KNOW YOUR COSTS!

Whenever I speak, as I did at PackExpo last week, I always ask for a show of hands of those who know their dollar cost of downtime. I seldom get more than 10-15% and last week was no different. Very few companies seem to know their downtime costs. They also do not know their costs of inefficiency.

I think the main reason is that they can be difficult to calculate and they can be pretty variable. A reason is not an excuse, though. Knowing these costs and sharing them with everyone in the plant will bring significant benefits;

If management treats these costs as too unimportant to measure, the teammates will as well. If they are unimportant, the teammates will not work to reduce them.

More importantly, if the cost is not known it is impossible to justify improvement other than by gut feel. Management will probably be hesitant to spend $50,000 to save 5 minutes/day of downtime. The math doesn’t add up because it is comparing apples to oranges.

If management has established that the cost of downtime is $12,000/hour, the cost of those 5 minutes will be $1,000/day. Now it is easy to see that the $50,000 expenditure will repay itself in 50 days or about 2-1/2 months. That becomes much easier for management to justify.

Convincing management that the cost of downtime is really $200/minute may be difficult. That is why it is critical that this number be calculated by Finance, not manufacturing or production.

Know your costs. Unless you do you are flying blind.