Assessing the Cost of Forklift Downtime
Ask any operations, warehouse or service manager: what are some of your biggest challenges and concerns? There’s a great chance that one of the issues they’ll list is equipment downtime. This is particularly true in warehousing or distribution facilities, where downtime can cost thousands of dollars per hour. The problem, however, isn’t necessarily acknowledging that downtime is an issue but determining how to determine the cost of downtime to your business.
Before we look at how to assign a specific cost to equipment downtime, let’s establish our definition of downtime. For our purposes here, equipment downtime refers to the total time interval between when a forklift or piece of material handling equipment is out of operation and when it is returned to service. Included in this time period is equipment pick-up, diagnostics, time for set-up and repair, any intervening travel time, as well as any rework time that becomes necessary after the initial repairs have been completed.
In terms of the actual costs of equipment downtime, we need to look at both the tangible and intangible or consequential costs associated with a malfunctioning piece of equipment. Fortunately, the tangible costs – mostly related to the cost of labor and materials – are rather obvious and easy to assess. The intangible costs, however, are more difficult to identify and assign a monetary value to as these are contingent upon the conditions surrounding the equipment failure.
Among the tangible costs you should consider are factors such as:
Repair Costs – This one is fairly straightforward and equals the monetary value of any repairs undertaken to return the equipment to service. Make sure to include all parts, labor and travel costs associated with the downtime.
Equipment Ownership Costs – One way to assess the monetary impact of equipment downtime is by the cost of ownership. By adding up the total costs of ownership for an individual forklift over an entire year, including lease/financing payments, fuel and maintenance costs, and dividing by the number of hours it’s in operation we can determine the cost of ownership per hour. If a forklift is out of operation for 4 hours and costs $25 per hour, the ownership costs associated with the downtime would be $200.
Lost Production – Each product manufactured or service provided have an associated monetary value represented by potential profit. When equipment is down, your output is reduced or eliminated, and can add up to a substantial amount of money. This lost profit, calculated by the number of units produced or services provided per hour, should be added to the cost of downtime.
Overhead Costs – Even if equipment downtime causes your operation to come to a standstill, your overhead costs continue to accrue. These overhead costs include things such as invariable labor costs, the cost of owning and maintaining your building/property.
The less obvious component of downtime costs, the intangible costs, include more subtle and less quantifiable things such as:
Opportunity Costs – When your equipment is malfunctioning, dealing with the issues that arise from it and returning the equipment to operating condition becomes a priority for employees and management alike. Under these conditions it becomes difficult to pursue new opportunities or address outstanding issues around your business. Given their nature as potential rather than actual areas of profit, these issues are harder to assign a monetary value. However, these should still be addressed in your calculations.
Stress – Equipment downtime can throw a wrench into your entire operation by making simple, day-to-day tasks more difficult or impossible. As such, the additional complications caused by equipment downtime can have a noticeable and negative impact on abstract factors like employee morale, organizational culture and turnover.
Whether you’re looking at the tangible or intangible costs, it’s undeniable that equipment downtime has a substantial impact on your bottom-line. So, how these costs should be assessed, and, how should your business address the problems caused by downtime?
On the one hand, you could focus on the hard tangible costs of owning and operating your equipment. A simplified and conservative approach, this method is basically a cost of ownership calculation, where the cost of owning a piece of equipment is added to the hard costs of equipment repair. To illustrate, let’s look at an example where the cost of owning a forklift is $50 per hour. If the forklift is down for 8 hours and the repairs cost another $400, the total cost of this downtime event would be $800. While this approach provides you with some actionable insights, it hardly takes into account all the cost factors and tends to deemphasize the importance of proper maintenance and upkeep.
Alternatively, you could adopt a solution-based approach designed to penalize downtime events with an eye towards reducing their overall frequency. Here, rather than trying to estimate all of the subjective and indirect costs of equipment downtime and add those to the tangible costs included above, take some time to assign a penalty of sorts per downtime event. This approach relies on the simple fact that downtime costs are the direct by-product of downtime events. Continuing with that logic, if downtime events do not occur or occur less frequently, downtime costs will follow.
By basing downtime costs on the number of down events, rather than the duration of downtime, this method causes you to focus on equipment reliability as a critical metric. When considered alongside the direct costs of downtime (the unutilized overhead and repair costs mentioned above), you’ll arrive at some actionable insights that emphasize reliability, develop a means of measuring the cost of downtime, and improve your reliability and productivity.
In addition to analyzing the costs of equipment downtime, we recommend you take the following steps to further reduce the impact of equipment downtime on your business and bottom-line:
Utilize a preventative maintenance program – preventative or planned maintenance programs combine the manufacturer’s recommended service intervals with a maintenance plan designed around your application and usage to treat issues before they develop into a more significant problem and extend the life of your components and equipment. What’s more, a PM program allows you to schedule maintenance-related downtime when it’s convenient for you and your business.
Operator training – poorly trained operators tend to make costly mistakes. Whether it’s a collision or failing to notify their supervisor when their equipment is experiencing a mechanical issue, poorly trained forklift operators certainly increase the frequency and severity of downtime events. Well-trained operators, on the other hand, tend to decrease the frequency and severity of downtime events vs the average. Reduce your risk with a comprehensive operator training program.
Invest in quality equipment – instead of focusing on near-term costs, we recommend that you adopt a long-term perspective for your new equipment purchases. While you might save in the short-term with cheaper, lower quality equipment, you’ll ultimately pay for this mistake through costly and frequent breakdowns. In the end, you’re better off investing in well-made, high quality equipment with an excellent warranty such as Stärke’s Professional Series XVI of forklifts.
Use trained/authorized mechanics – it’s important that you don’t allow just anybody to service your material handling equipment. Differences between brands, equipment history and past experience all play a role in how well a mechanic or technician will be able to diagnose and repair your equipment. At Stärke, we recommend that you only have one of our authorized dealers service your Stärke equipment to ensure you always receive the best, most up-to-date information and repairs.
Regardless of how approach equipment downtime, the fact is that downtime is a costly inconvenience for all businesses. When your forklifts aren’t operational, your entire business suffers as production stalls, morale decreases and overhead costs continue to accumulate.