Fully burdened line downtime rates are calculated by manufacturers to determine the total cost associated with production line stoppages. This rate includes not just the direct costs but also indirect costs. Here’s a breakdown of the process:
1.) Direct Costs: These are the expenses directly linked to the downtime. They include:
- Lost production value: Calculated by multiplying the number of units not produced due to downtime by the per-unit profit margin.
- Labor costs: Wages paid to employees during downtime.
2.) Indirect Costs: These are less obvious costs that still impact the bottom line. They include:
- Maintenance and repair costs: Expenses for fixing the issue causing the downtime.
- Overhead costs: Fixed costs like utilities, rent, and salaries that continue to accrue during downtime.
- Depreciation of equipment: The loss of value of machinery due to inactivity.
- Inventory costs: Costs related to holding or managing inventory that cannot be processed.
3.) Opportunity Costs: The lost opportunity to generate revenue during the downtime.
4.) Administrative and Other Associated Costs: Costs for administrative tasks or other activities related to managing and resolving the downtime.
To calculate the fully burdened line downtime rate, manufacturers sum up these costs and divide them by the total downtime period (usually in hours). This provides the cost per hour of downtime, giving a comprehensive view of the impact of production stoppages.
Manufacturers use this information to make informed decisions about maintenance schedules, equipment investments, and operational improvements to minimize downtime and its associated costs.