TDC – Accounting For More than the Obvious
Knowing TDC can help assist with management decisions and cost justification. Generally this term refers to manufacturing industries where there occurs a time when machinery is not in operation. True downtime costs can capture the costs incurred when manufacturing is at a halt. Traditional overhead costs would only account for labor expenses being incurred at that moment (perhaps between shifts or during a lunch period). Using this method of calculating costs can pin-point areas where costs can be saved and areas where production can be maximized. Points can be determined where production demand surpasses or is equal to the TDC at which point, production should resume.
Don Fitchett best provides examples of costs that are over-looked by firms. In his article, “What is the True Downtime Cost?” he examines three areas that he believes companies fail to inspect close enough to estimate a true cost generated by them: labor costs, equipment costs and downtime costs. Downtime costs are those commonly not accounted for. Downtime costs can include time – a good amount of time generally elapses between the time equipment breaks down and it is repaired and running again. Some machinery operates continuously, incorporating scraps as it goes. Downtime can result in inefficient use of access materials. When the manufacturing progress is operating smoothly, costs such as shipping and rentals can be overlooked, though the actual costs of the goods is included.
Someone might think that tracking these costs could wind up as a micro analysis, wasting time locating and reporting all the details. In fact, most downtime costs are already accounted for in some form or another. They are in your computer system. For instance, it should be known when and how many employees are either direct or in-direct idle workers. For product information, use the cost per unit at each specific stage in production. For a list of true downtime costs accessible through your current system click here.
