Baker holding ipad next to calculator and bread

The 8-Step Formula to Calculate the Costs of Unplanned Downtime

Raise your hand if you’ve ever experienced stress.

Two women – one woman raising her hand

We all have – that’s normal and okay. But have you ever worried about something so much that even your dreams were stressful? . . . just me?

Oh. Well. That’s for the best.

To be fair, I couldn’t imagine being that stressed either until I ran a commercial bread bakery in Philadelphia.

Bread baker holding a loaf of bread

The Fear of Equipment Failure

I’d wake up in the middle of the night thinking, “oh no no no no – our walk-in refrigerator is down.”

Thousands of dollars of ingredients – spoiled.

Unfinished product meant to slowly ferment overnight – ruined.

The overtime we’d need to work to try and get orders out on time – ugh.

It always took a few moments to realize that I was only dreaming, but the fear was tough to shake. Unplanned downtime was a very real threat, especially during warm summer months.

Equipment failure was not only a threat to our business when we were a two-person show. It was still a threat once we had grown into a thriving bakery with wholesale customers in multiple states, a strong presence in our home city of Philadelphia, and a great staff to support the whole operation.

We struggled to turn the threat of unplanned downtime into a concrete and manageable issue. We never found a meaningful solution during my time there.

Unplanned Downtime: an Obvious Problem

Baker sprinkling sugar on some pastries

The bakery that I worked in was not unique in this problem. Reducing unplanned downtime is top of mind for any business.

In fact, Vanson Bourne, along with GE Digital, conducted a study on the topic of unplanned downtime. They surveyed 600 decision-making professionals from sectors including manufacturing, oil & gas, utilities, among others.

82% of those surveyed were affected by at least one unplanned outage involving their machinery/assets between 2014-2017. On average, those polled experienced two unplanned downtime episodes during this same period.

What I find particularly interesting is that 90% of those surveyed admitted that more could be done to prevent unplanned downtime.

From Dough to Digital Transformation

Balls of dough next to a rolling pin

At this point, I should probably mention that I don’t bake bread professionally anymore.

I’ve spent the past few years helping companies around the world use IoT technology to tackle major business problems. And I’ve learned so much during my time here.

One thing I’ve learned after talking to so many businesses that are experiencing these issues, is that it is impossible to find the right solution if you have yet to define the problem.

I want to share 8 questions that I wish I had asked myself while I was still managing the bakery to understand the impact of unplanned downtime. These questions are a formula that you can use to understand how much money your company is losing during each downtime event.

My hope is that you, too, can move beyond stress-dreams and the uncertainty of unplanned downtime.

The Formula

doing math on a chalkboard

Ask yourself these 8 questions to calculate the costs of downtime as well as the ROI for an IoT system for condition monitoring:

  1. Have you documented what your existing manufacturing processes are and which pieces of equipment are used throughout?
  2. When was the last downtime event caused by equipment failure?
  3. What are you able to do when a piece of equipment fails?
  4. How long is a typical downtime incident?
  5. How much does it cost to repair that piece of equipment?
  6. Does your staff have to work overtime to make up for lost productivity?
  7. How much money does the company lose during this downtime?
  8. How many outages did you have this year?

A Closer Look at the Impact of Unplanned Downtime

Workers in a bakery

You’ll be further ahead than most if all you do is reflect on these questions. But let’s dive into them further to see why they are so important to think about:

1. Have you documented what your existing manufacturing processes are and which pieces of equipment are used throughout?

The customers we work with at Temboo are experts at what they do. Plant managers I speak with can usually rattle off every step involved in their manufacturing process.

I was the same way at the bakery. That’s why I know how important that process documentation is to all types of manufacturing operations.

For example, by documenting the processes and equipment used, the bakery realized that cold storage was essential throughout the production process. We used cold storage to hold raw ingredients, control the maturity of our pre-ferments, and to allow products to proof, or ferment, at a slower pace.

It’s helpful to give written visibility to this question because the impact of unplanned downtime is so large and the factors that cause it so varied.

2. When was the last downtime event caused by equipment failure?

Once more: documentation is key.

The bakery experienced frequent unplanned downtime during the summer. Our cold storage would go down or underperform maybe once or twice. We also experienced equipment failure outside of the summer, but less often.

Recording these incidents helped us better understand the financial impact of unplanned downtime. We also identified seasonality to our equipment failures as an added bonus.

3. What are you able to do when that piece of equipment fails?

Production would have to grind to a halt if something like our oven ever failed. Fortunately, we could still bake bread if/when our cold storage went down.

The bakery sacrificed efficiency, product quality, or a combination of the two when we did experience unplanned downtime. It also strained our staff as they attempted to work around the equipment failure.

4. How long is a typical downtime incident?

Depending on which report or sector you’re looking at, a minute of downtime can cost you anywhere from ~$4,300 to $22,000.

