Don’t overlook machinery downtime risks

Whilst the UK has focused this year on who should be Prime Minister, it’s another PM on which businesses reliant on machinery and equipment should perhaps concentrate. Predictive Maintenance (PM) is the pro-active response to the vast costs associated with machinery breakdown — the true extent of which is often overlooked.

PM is a strategic priority for around 70% of Fortune Global 500 companies.[1] They recognise machinery and equipment downtime costs impact their balance sheet. In 2022, and that unplanned downtime cost them 11% of annual turnover. Many strive to avoid unnecessary maintenance and expenditure on holding spare parts in stock.

Downtime is surrounded by negative impacts. Machinery breakdown wastes resources and erodes business performance. The UK has a scarcity of resources for productivity growth and lags behind other countries. Machinery breakdown is a real obstacle to growth, when you consider that The Productivity Institute regards the efficient and effective use of resources as critical.[2]

Loss of revenue is also the inevitable outcome of production line shutdown. Wages are wasted, paying staff who cannot perform their roles. There are significant repair costs to absorb and the costs of emergency spare parts to factor in.

Then there is the risk attached to failure of delivering to customers on time, to meet both contractual obligations and expectations. This could lead to financial penalties, according to contractual terms, or a loss of business, if customers choose to source products elsewhere. Reputational damage is also a lesser-considered impact of machinery downtime.

The cost and incidence of downtime

Downtime costs are increasing sharply, with just one redundant hour costing between £1,700 and £7,500.[3] Stressed supply chains and inflation are responsible, as downtime periods are also lengthening, with many repairs harder to effect, due to the growing interdependence of pieces of equipment. Sourcing replacement parts last minute is also harder and finding specialists to repair machines challenging, as many experienced engineers have left the sector.

The problem is real. UK and Irish manufacturers spend, on average, 20 hours a week on unscheduled maintenance; and as 82% have had at least one unplanned downtime incident in the past three years.

The answer is to spot equipment ailments well in advance. This is the ethos of Predictive Maintenance, which utilises prognostics, to offer predictions and produce projections of a piece of equipment’s Remaining Useful Life.

A robust and strategic approach to maintenance should back the basics of cleaning and lubrication – absolutely essential as 70% of technical failures stem from lubrication issues.[4] The strategy should also, however, be based on the firm foundations of regular inspections and the monitoring of data generated by intelligent equipment.

As usual you will need to comply with many legal inspections, control measures and maintenance requirements by law such as, Provision of Use of Work Equipment Regulations (PUWER), Lifting Operations and Lifting Equipment Regulations (LOLER) and Control of Substances Hazardous to Health (COSHH).

This puts a manufacturing or engineering team on the front foot, proactively scheduling maintenance, rather than reactively responding to breakdowns. Rejecting a run-to-fail mentality makes sense, when run-to-fail repair costs can be up to four times more than scheduled repair expenses.[5]

Human error and downtime However, whilst PM can reduce downtime, breakdowns still occur. Human error is often the reason. An operator may overuse or incorrectly use or set up machinery. They may not address dirt or dust build up, and they could override machine controls and safety features. The human element adds much unpredictability to equipment operation.

With so many micro-electronics driving machinery, and the fragility and sensitivity of micro-circuits, there can be little or no evidence of physical damage prior to breakdown. Equipment may just react badly to something such as condensation, heat, humidity, shock, or vibration.

Most property insurance policies offer no cover for equipment breakdown, and only protects against damage caused by weather incidents or fire. An equipment breakdown insurance programme is required, as it will pick up the costs associated with downtime.

Putting this into context, two-thirds of small and medium-sized enterprises (SME’s) say they could not survive more than three months if a catastrophic equipment failure occurred and prevented trading.[6] 48% also say they could not absorb the cost of essential equipment breakdown, and such reliance on equipment and machinery suggests that many businesses need extra protection, to cover the risks surrounding its failure.

With an equipment breakdown insurance programme, a firm can receive the financial reimbursement they require and replace their equipment, if necessary. They are also protected against costs and losses associated with business interruption, safeguarding the company finances, but also providing access to specialists who can rectify the issue.

If you rely on your machinery as the engine room of your business, protect against the downtime risk through both proactive PM and the safety net of insurance; otherwise, the impact could be crippling.

Talk to your Broker if you need assistance understanding the risks and business exposures you need to be aware of.

Sources:

[1] https://assets.new.siemens.com/siemens/assets/api/uuid:3d606495-dbe0-43e4-80b1-d04e27ada920/dics-b10153-00- 7600truecostofdowntime2022-144.pdf

[2] https://www.productivity.ac.uk/news/what-explains-the-uks-productivity-problem/#:~:text=The%20UK%20has%20experienced%20 significantly,joined%2Dup%20policy%2Dmaking

[3] HSBEI 2456 DBAP24 (1).pdf – The importance of equipment breakdown insurance in an unpredictable world, downloadable from https:// www.insurancehound.co.uk/business-management/risk-management/importance-equipment-breakdown-insurance-unpredictable-   world-40255

[4] https://www.themanufacturer.com/articles/the-true-cost-of-downtime-a-view-from-the-engineer/

[5] https://www.forbes.com/sites/forbestechcouncil/2022/02/22/unplanned-downtime-costs-more-than-you-think/

[6] https://www.munichre.com/hsbeil/en/about-us/hsb-engineering-insurance/press-and-news/press-releases/2024/research-reveals-vulnerability-of-uk-smes-to-equipment-breakdown.html