In brief
Downtime costs are all costs a company incurs when a plant unexpectedly stops producing, from lost production to consequential damage.
Contents
What is Downtime costs?
Downtime costs arise when a machine or line does not produce because of a breakdown, missing parts or other disruptions. A distinction is made between direct and indirect costs. Direct costs are lost contribution margin, personnel and fixed costs that continue to run, repair work, express surcharges for spare parts and external services, and scrap during restart. Indirect costs are contractual penalties, overtime to catch up, disrupted downstream processes, lost orders and damage to reputation with customers.
A simple estimate starts with the cost per hour of downtime: lost contribution margin per hour plus personnel and fixed costs that continue without production. Multiplied by the expected duration of a failure and supplemented by repair and procurement costs, this gives a value per failure event. Whether a bottleneck is involved is decisive: a failure at the bottleneck machine affects the entire factory, whereas at a machine with a buffer it often has little effect.
This figure is the basis for many maintenance and procurement decisions, for example whether an expensive spare part should be held in stock, a machine monitored or a second source of supply established.
In practice: maintenance and procurement
For stocking critical spare parts, the downtime costs during the replenishment lead time can be compared with the costs of stockholding. If the potential loss from a failure clearly exceeds the capital and storage costs, a part in stock is usually the more economical solution.
Synonyms and abbreviations: downtime cost · cost of downtime · cost of unplanned downtime · machine breakdown costs
Frequently asked questions
How do you calculate downtime costs?
A practical approach: determine the cost per hour of downtime, i.e. lost contribution margin plus personnel and fixed costs that continue to run, and multiply it by the duration of the stoppage. Add repair costs, express surcharges, scrap during restart and any contractual penalties. The figures come jointly from controlling, production and maintenance.
What indirect costs arise when a plant is down?
In addition to the directly measurable costs, there are consequential costs that are often underestimated: overtime to catch up on production, late deliveries and contractual penalties, disruptions in downstream processes, lost follow-up orders and a loss of customer confidence. These items are harder to quantify but should at least be included as a range in any estimate.
When is it worth keeping a spare part in stock?
Stocking is worthwhile if downtime during the replenishment lead time costs more than the tied-up capital, storage and ageing risk of the part. This applies in particular to long lead times, bottleneck machines and parts with only one source of supply. For inexpensive parts that can be delivered quickly, a secured source of supply is often sufficient.