maintenance effectiveness and sophistication:

  • Reputation and Client Trust

    Frequent or prolonged downtimes can tarnish your factory's reputation. This cost is intangible but substantial. If you have ever lost a customer due to a delayed delivery resulting from unplanned downtime, you know how painful this can be. Have you quantified this risk? Maintain client trust by minimizing these disruptions — a key area where predictive maintenance can play a significant role.

  • Safety

    Only 5% of time is devoted to starting and stopping production machines, but these periods account for 40% of workplace safety incidents. Or put in another way: downtime events increase safety risks eight-fold compared to baseline.

  • Efficiency and Morale

    Downtime can deflate your team's morale and disrupt the rhythm of your operations. Measuring this impact is tricky, but observing changes in productivity and team spirit can offer insights.

Using Predictive Maintenance to Avoid Downtime

The challenge isn't just to fix breakdowns but to prevent them. This is where predictive maintenance comes into play. By understanding the true costs of factory downtime, you're in a better position to advocate for and implement predictive maintenance solutions. These systems don't just repair; they anticipate, allowing you to take proactive steps to maintain continuous production, save costs, and boost morale.

Maintenance costs should be expected to decrease by 10% by going from preventative to predictive maintenance and by as much as 40% by going from reactive to predictive maintenance, and that’s before you take lost revenue into account!

Novity’s TruPrognostics™ can help you get the best possible foresight to future machine downtime to enable you to realize these benefits and improve the financial performance of your plant. Using sophisticated physics-based models, AI, and the right sensors for the right machines, Novity provides operators with dynamic remaining useful life estimates allowing for optimal decision-making.

Learn More

While this post outlines a general approach to calculating downtime costs, remember, every factory is unique and your ability to successfully implement predictive maintenance requires a number of important building blocks to be in place. If you’re interested in learning about how to assess your factory’s readiness, get in touch or download our white paper.