Measuring the Cost of Unplanned Production Downtime

When a line stops, someone asks what the stop cost. The usual answer multiplies the lost minutes by the line’s rate and the selling price. The decision question is which dollar figure should drive repair, spare-parts and automation decisions.

The short answer: there is no single cost of downtime. There are three measures, and the right one depends on whether the lost output can be made back. Lost revenue is only an upper bound. Lost contribution fits a line that is sold out. Recovery cost fits output that can be made up later. Costs that occur either way are added once, never twice.

Three ways to value a stop

Each measure answers a different question. Pick the one that matches what actually happened to the output.

1. Lost revenue
   = lost packs x selling price per pack

2. Lost contribution
   = lost packs x (selling price - variable cost per pack)

3. Recovery cost
   = extra cost of making the output back
   = overtime labor + extra setup waste + expedited freight + other added cost

Lost revenue almost always overstates the loss. Packs that were not made did not use film, cartons or product, so those materials were not spent. Use it only as an upper bound, for example when a customer asks how much sales were exposed.

Lost contribution is the right measure when three things hold: the output cannot be recovered later, the stopped line is the constraint on sales, and demand exists for the lost packs. Contribution is what each pack would have added toward fixed costs and profit after its variable cost. For why the constraint matters, see Why Faster Machines Do Not Always Increase Line Output.

Recovery cost is the right measure when the output is made up later, by a Saturday shift, a faster second run or a delayed order that still ships. The sale is not lost, so the loss is whatever extra it cost to make it.

Costs that occur either way

Some costs belong to the stop whichever measure you use:

• Repair parts and repair labor.
• Scrap created by the stop itself, such as film and packs lost at shutdown and restart.

Idle wages need care. In the example below the crew is paid by the shift whether the line runs or not, so wages are a fixed cost and are not part of the variable cost per pack. The wages paid while the crew waits would have been paid without the stop, so they are not an extra cost of it under either measure. What the stop adds is the contribution never earned, or the overtime and other costs of making the packs back. Counting the idle wages as well charges for the same hours twice.

If your crew is paid per pack, or sent home unpaid during long stops, labor behaves as a variable cost instead. Put it in the variable cost per pack and the contribution figure adjusts.

The rule: add a cost only if the stop caused it and no other line in your chosen measure already contains it.

Worked example: a 90-minute stop

Illustrative numbers, not a quote, benchmark or customer result.

A line runs at about 35 good packs per minute, the effective rate used in Cost per Good Pack. It stops for 90 minutes because of an unplanned fault.

lost packs            = 90 min x 35 packs/min = 3,150 packs
selling price         = $1.20 per pack
variable cost         = $0.70 per pack (materials and energy; crew wages are fixed)
contribution per pack = $1.20 - $0.70 = $0.50
repair parts          = $400
scrap from the stop   = $150

The three measures:

lost revenue      = 3,150 x $1.20 = $3,780
lost contribution = 3,150 x $0.50 = $1,575

For recovery cost, assume the output is made back on a Saturday with a crew of 6 at an overtime rate of $36 per hour (1.5 times a $24 base rate). The 3,150 lost packs take 3,150 / 35 = 90 minutes, or 1.5 hours, of run time. Add 0.5 hour for startup, so the crew is paid for 2 hours. Extra setup waste is $120 and expedited freight to protect the delivery date is $200.

overtime labor  = 2 hours x 6 people x $36 = $432
recovery cost   = $432 + $120 + $200 = $752

Scenario A: sold out, cannot recover. Use lost contribution. Add repair parts and scrap. Do not add the idle wages: they were paid with or without the stop.

Scenario B: recovered on Saturday. Use recovery cost. Add repair parts and scrap. The Saturday overtime is the labor the stop added; the regular wages paid during the stop ($24 x 6 x 1.5 hours = $216) would have been paid anyway, so they stay out.

Item	Lost revenue (upper bound)	A: contribution	B: recovery
Output measure	$3,780	$1,575	$752
Repair parts	$400	$400	$400
Scrap from the stop	$150	$150	$150
Idle wages during the stop	not added	not added	not added
Total	$4,330	$2,125	$1,302

The arithmetic: $3,780 + $400 + $150 = $4,330. $1,575 + $400 + $150 = $2,125. $752 + $400 + $150 = $1,302.

