What
is the
True Downtime Cost(TDC)?
With
the knowledge and utilization of the OEE calculation, it is common to
realize greater than 40% increase in your bottomline and if you are
making a profit now, just think of the opportunity, highlights Don Fitchett.
The
key to realising greater savings from more in formed management decisions
is to pre-determine the “True” cost of downtime for each profit
center category. TDC is a methodology of analyzing all cost factors
associated with downtime, and using this information for cost justification
and day-to-day management decisions. Most likely, this data is already
being collected in a typical enterprise, and need only be consolidated
and organized according to the TDC guidelines.
Typically
daily management decisions related to equipment downtime are made based
primarily on labour cost. Of course, production demand is also at the
top of the priority list too. The bottlenecks are taken into account
in the decisions when they are realised. Some facilities overlook equipment
as a bottleneck, like air compressors, boilers, and strappers out in
the warehouse.
The
decision making balance to maintain is between production demand and
“True Downtime Cost”, not primarily production demand and
direct labour cost.
Using
a TDC methodology, the “Overhead” bucket becomes very small,
making it clear to all, the areas of greatest opportunity. In these
times of economic turmoil, it is ever more important to look at the
“True Downtime Cost” in it’s respective categories, not
only to see the greatest opportunity, but to profit from the valuable
insight this methodology will bring. You will learn that many of the
metrics with cost savings bottom line improvement opportunities, far
outweigh the labour category and the immediate temporary gains of downsizing.
Hidden Costs
Below
is an example of the hidden cost made relevant in just one of the proposed
TDC buckets; labour. You will see the true cost of labour associated
with the downtime scenario to be only $295. That amount pales in comparison
to the other TDC categories combined, which can be ten to hundred times
that amount depending on the particular downtime occurrence.
So
you can see how the TDC method can be a valuable cost justification
and benchmark tool to maintenance managers. It is a great analysis asset
to executive management and a great sales tool to those who provide
service and products to manufacturers. (Especially ERP and CMMS vendors
who are the consolidators of the data)
There are three main downtime categories proposed. The main category
of “Equipment Cost” and “Labour Cost” are composed
of metrics that are one time entry of constants, updated annually, exported
from your existing computer systems. The main category of “Downtime
Cost” contain the metrics that are “per downtime” occurrence
entries, but most can be exported from your existing CMMS. The data
being recorded from facility to facility, from software package to software
package, vary greatly.
Surprisingly,
some metrics having large cost saving opportunities and have been overlooked
by the general industry.
Since
labour cost is one of the most popular areas to first start seeking
opportunities, let us take a look at just one method of the old school
style of thinking. (Which also happens to be a primary concern in downtime
decision making.) Labour, more specifically direct labour. For example,
you have six operators doing not so productive cleaning while a machine
is down and two maintenance technicians doing the repair.
The decision makers are thinking… “At $10 per hour operator
wage, $20 per hour maintenance wage, that is $100 per hour. Well, I
know there is overhead involved too, but with so many categories it
is too complicated to consider. Overhead is just a percentage of my
man-hours anyway.”
Now compare this to the true cost in just one TDC category; labour cost.
First with the overhead bucket gone, the employees hourly cost is actual
cost to the company. With insurance, retirement, training, admin, etc.
double the hourly wage ($200) is a safe figure. As long as you are not
dealing with a bottleneck, we need only take into account the indirect
labour factor. Let’s see in our example, there was a QC inspection
at startup, the tool setup person, the line supervisor, maintenance
supervisor, the plant manager, the parts procurer, to name the most
apparent employees involved.
A
little more detail into the scenario, and we can calculate the indirect
labour cost. The 15 minute QC inspection ($5), setup person also 15
minute ($5), the supervisor was taken from his normal duties the entire
hour ($30). Doing what? Why supervising of course, well okay, he had
logistics, reassigning employees, rescheduling, etc. For the sake of
argument we’ll say the production demand was high. This demanded
two more high dollar employees, normally hidden in the overhead. The
maintenance manager was summoned for coordinating, ($30), the plant
manager was on the scene for 15 minutes to set the priorities and get
the facts first hand ($25).
The grand total of TDC for labour is $200 direct labour + $95 indirect
labour, for a total of $295. We all know in the industry, most would
not bat an eye at $295. There are two points to make by this example.
One is the commonly overlooked “overhead” cost, which is hiding
almost 66% of the true cost in the labour category alone. The other
point known to upper management and accountants, is indirect labour,
which is a large part of the picture, yet only considered on a daily
basis by very few...