Taking the lower bound as an example: I am much more motivated to prevent $43,000 worth of downtime (10 minutes) versus $4,300 of downtime (a single minute).

We accepted unplanned downtime as a fact of life at the bakery. We failed to better prioritize resources without concrete numbers to give shape to the problem.

5. How much does it cost to repair a piece of equipment?

Knowing what was likely to fail in our walk-in refrigerator or oven helped us estimate potential repair costs. But there were some failures that required an immediate fix.

Some companies are fortunate enough to have their own maintenance staff. The bakery did not. When we needed on-demand repairs, they came with on-demand prices ($$$).

We never had to outright replace any of our equipment, but I am well aware of how expensive that can be. As a quick example, an average sized steam tube deck oven from Cinelli Esperia can run you just under $70,000 new.

The total replacement cost doesn’t stop there. We also budgeted for rushed delivery and installation of something like a new oven if we needed it.

Some costs are unavoidable with orders on the line.

6. Does your staff have to work overtime to make up for lost productivity?

Our customers placed orders, and that product needed to get out the door. Because of that, we paid our staff to be there during unplanned downtime. Often, we also needed to pay our staff overtime to catch up.

In the US, time-and-a-half is the standard rate for overtime pay. Some states in the US mandate Double Time for all hours worked beyond 12 hours in a given workday. This means that we had to pay anywhere from 1.5x to 2x an employee’s hourly wage in overtime costs.

In an industry with already slim margins, this was not something we could afford to continue.

7. How much money does the company lose during this downtime?

I could have provided a quick answer to each of the layers below had I been asked at the bakery. Knowing what I know now, I wish I had not underestimated the cumulative impact of unplanned downtime.

Lost Production: if you produce 1200 units per hour with a profit per unit of $50, a single hour of downtime costs you $20,000. But reduced throughput is a much larger problem if we take a step back from the immediate numbers.

Failing to deliver a customer’s order had severe consequences at the bakery. At best, that failure tarnished the relationship. At worst, we lost that account and would likely never get their business again.

The bakery understood that we had to “do better” whenever this happened. I wish we would have more clearly connected the dots between our unplanned downtime and a loss of business.

Wasted Labor: the wages paid during unplanned downtime were more or less a sunk cost. The overtime required to make up for lost productivity at the bakery pushed us further into the red.

On top of higher labor costs, I believe our bakery had trouble retaining talent because of unplanned downtime. The overtime pay could be attractive, but the work resulting from unplanned downtime was extremely high-stress.

The food industry has a shockingly high turnover rate topping 70% according to the National Restaurant Association, and the stress presented by unplanned downtime contributes to this.

Wasted Inventory: both raw ingredients and unfinished product could have been compromised if our cold storage failed at any point in the day or night.

8. How many outages did you have this year?

Unfortunately, we only had a rough idea of how often this happened at the bakery. We would have been much more motivated to fix our problems with unplanned downtime had we had an exact number for this question.

Beyond motivation, we would have been in a better position to evaluate potential solutions.

The Intangible Costs of Unplanned Downtime

Baker putting bread into an oven

While most of this post focused on the tangible costs of unplanned downtime, there are also countless intangible costs that are worth your serious consideration.

I mentioned the employee stress and brand damage that unplanned downtime has on business. Another thing worth considering is its impact on innovation.

We were slow to invest meaningful time in R&D at the bakery. This is unfortunate because we made invaluable breakthroughs when we did:

  • Process improvements enabled us to scale beyond what we thought possible with our staff and resources.
  • New product developments brought value to our customers like natural means of extending shelf life.
  • New methods of reducing our waste freed up financial resources. We could better compensate our staff or advance pending projects with the saved funds.

These intangible costs are hard to uncover. I won’t dive further into them here, but they are worth considering as you work towards understanding the total cost of unplanned downtime.

Can the Internet of Things Help?

I’ve since learned that meaningful progress is impossible if you are unable to define the problem you are trying to solve.

Even a simple IoT system to monitor the condition of our cold storage would have benefited the bakery, but I still might have dismissed a company like Temboo. I lacked a clear picture of what unplanned downtime was doing to our business.

Ready to Take Action?

Whether you’re still determining the total impact of unplanned downtime or are considering an IoT system for condition monitoring, it can be helpful to work with a partner that cares about your success.

Temboo is here to help. I’m here to help.

Send us a note at Mention that you read this post, and I will try to personally respond.

If you want to get started on your own, our 7 Questions To Ask When Building an IoT System for Condition Monitoring post is a helpful resource.

Other Use Cases for the Internet of Things

A company with equipment scattered across the Southwestern United States saves time and money on maintenance expenses. Want to learn how? Read our case study on using an IoT system for monitoring remote equipment.