When systems are down, we hit the panic button, go into solution mode and look for immediate resolutions to keep operations moving.
Beyond the cost of the repair, rarely do we stop to assess the cost in its entirety. Unfortunately, the majority of field service customers are no different. When equipment, technology or machinery is out of action and can not be used, the customer calculates the direct labour cost. However, the hidden costs are never realised.
Subsequently, Field Service Organisations (FSO) are called to the rescue.
Similarly, FSO will also go into tunnel vision and focus on the key performance indicators (KPI’s). Typical KPI’s for FSO include:
- Reduced customer wait times by ensuring rapid travel time to the site
- Securing the necessary parts to resolve the problem in one visit
- Delivering the lowest possible repair cost
- Providing the correct technician, matching skill set to the job requirements
All in all, FSO focuses on faster resolution times and the technician’s productivity to deliver increased customer satisfaction.
However, unplanned maintenance enables a window of opportunity for FSO as field visits are the central human touchpoint between FSO and the customer.
It’s an opportunity to educate the customer on how preventative and planned maintenance services avoid unplanned downtime. Comprehensive education to the customer on the actual cost of unplanned downtime will support your business case for a premium service.
What are the actual costs of downtime?
Downtime occurs when machinery, equipment and tools are not available for use and production or continuation of activity must stop.
There are two types of downtime; planned and unplanned. Planned downtime is scheduled and budgeted stops of activity for machine repairs, upgrades and changeover. Whilst, unplanned downtime results from outages, machine failures, human error, cyber attacks and issues with the supply chain.
Categorising all costs, both tangible and intangible, is required to understand the true financial impact of downtime. Categorisation of the activities below all form part of the impact of downtime. These activities include:
- Lost productivity, cost of labour, and wait time on the production line
- The service level costs associated with late supply
- Emergency shipping and freight costs for parts and materials
- Replacement cost of damaged stock and materials
- The lost opportunity costs for sales
- Job rescheduling costs and asset idle time
- The direct impact on customer satisfaction and brand
- The direct impact on employee morale, stress and innovation
How to calculate the true cost of downtime
Once businesses categorise the financial impact of downtime, they are motivated to change their current operating methods.
Often reviewing the tangible costs such as employee downtime is the best place for business owners and managers to start. Customers can use the following steps to calculate the costs of downtime:
|Identify the number of employees impacted by a particular downtime event
|Using an estimation, calculate the average hourly wage of each employee
|$75 per hour
|Determine how much of the unplanned outage impacted productivity and assign a percentage
|46% impact on productivity
|Using the totals above, calculate the number of employees X Average hourly rate X Productivity percentage
|150 employees X $75 X 46%
$5,175 for the cost of downtime
Customers will also need to consider the cost of lost sales and orders. The table below provides a guide to calculating the cost of lost sales and orders:
|Calculate the average daily sales. Customers can use a monthly, quarterly or yearly history
|$10,000 per day
|Identify the total business hours per day
|7.5 hours per day
|Add the total downtime hours which occurred as a part of the outage
|20 hours of unplanned downtime
|Using the totals above, calculate the average daily sales / total business hours per day X total hours experienced during the outage
|$10,000 per day / 7.5 hours
$1333 sales per hour X 20 hours in downtime results in $26,666 in total lost sales
Attributing an hourly cost to the categories above can be used to understand the cost of downtime.