//What Does Downtime Really Cost in the Manufacturing Industry (and how to minimize it)

What Does Downtime Really Cost in the Manufacturing Industry (and how to minimize it)

Infrastructure is important to any business, especially in the manufacturing industry. Any kind of outage or downtime can lead to significant cost with far-reaching impact on your bottom line. Depending on the cause, there have been extreme cases where downtime in manufacturing led to expansive layoffs, shuttering of operational plants, and liquidation to avoid going out of business.

The advancements we’ve made in technology and software automation have vastly improved and streamlined production and manufacturing. However, more complex systems require diligent monitoring and maintenance to mitigate risks and avoid unplanned downtime.

The Variable Cost of Downtime

The cost of downtime is dependent on a number of factors. The actual loss a company experiences is influenced by things like:

  • The duration of the downtime or outage
  • The time of day and day of the week
  • Other departments impacted by the downtime
  • The number of people impacted, including 3rd parties that may require compensation
  • The industry

According to a study from ITIC 98% of organizations report that a single hour of downtime costs in excess of $100,000. In addition:

  • 81% of respondents indicated that an hour of downtime costs their business over $300,000
  • 33% of respondents report that a single hour of unplanned downtime costs their firm between $1-5 million

Any industry dealing with high-level data transactions is likely to see a greater cost/loss per hour of downtime, like a company processing global eCommerce transactions or a bank. The same could apply to manufacturers with processes spread across multiple continents.

With downtime in manufacturing it’s not as simple as an immediate loss in revenue like an eCommerce brand experiences. Unplanned downtime in the manufacturing industry leads to problems with labor overhead, maintenance disruption on a wider scale, engineering complications, and even complete shutdown of production.

With the manufacturing industry downtime costs should be split into two classes: tangible and intangible.

Your tangible costs of downtime include:

Production – Every product you make has value attached to it that represents revenue and ultimately profit for your business. Depending on the speed at which you manufacture your products and the value assigned to them that loss can add up quickly.

For example: A manufacturer can produce 300 units per hour. Each unit represents a potential profit of $250. A single hour of downtime costs $75,000 in lost profit alone before any other loss is calculated.

Production capacity – A manufacturing facility that is 100% operational should not be running at max capacity. Instead, it should run at suboptimal capacity to handle any increased demand in production. When downtime is reduced through proper maintenance then there is zero concern for added production, or to make up for other drops in production

Labor – When you have employees on the clock you’re paying your teams whether the line is running or not. Downtime leads to an increased cost per unit and elevated operating costs despite the loss in revenue. When you can minimize downtime and keep operations running efficiently then production increases while your labor costs remain static, reducing your cost per unit.

Intangible costs exist in every industry, manufacturing included. While these things are more difficult to measure they do have an impact on your bottom line.

Customer experience – When your employees are focused on correcting a costly downtime issue then priorities shift. Your team’s attention can be stolen resulting in poor response to customers and problems with follow-up to key accounts.

Morale and productivity – When you work a machine too hard it is more prone to failure and malfunction. The same applies to your employees. Depending on how your leadership teams handles downtime it could be a source of high stress and anxiety for employees that impacts their productivity. Stress makes it difficult for them to handle their normal tasks while also trying to tackle whatever is causing the manufacturing downtime. Unfortunately, productivity and morale don’t instantly bounce back the same way a machine does once it’s repaired.

New developments – It’s not easy for your team to focus on research, innovation, and development when they’re trying to handle unplanned outages… especially if they happen frequently. It’s impossible to put a dollar value to innovation but if your team can’t focus on the future then there’s definitely a loss in potential growth and revenue.

Minimizing the Cost of Downtime in Manufacturing

Downtime happens in virtually every industry, and with every company in manufacturing regardless of size, experience, or resources.

According to Industry Week, manufacturers deal with around 800 hours of downtime annually. As many as 30% of facilities experience unplanned downtime within the first quarter. That’s a significant amount when you consider the actual cost of your downtime.

One study from 2005 found that downtime in the auto industry cost – at the time – an average of $22,000 per minute.

Thankfully there are opportunities in every manufacturing facility to streamline operations and reduce downtime, like one case study from Cisco.

AWNC manufacturers over half a million transmissions for Toyota every year to meet the auto manufacturers demand of 3,000 transmissions per day. A single hour of downtime costs AWNC approximately $270,000 and the company was experiencing network failures twice monthly resulting in significant downtime and loss. By upgrading to a new and more secure wi-fi network across its entire factory, AWNC was able to collect and analyze data to make smarter, faster business decisions while eliminating constant network outages.

Reducing and eliminating downtime doesn’t necessarily require new or upgraded infrastructure – there are a number of opportunities to proactively address issues before they impact production.

Improve communication

Any improvement in communication is going to help improve efficiency in the workplace. When the lines of communication are open and employee feedback is well received then your team knows they can freely report concerns, ideas, and feedback.

Part of improving communication involves actively listening to employees as well as polling them for feedback. Don’t wait for them to come to your leadership team. Seek them out in a more intimate setting (rather than the entire factory floor or shift) and ask about known bottlenecks and things that impact workflow, hardware and software issues, production concerns, etc.