On the output measure alone, lost revenue ($3,780) is 2.4 times lost contribution ($1,575) and about 5 times recovery cost ($752). With the common costs included, the same 90-minute stop is worth $4,330, $2,125 or $1,302, depending on the scenario. A plant that always multiplies by the selling price overstates the output loss by 2.4 to 5 times in this example, and the total cost of the stop by roughly two to three times.

Small stops add up

A single breakdown is easy to see. Micro-stops are not, because each one is too short to log.

Illustrative tally, with no claim about typical frequencies. Suppose a line has 40 stops of 2 minutes each per 8-hour shift.

lost time per shift = 40 x 2 min = 80 minutes
share of shift      = 80 / 480 = 16.7%
lost packs          = 80 x 35 = 2,800 packs per shift

That is less than one 90-minute breakdown per shift, but it recurs every shift. Over 22 shifts a month, micro-stops cost 22 x 80 = 1,760 minutes (about 29 hours). The one-off breakdown cost 90 minutes. If the line is the constraint and sold out, 2,800 packs at $0.50 contribution is $1,400 per shift.

Counting these stops takes discipline. If the log only captures stops over 10 minutes, the largest loss may never appear in it.

How to record downtime

Valuing a stop needs a record made while the stop is fresh. One row per stop, with the same fields every time:

Start	End	Stage	Reason code	Planned / unplanned	Packs lost	Recovered (yes/no)	Parts used
09:12	10:42	Case packer	Sensor fault	Unplanned	3,150	Yes, Sat.	Sensor, $400
13:05	13:07	Bagger	Film jam	Unplanned	70	No	None

Packs lost comes from minutes stopped times the stage’s effective rate. Record the stage, because only a stop at the constraint costs line output. Keep reason codes short and fixed, so a month of rows can be sorted and totaled.

How it feeds decisions

Maintenance spending. Compare the maintenance cost of preventing a stop with the value of that stop under the right measure. A fix that saves 2,800 packs a shift is worth $1,400 per shift in contribution if sold out, and far less if the output would have been recovered.

Spare parts. A spare is worth stocking when the expected cost of waiting for it exceeds the carrying cost. Lead times matter most for imported parts; see Imported Equipment Costs Beyond the Factory Price. A stop that lasts weeks for a part is mostly a lost-contribution problem if recovery is not possible.

Automation business cases. Do not count “downtime savings” at selling price. Use contribution if the line is sold out, or the avoided recovery cost if it is not, and count each once. The metrics are compared in Automation Payback, ROI and TCO.

When the choice changes

• The line is not the constraint. A stop at a stage with idle capacity downstream or upstream may cost little output, because the buffer or spare capacity absorbs it.
• Demand is soft. If you were not going to sell the lost packs, contribution loss is near zero, even though revenue “lost” looks large.
• The output is partly recoverable. Split the lost packs: some made back (recovery cost), some not (lost contribution).
• Customers cancel or penalize late delivery. Then penalties and lost future orders belong in the loss, and are not in any of the three measures above.

More on the topic is collected under Production Economics.

Keep reading

• Why Faster Machines Do Not Always Increase Line Output: shows which stage sets line output, which decides whether a stop costs anything.
• Imported Equipment Costs Beyond the Factory Price: covers lead times and spare parts, which set how long a stop can last.
• Automation Payback, ROI and TCO: What Each Metric Tells You: explains how to place downtime savings into a payback calculation.

Assumptions and limits

• All figures are illustrative. Prices, variable costs, wages and crew sizes differ by plant and product.
• The line is assumed to run at a constant 35 good packs per minute, and the packs lost are valued at that rate.
• Taxes, financing, the time value of money and any longer-term customer effects are ignored.
• Scenario B assumes the Saturday crew and the packs are available, and that all recovered packs sell at the normal price.
• Maintenance, safety and engineering decisions need their own review. This is a comparison tool and does not replace financial, legal, safety or engineering review.