Tangible and Intangible Losses due to Breakdown
Tangible Loss due to Breakdown
The loss due to breakdown may be classified into tangible and intangible. Tangible loss includes down time cost, effect on other machines, expediting cost, accident cost, added set up cost, increase in work-in-progress investment, overtime wages paid to the maintenance, loss of materials, etc.
1. Loss due to Down Time Cost
It is made up of
- loss of profit for the period that the machine remains stopped for attention by maintenance
- wages paid to the direct workers while they remain idle,
- depreciation of the machine on the same period of time,
- other heads proportioned for the period of machine idleness as per the company system of allocating these costs and
- loss due to scrapping or reworking of material that may be spoiled due to machine stoppage.
2. Loss due to effect on Other Machines
The broken-down machine at times may render other machines idle which are dependent on it. The cost of idle time of such machines requires to be considered towards. cost of breakdown.
3. Loss due to expediting Cost
Eventual breakdowns are not anticipated. The disturbed schedules cause queuing which leads to overtime, off loading on other units, job splitting, etc.
4. Loss due to accident Cost
Accident cost implies the compensation payable to the employee for the injury caused by the eventual breakdown. Injury to the workmen may be caused either directly from the breakdown or indirectly from the prevailing confusion and hurried actions initiated to repair the machine. The accident cost for certain equipment like pressure vessels, relief valves, electric hoists and cranes, temperature control devices, hooks, chains and eye bolts, slings and cables, elevators, etc., can be specially high.
5. Loss due to added Set up Cost
Breakdown on a machine is normally accompanied by added machine set ups due to
- re-setting of job on the broken down machine after it has been repaired,
- change of job(s) on the machine(s) effected by the broken down machine, etc.
6. Loss due to increase in Work-in-Progress Investment
Breakdown on the machine usually increases manufacturing cycle time since jobs are held up near the broken down machine which increases investment in work-in-progress inventory.
7. Loss due to overtime Wages Paid to the Maintenance
When machines breaks down in middle of operation, the maintenance staff should be compensated with overtime wages to get the machine back into operation at the earliest possible time.
8. Loss due to cost of spares of other materials used for repairs
If a spare part is required and is not readily available, it will have to be purchased from the market at higher premium.
9. Loss due to Inefficient Operations of the Machines
These loss arise because machines become incapable of turning out the requisite quantity or their conditions create problems relating to quality of products.
10. Capital Expenditure required for replacement of machines.
11. Cost of Stand-by Equipment
Many organizations in order to keep their production going, install stand-by equipment. Such investments lock up capital.
Intangible loss due to Breakdown
Intangible loss due to breakdown includes reduced life of the equipment, broken promises and dissatisfied customers, lowered morale on the part of employees, higher spares inventory investment, cost of stand-by equipment, etc.
Decisions regarding the strength of maintenance staff, spare parts, inventory, allocation of work among workmen and replacement of machines affect the profitability of the company. These decisions can only be taken after analysis of the effects of the proposed decisions on the total of the elements of cost listed above.
Reference: Production and Operations Management
