Help Customers Determine the Cost of Downtime

Most companies don't have a good understanding of what downtime really costs. This is probably because downtime creates an emergency situation and people get busy trying to resolve the emergency. The actual cost is never calculated. Here are the categories to be considered as part of downtime costs:

– Rescheduling costs on the shop floor, labor, and overtime

– Loss of work time: employees productivity if they must stop work to wait for repairs

– Damaged work if a machine or process failure causes quality issues

– Loss revenue or sales due to late deliveries

– Customer satisfaction and loyalty: for example, Aircraft On Ground or "AOG" causing flight delay or cancellation

– Use of premium transportation

– Potential legal liabilities

– Emergency services costs

– Impact to your brand

Smart customers will sign up for higher levels of service because they understand the high cost of downtime. Typically, service products come in multiple levels such as silver, gold, and platinum which correlate to low, medium, and high service responsiveness. To find the best match of service to your customer needs, help your customers understand the total cost of downtime correlated with the levels of service. If their downtime cost is high, they will be more likely to buy a higher level of service.

Mission-critical systems may not only require high service levels but also redundant equipment, so there is virtually no overall system downtime. Businesses such as hospitals, hotels, and transportation companies require backup generators to keep operations going, no matter what happens. Of course, no one can predict natural disasters, terrorist strikes, and other terrible events that may cause outages that cannot be planned.

If your company has global customers, they may demand prompt recovery or take their business elsewhere. Jim Miller, VP of Operations at Google, confirms, "A Google outage is just not acceptable. We have multiple levels of redundancy and service support to ensure we are up continuously."

In other cases, the customer may not be willing to provide total cost of downtime because it is considered confidential or competitive in nature. Software companies are reluctant to give out any server-related downtime even if it is for scheduled maintenance. This is because competitors will pick up this information and use it against them in competitive sales situations. Research In Motion or RIM, the operator of the Blackberry network, for example, suffered a network outage that prevented their customers from getting e-mail for several days. Many customers jumped ship for Apple iPhones. Unfortunately, RIM never fully recovered and is now struggling to stay in business. Closer to home, you have probably experienced cable, Internet, or satellite outages from time to time. These periods can be incredibly frustrating, especially if you have to wait for ordinary service. If you could pay for immediate response and get your home networks back up immediately, would you?

We admire Eliyhu Goldratt's body of work (5) regarding pinch points and bottlenecks in supply chains. Goldratt recommends that if equipment is on the critical path for manufacturing, then plan for alternate approaches including alternate pathways for production, redundant systems, and tight timeframe service-level agreements (SLAs). We couldn't agree more, and your service organization should address these ideas with customers.

High levels of service response time cost more in terms of a customer's service contract but are less expensive than downtime. For one of our clients, we calculated the downtime for a semiconductor chip manufacturing line to be well over $40,000 per hour.

So help your customers determine the cost of downtime, and use that cost to justify a field service package that minimizes their overall costs.

(5) The Goal: A Process of Ongoing Improvement by Eliyhu Goldratt.

© 2013 Laura Lowell