This level of communication makes employees feel like they’re part of important decisions and strategies that improve workplace efficiency. They feel valued and are more likely to open up about issues, concerns, and ideas in the future – especially if they see ideas and concerns addressed.

In your communication with employees make sure they understand the link between downtime, profits, and how downtime costs impact the organizations growth and budgets. Motivated, happy employees are more productive and will step up to fight production downtime.

Create preventative maintenance plans

Your production equipment isn’t going to last forever. Equipment failure is one of the leading causes of downtime. Thankfully, you can increase its longevity and reduce unplanned downtime through preventative maintenance plans. Reduction in equipment failures doesn’t only reduce downtime it improves safety for your employees and boosts productivity.

A large number of manufacturers operate with some kind of strategy for maintenance. According to a 2017 Plant Engineering study, 78% of facilities have a preventative maintenance plan in place. What’s more impressive is that 59% use computerized maintenance systems to track system and production line maintenance.

Unfortunately, not enough companies are proactive about their hardware maintenance. The same study revealed that 61% of organizations use a “run-to-failure” method. It’s not an effective maintenance strategy if you run until it breaks, even if you’re somewhat prepared for the failure. This approach leaves you susceptible to more frequent downtime and missed opportunities to make your workflow more efficient.

Conduct a risk audit

The fastest way to reduce and eliminate unplanned downtime is to find it and flag it before an issue can create the downtime. A risk audit may take extra time to complete but it will cost significantly less than the cost of unplanned outages.

A risk audit doesn’t just find issues that are close to failure, it identifies areas that could create problems, such as:

  • The discover that your PLC system is no longer supported or that certain parts are now manufactured and shipped from another country which increases the lead time for repairs from days to weeks
  • Security concerns
  • Employee safety provisions necessary to minimize injury and downtime
  • Quality control issues that could lead to recalibration and equipment replacement along with costly part rejections
  • Tracking equipment obsolescence

Imagine the cost of downtime in this scenario: a large manufacturer with a complex servo-driven cutting machine accidently erases it’s entire PLC system. Only after the incident do they realize there is no data backup and the provider had recently gone out of business. With no way to get support for the previous system the company was forced to find a developer that could rewrite the entire program from scratch. This halted the company’s entire production line for more than two weeks.

That’s the kind of scenario that can be avoided with a risk audit (and regular backups.)

Track and review manufacturing downtime

Update your software to help track facility and company wide operations and downtime. Having real-time access to operational data provides credible insight into the macro and micro causes of downtime. It’s no longer efficient to have a paper report, whether at end of shift or end of week, that states “WidgetSpinner 32 was out of spec and down for 3 hours of production loss”.

What is beneficial is a complete data set that allows operations to view the exact moment a machine stopped working, how it impacted the performance down the line, and how often it has happened historically. This allows you to pinpoint the correlation and deploy a more rapid response even before the next outage occurs.

If you can implement a network that tracks maintenance with low-cost sensors, you’ll benefit from predictive maintenance. You’ll have data on vibrations, measurements, heat conditions and any other calibration that’s out of spec and flagged as a potential for failure. Operators can respond immediately to adjust production allowing for scheduled maintenance while avoiding more severe damage or failure that prolongs downtime.

Improve employee training and onboarding

Next to equipment failure, the second largest cause of unplanned downtime is operator error. Stepping up training protocols doesn’t just teach machine operators to diagnose and repair their own equipment but also how to properly operate the machinery (minimizing issues).

When you improve the training of your team (technicians, supervisors, line operators, etc.) you’re greatly reducing the chance of unplanned downtime because they’re more likely to identify growing issues while operating and monitoring machines as well as following maintenance schedules and maintaining more accurate documentation around machinery operation.

It all starts with better onboarding with new hires and employees moving into new positions within the facility. It will always cost less to introduce more training and invest in extensive onboarding compared to the costs of unplanned downtime that stem from poor production quality, slow adoption of new technology and positions, or employee injury.

Employees who better understand how to do their job, and do it safely, are more confident and more productive.

Conclusion

There’s no single solution to minimizing downtime in manufacturing. Rather, a comprehensive approach to mitigating risk is the smartest route. From the above it’s clear that you not only have to take equipment upgrades and routine maintenance into account you have to consider the technological needs for streamlining work flows, tracking maintenance, and monitoring the performance of production (from equipment to employees).

Two of the most influential factors seen throughout the recommendations above are your employees and the resources you provide. The most effective approach to minimizing downtime in manufacturing is empowering employees with the time and proper resources. Do this through improving communication among your team and shifting their mindset to one of preventative maintenance.

When you provide your team with a joint vision to reduce downtime while also giving them the right software solutions you make great strides toward mitigating risk and dramatically reducing unplanned downtime.

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By | 2018-05-12T20:52:54+00:00 May 12th, 2018|SAP|Comments Off on What Does Downtime Really Cost in the Manufacturing Industry (and how to minimize it)