How downtime cost is calculated
Monthly Cost = Cost per Hour × Downtime Hours per Month
The model has three components. Lost contribution margin applies when the line is sold out — every unit not made is a unit not sold. Idle labor applies because the crew is paid whether the line runs or not. Overhead keeps accruing during a stop: the building, the compressors, and the depreciation don't pause with the line.
This is a conservative model. It excludes overtime to recover the schedule, expedited freight, startup scrap after restarts, and late-delivery penalties — costs that commonly add 30–60% on top of the figure above.
When lost margin doesn't apply
If the line has spare capacity and can make up production within normal hours, lost margin overstates the damage — set it to zero and the cost is labor plus overhead plus recovery costs. If the line is the plant constraint, the opposite is true: an hour lost on the constraint is an hour of output lost for the whole plant, and margin should reflect plant-level throughput.
Using this number to justify improvement
- Maintenance spending: a $15k repair that removes 3 hours/month of stops on a $4k/hour line pays back in under two months.
- SMED projects: cutting a 45-minute changeover to 20 minutes, five times a week, returns ~8.7 hours of capacity a month — multiply by your cost per hour.
- Spares inventory: the carrying cost of a critical spare is usually trivial next to one avoided extended stop.