Category: Leadership

Equipment and labor losses cost you time. Resource losses cost you the stuff itself. And these are the ones Finance can already see. 

Here’s why this last category is special. The equipment and human losses show up as time, and time has to be translated before Finance feels it. Resource losses skip the translation. They land straight in cost-per-unit and gross margin, which means they’re the losses your CFO is most likely to already believe. That makes them the easiest place to build a business case, and the rest of this series leans heavily on what you find here. 

There are ten of them. 

1. Rework. Producing a unit that isn’t acceptable as-is but can be repaired and sold. It’s a triple cost: the original materials, the labor to redo it, and the line time you spent reworking instead of making something new. 

1. Raw Material Losses. Material lost to leaks, loose specs, contamination, damage, and poor storage. This is the one most often shrugged off as “the cost of doing business,” yet it commonly runs 1% to 3% of total raw material spend, which is real money on any plant of size. 

1. Scrap. Material consumed in conversion that can’t be sold as the primary product: trim, edges, mixing residue. Sometimes you recover it as regrind, sometimes you don’t, but either way it dilutes your yield. 

1. Spoilage. Product so off-spec or damaged it can’t even be reworked. This is the most expensive loss of all, because both the material and every hour of labor invested in it drop to zero value. 

1. Packaging Materials Losses. Film, boxes, labels, and cases lost to defects, poor storage, and equipment misalignment. Often 2% to 5% of packaging spend, and almost entirely invisible until someone audits it. 

1. Excess Inventory Losses. Cash tied up in inventory you don’t actually need, usually from forecasting errors and “just in case” thinking. Every dollar parked there is a dollar not paying down debt or funding improvements, and the carrying cost alone typically runs 15% to 25% a year. 

1. Energy Losses. Energy wasted to compressed-air and steam leaks, idle-running equipment, oversized motors, and missing shutdown protocols. Studies consistently find 20% to 30% of plant energy is recoverable. On a plant spending $5M a year on energy, that’s $1M to $1.5M walking out the door. 

1. Yield Losses. Giving away product because nobody trusts the process to hold a tighter spec. The classic case: a two-pound spec consistently filled at 2.05 to 2.10 pounds because the line can’t be trusted to stay above 2.0. That extra fraction of a pound on every unit is pure giveaway. 

1. Changeover Time Losses. Production lost during product changeovers, driven by untrained operators, missing parts, and steps run one after another that could run in parallel. A line running six changeovers a week at 90 minutes each loses nine hours a week. Cutting changeover time in half is often worth $1M to $2M a year on a single line. 

1. Overspending. Paying more than necessary on maintenance, MRO, contractors, supplies, and energy. The big driver is reactive work: every $1 of reactive maintenance costs roughly three to five times what the same job costs when planned. A plant running 40% reactive is overspending dramatically against one running 10% reactive. 

Real-world example: the yield giveaway nobody noticed. A bagged-snack plant fills a 6 oz bag at an average of 6.18 oz, just to be sure they never go under spec. Annual volume is 50 million bags. That 0.18 oz per bag, across 50 million bags, is 9 million ounces, or 562,500 pounds of product given away every year. At a finished cost of $1.40 a pound, that’s $787,500 of pure giveaway annually, money walking straight out the door. The fix, tighter process control with predictive checkweigher feedback, cost $120,000. Payback: under two months. 

That example is the whole category in miniature. Nothing broke. Nobody got hurt. No alarm went off. The plant simply gave away three-quarters of a million dollars a year, politely, one bag at a time, until somebody finally measured it. 

Try it yourself 

Identify your top three resource losses by dollar value: 

• Pull or estimate the annual spend for each candidate: rework, scrap, packaging waste, energy, MRO, and so on. 

• For each, estimate what a 10% reduction would save. 

• Rank them by dollar opportunity, not by which one is easiest to fix. 

Keep that ranked list. It becomes the raw material for the first business case we build in Part 4. 

Key takeaways 

• Resource losses are usually invisible until audited, and once measured they’re almost always bigger than expected. 

• Energy waste, MRO obsolescence, and yield giveaway are the three most under-investigated buckets in most plants. 

• Rework, scrap, and spoilage tend to get reported. The other seven buckets often don’t. 

• Resource losses connect directly to gross margin, so reducing them moves the financial statements faster than anything else on the floor. 

Wrapping up Part 2 

You now have the full map. Thirty places money leaks out of a plant, sorted into machines, people, and resources, and you can tell which family any given loss belongs to. That alone puts you ahead of most rooms, because you can stop arguing about whose department is to blame and start pointing at named, sizeable targets. 

But naming a loss isn’t the same as sizing it. A target you can’t measure still won’t get funded. So next we turn the 30 losses into numbers a CFO can act on, starting with the two that summarize everything: OEE and TEEP. 

Coming next, Part 3: Measuring What Matters. 

If you want to see where your plant’s money is quietly leaking, start with the resource losses. They’re already visible in your financials. You just have to measure them. If you want help identifying and quantifying these losses inside your operation, reach out.

The equipment losses are about how the machines run. These are about how the people work. Same waterfall, completely different fix. 

If the 11 equipment losses are where reliability work pays off, the 9 human efficiency losses are where it doesn’t. That’s the single most important thing to understand about this category: these losses mirror the equipment ones, but you don’t solve them with maintenance. You solve them with planning, organization, training, and better physical layout. Throw a reliability program at a planning problem and you’ll spend money fixing machines that were never the issue. 

These nine split into three scheduled labor losses and six others. 

The three scheduled labor losses 

These are the labor side of your planned downtime. The equipment was supposed to be down; the question is whether the people were used well while it was. 

