Manufacturer costs of downtime vary widely depending upon the industry and scale of the business. Many companies are losing out on Thousands and hundreds of thousands of dollars, large corporations close to or above the 7 figure mark, in as little time as an hour and a half per week. Every company wants to perform at maximum capacity at all times to maximize profits, but when the unexpected happens there are many expenses involved. When nothing is fully utilized the company loses money.
When Downtime prevents you from manufacturing your products some of the costs are:
1. Less Production- When your equipment is down you cannot produce units of your product to sell, can’t sell what you do not have.
Calculate your production losses:
Planned Operating Time- Actual Operating Time=Total Amount of Downtime
Total Number of Units Produced/Actual Operating Time=Average Production Rate
Total Down time X Average Production Rate= Number of Units Unable to Produce
Number of Units Unable to Produce X Gross Profit Per Unit = Total Production Downtime Losses (compared to average production rate)
2. Labor – If a machine goes down usually they attempt to get it back up and running before they send an employee home for the day. You have to pay each employee while they wait to see if it can be fixed, this can get costly especially if it’s the entire facility.
3. Real estate- The facility you manufacture in usually has fixed expenses regardless of how often it is used.
4. Sales- Less Product =Fewer Sales
5. Profits- Profits = Sales – Expenses, when you have fewer sales and maintain the same expenses your profits will naturally decrease.
6. Reputation- Word of mouth is the best form of advertisement, but it can also negatively affect your business when the customer has a negative experience.
7. Customer Loyalty- When orders are not filled in a timely manner customers can become unsatisfied. Unsatisfied customers are more likely to seek out a competitor to fulfill their needs.
8. Opportunity- Having excess stock allows businesses to take advantage of a business opportunity immediately as they arise.
Most importantly, if you want to maximize profits it is important to know how much the manufacturing business loses when machines are not running. Take precautions to avoid any unnecessary downtime. Purchasing backup equipment for your machines is essential when time is of the essence. Get your backup today.