REPUTATIONAL DAMAGE FROM DOWNTIME
Quantifying the cost of downtime isn’t always easy, but a simple calculation can usually lead to a workable figure. By dividing weekly revenue by weekly work hours it’s possible to calculate the cost of downtime for each hour production is halted.
Attaching a figure to the reputational damage incurred during a period of downtime can be more complicated.
Defining what a brand is can also be difficult. Brand can be thought of in terms of the product. If you’ve ever thought about the implications of a brand moving into an area they aren’t known for, this can be a really useful way of thinking about a brand. For example, if a fizzy drinks producer used their branding on a range of pizzas the basic meaning and message built up from the fizzy drinks product could tarnish the new product line.
So, when considering what our product consists of, we must think beyond the tangible item which we pack and ship to our customers. Customers decide to buy from us, not only because of the products we create, but also because of the service we provide and promises we make about quality.
When we hit a period of downtime, a gap develops between customer expectation and the actual service they receive. If brands consistently fall short of their customers expectation, they risk their brand reputation.
The inevitable impact of downtime will be a delay in order fulfillment. Downstream from the breakdown, an order won’t be packed, checked and shipped to the customers on time. In our just-in-time world, this can have a huge impact. For example, if you produce packaging materials, a delay in fulfilling your order could mean another manufacturer can’t get their product out of the door on time to their customers because they don’t have anything to pack it with.
Inevitably, when this happens customers wonder why they are buying from us and whether we are really capable of fulfilling time sensitive orders. This is when reputational damage occurs.
What is the cost of reputational damage?
Damage to a brand can also last for years. Depending on the type of damage incurred and whether the reputational damage hits the press the brand can take years to recover.
When considering the impact of downtime in terms of pounds and pence, it is tempting just to look at those easy to calculate costs. However, it is also worth considering the wider implications of a period of downtime. When reputation is damaged future orders can be threatened, with the revenue lost taking years to be retrieved.
This is of course just one way to value a brand, and unlike the value of a tangible asset it can be more difficult to calculate.
There are of course many different ways to calculate the value of a brand but the immediate impact of brand damage can be seen in the Income-Approach brand valuation. This method, also known as the “in-use” approach looks at the value of the brand equal to the value of income, cash flows or cost savings due to brand.
It is said that 75% of the value of a business comes from intangible assets such as brand reputation. Inevitably the cost of reputational damage from a period of downtime, can be calculated by looking at the value of the business.
What can we do to prevent downtime?
Additionally, some Northern Industrial customers opt to purchase additional parts when a replacement is needed so maintenance teams have spares available for use in case of future breakdowns.
Quantifying the impact of downtime, isn’t always as simple as calculating the cost of loss of production. Loss to reputation and brand loyalty can have a serious impact on the bottom line. By understanding which parts you would need in the event of a breakdown and which parts you should keep in stock ready to use you can go a long way to preventing costly and damaging periods of downtime.
This would be especially prudent if a facility uses the same part in multiple machines. If the part failed on any of the machines downtime can be minimised by having the replacement part ready for use rather than relying on ordering a part which could take 2-3 days to arrive.
Having a preventative maintenance approach can be helpful. Rather than waiting for a part to fail, systematic inspection, detection and correction is used to detect problems before they become serious failures. If a part can be kept in stock, in case of failure, this would be an example of preventative maintenance.