Key points
- The machine's hourly rate captures only one part of a stop. Lost contribution margin is usually the largest, and labour, overtime, expediting and penalties add to it.
- Count five cost lines for every stop: lost margin, idle labour, recovery overtime, expediting and customer credits.
- Test the method on one line for a month, then present a range to leadership instead of a single precise number.
Why the hourly rate undercounts
A common shortcut is to multiply the stopped hours by the machine's running cost per hour. It is quick, and it produces a number that looks official, but it leaves out most of what a stop actually does to the business.
A stop takes units you could have sold, keeps people standing by, forces overtime later, sometimes means buying freight to catch up, and can trigger a late-delivery credit. Each of these has a different owner in the company, which is why the full cost often goes unseen.
The five costs to count
- Lost contribution margin: units not made multiplied by the margin each unit would have earned, not by its selling price.
- Idle labour: the loaded cost of the crew that waited during the stop.
- Recovery overtime: the cost of making back some of the lost units on overtime.
- Expediting: premium freight or rush supplier charges needed to protect a delivery.
- Customer credits and scrap: late-delivery credits, penalties, and product scrapped during restart.
A worked example (illustrative numbers)
Assume a line that makes 1,200 units an hour, earns a contribution margin of $4 per unit, and has a crew of six at a loaded rate of $35 an hour. A 45-minute stop costs roughly this:
| Cost line | Working | Amount |
|---|---|---|
| Lost contribution margin | 900 units × $4 | $3,600 |
| Idle labour | 6 people × 0.75 h × $35 | $158 |
| Recovery overtime | 450 units recovered at 1.5× rate | $118 |
| Expediting | Rush freight on one late order | $850 |
| Total per stop | about $4,700 |
A machine-rate estimate would count only the margin line, about $3,600 here. The stop costs about 30% more once the other lines are included. If this line stops twice a week for 50 working weeks, the annual cost is in the region of $470,000, which is the figure a leadership team can act on.
How to make the number credible
- Use your own rates. Contribution margin, crew cost and recovery rates vary a lot between plants. Replace the example numbers before you show anyone.
- Count stops by reason. A total is less useful than knowing which three reasons account for most of the lost time.
- Show a range. Present a low and high estimate with the assumptions written down. A range that is honest about its inputs is easier to trust than a single precise figure.
- Track it for a month first. One month of consistent stop reasons will reveal more than a year of estimates.
Where to start
Our downtime cost calculator applies the same logic to your own inputs. If your numbers show a meaningful cost, the next step is to find which stop reasons account for most of it. The 30-day method for finding your biggest production losses covers that in detail.