Help your customers to realise the true cost of downtime

When systems are down, we hit the panic button, go into solution mode and look for immediate resolutions to keep operations moving.

Beyond the cost of the repair, rarely do we stop to assess the cost in its entirety. Unfortunately, the majority of field service customers are no different. When equipment, technology or machinery is out of action and can not be used, the customer calculates the direct labour cost. However, the hidden costs are never realised. Subsequently, Field Service Organisations (FSO) are called to the rescue. Similarly, FSO will also go into tunnel vision and focus on the key performance indicators (KPI’s). Typical KPI’s for FSO include:

• Reduced customer wait times by ensuring rapid travel time to the site
• Securing the necessary parts to resolve the problem in one visit
• Delivering the lowest possible repair cost
• Providing the correct technician, matching skill set to the job requirements

All in all, FSO focuses on faster resolution times and the technician’s productivity to deliver increased customer satisfaction. However, unplanned maintenance enables a window of opportunity for FSO as field visits are the central human touchpoint between FSO and the customer. It’s an opportunity to educate the customer on how preventative and planned maintenance services avoid unplanned downtime. Comprehensive education to the customer on the actual cost of unplanned downtime will support your business case for a premium service.  

What are the actual costs of downtime?

Downtime occurs when machinery, equipment and tools are not available for use and production or continuation of activity must stop. There are two types of downtime; planned and unplanned. Planned downtime is scheduled and budgeted stops of activity for machine repairs, upgrades and changeover. Whilst, unplanned downtime results from outages, machine failures, human error, cyber attacks and issues with the supply chain. Categorising all costs, both tangible and intangible, is required to understand the true financial impact of downtime. Categorisation of the activities below all form part of the impact of downtime. These activities include:

1. Lost productivity, cost of labour, and wait time on the production line
2. The service level costs associated with late supply
3. Emergency shipping and freight costs for parts and materials
4. Replacement cost of damaged stock and materials
5. The lost opportunity costs for sales
6. Job rescheduling costs and asset idle time
7. The direct impact on customer satisfaction and brand
8. The direct impact on employee morale, stress and innovation

 

How to calculate the true cost of downtime

Once businesses categorise the financial impact of downtime, they are motivated to change their current operating methods. Often reviewing the tangible costs such as employee downtime is the best place for business owners and managers to start. Customers can use the following steps to calculate the costs of downtime:

Step	Calculation	Example
1.	Identify the number of employees impacted by a particular downtime event	150 employees
2.	Using an estimation, calculate the average hourly wage of each employee	$75 per hour
3.	Determine how much of the unplanned outage impacted productivity and assign a percentage	46% impact on productivity
4.	Using the totals above, calculate the number of employees X Average hourly rate X Productivity percentage	150 employees X $75 X 46% = $5,175 for the cost of downtime

Customers will also need to consider the cost of lost sales and orders. The table below provides a guide to calculating the cost of lost sales and orders:

Step	Calculation	Example
1.	Calculate the average daily sales. Customers can use a monthly, quarterly or yearly history	$10,000 per day
2.	Identify the total business hours per day	7.5 hours per day
3.	Add the total downtime hours which occurred as a part of the outage	20 hours of unplanned downtime
4.	Using the totals above, calculate the average daily sales / total business hours per day X total hours experienced during the outage	$10,000 per day / 7.5 hours = $1333 sales per hour X 20 hours in downtime results in $26,666 in total lost sales

Attributing an hourly cost to the categories above can be used to understand the cost of downtime.

How premium services can provide value to your customer

Despite the immense cost of unplanned downtime, many businesses aren’t entirely aware that their equipment is due for maintenance or replacement. Commonly across industries, managers deploy either reactive or a time-based approach to maintenance. However, when the costs associated with unplanned downtime are specified, customers will favourably assess the requirement for premium service levels. Examples of premium services may include:

• Spare parts on-hand inventory
• Guaranteed SLA’s inclusive of fast response and rapid on-site times
• IoT machine predictive maintenance modelling

FSO can deliver increased value to the customer by educating the client on asset performance data and effective maintenance strategies, sharing the where, how, and why downtime occurred will assist your customers with preparation to manage challenging scenarios. Even though downtime drivers can vary, FSO should reinforce excellent service by informing customers on strategies to reduce downtime whilst strengthening the need for premium service. When the technician visits the customers, it’s an opportunity to demonstrate value beyond the general FSM KPI’s. As customer preferences for communication through digital channels increases, this, in turn, reduces the frequency of the human touchpoint. This reduction increases the value of human-to-human interaction and is where competitive differentiation is achieved. For FSO to promote premium services, start by helping your customer understand the cost of unplanned downtime and utilise the time with the customer to deliver true value. An integral aspect of delivering premium services requires a system that can support the logging of customer issues and different service level plans with SLA reporting. To build strong customer relationships and grow customer lifetime value, field service organisations must be supported by powerful systems. Not sure if your systems are maximising your opportunity to build a loyal customer base? The team at Klugo are experts in accessible customer insights and intelligent field management solutions. Schedule a call with the team today to assess if your systems provide operational excellence.  

About Klugo

NetSuite + NextService

Klugo’s vision is to unlock the full operating potential of our customers to maximise the value of their business. We do this by helping our customers achieve operating excellence using NetSuite + NextService, the world-leading cloud ERP and FSM business platform for small-to-medium-sized businesses.

Feel free to call an expert in operational excellence today. Find out how cloud-based technology can support and quickly adapt to your growth strategies.