1. Scheduled Maintenance Labor Losses. Maintenance labor sitting idle during planned windows. If your wrench-time during scheduled work is 35%, then two-thirds of your maintenance labor is non-productive even on a good, planned day. 

1. Scheduled Engineering Labor Losses. Engineering labor wasted during planned project windows, usually from scope creep, unclear handoffs, or late parts and drawings. Engineering hours are among the most expensive in the plant, so wasting them hits your project capital costs directly. 

1. Scheduled Operations Labor Losses. Operations labor lost during planned operations windows. Ten people standing around for a 15-minute handoff briefing is a real, recurring loss, every shift, forever. 

The six other human efficiency losses 

1. Management and Planning Losses. Wait time caused by poor planning of the work itself: waiting for materials, tools, instructions, permits, or for equipment to be released. This is the single biggest source of lost wrench-time in maintenance, and it’s almost always a symptom of a reactive culture rather than lazy people. 

1. Operating Motion Losses. Inefficiency in how operators have to move: bending, stretching, walking to fetch parts, hunting for tools. The hidden cost here isn’t just slower work; it’s injury risk. Every workers-comp incident is six figures of direct cost plus the productivity and morale damage around it. 

1. Line Organization Losses. Inefficiency from how the line is laid out and how the workload is balanced across stations. It shows up as the same operators always being overloaded while others sit idle, or as bottlenecks nobody can quite explain. 

1. Logistics Losses. Time lost moving material around the plant: operators walking for parts, dollies waiting on forklifts, work backing up because the next station can’t accept it. A finished pallet that sits 20 minutes waiting for a forklift is 20 minutes of unnecessary tied-up product, plus a safety hazard. 

1. Waiting Losses. Operators waiting on equipment, materials, instructions, or each other. Easy to spot, hard to act on. This is one of the most demoralizing losses there is, because idle time tells your people that nobody values their time. 

1. Setup and Adjustment Labor Losses. The labor side of equipment setup and adjustment, where skilled people are tied up redoing work that should have been right the first time. It’s a doubled cost: the equipment is down, and high-skill labor is being burned on something that was preventable. 

Real-world example: wrench-time on a reactive shift. A maintenance supervisor films a typical shift. Out of eight paid hours per technician: 

• Actual wrench time on equipment: 2.1 hours. 

• Walking to and from the parts crib: 1.4 hours. 

• Looking for tools: 0.9 hours. 

• Waiting for permits or for production to release equipment: 1.1 hours. 

• Waiting for instructions or supervisor decisions: 0.6 hours. 

• Breaks, meetings, and paperwork: 1.9 hours. 

Wrench-time comes out to 26%. With proper planning and kitting, world-class crews hit 55% to 60%. Closing that gap means doing roughly twice the work with the same headcount. That, in one shift, is a Management and Planning Loss you can see and size. 

Wrench-time is the canary 

If you want one number that tells you whether your plant has a human efficiency problem, it’s wrench-time: the share of paid maintenance hours actually spent turning wrenches on equipment. A reactive plant runs around 25% to 35%. A well-planned plant runs 55% to 65%. That gap isn’t about working harder. It’s about whether the work was set up so people could do it. 

Try it yourself 

Pick one of these to put a rough dollar value on this week: 

• Time spent waiting for parts across your last five work orders. 

• Distance an operator walks on your busiest line in a single shift, roughly estimated. 

• The number of times someone had to stop and ask a supervisor for a decision before they could keep working. 

Each of these is a number, and each number has a cost. Try to attach one. 

Key takeaways 

• Human efficiency losses mirror the equipment losses, but the fix is planning, organization, and training, not maintenance. 

• Wrench-time is the canary: a reactive plant runs 25% to 35%, a planned plant 55% to 65%. 

• Operating motion and line organization losses are large but invisible. They surface as fatigue, injuries, and bottlenecks. 

• Waiting losses crush morale. Fix them and engagement rises right alongside productivity. 

Coming next, Part 2, Post 4: The 10 Resource Losses.

If you want to understand where your labor hours are slipping away, start with one number this week. Measure it. Put a dollar value on it. When you can see the loss, you can recover it. If you want help quantifying these losses inside your plant, reach out and we will walk you through the first assessment.

The 11 Equipment Losses 

The machines are talking. Most plants only hear the loudest one. 

In the last post we named the three families of loss. Now we go into the first and most familiar one: the 11 ways your equipment quietly hands money back. Familiar is the trap here. Most plants chase the loud, visible losses and walk right past the bigger, quieter ones. By the end of this post you’ll know all eleven by name, and you’ll know which ones are probably costing you the most. 

The 11 equipment losses split into two groups: four are scheduled, and seven are unplanned. Both cost money. The scheduled ones are necessary, but necessary is not the same as efficient. 

The four scheduled losses 

These are the planned reasons you take a line down. You can’t eliminate them, but you can absolutely tighten them. 

1. Scheduled Maintenance Time. Planned downtime for PMs, lubrication routes, inspections, and calibrations. The loss isn’t the PM; it’s the slop around it. A four-hour PM that runs six because parts weren’t staged just bled you two hours for nothing. 

1. Scheduled Engineering Time. Planned downtime for installs, upgrades, and line modifications. A poorly scoped install that creeps from two days to five delays your return to production and burns labor the whole time. 

1. Scheduled Operations Time. Planned downtime for inventory counts, training, cleanings, and audits. Stretching a two-hour training into a lost six-hour shift because nothing else was organized around it is pure waste. 

1. Lack of Demand. The line isn’t scheduled because there are no orders. That’s not the plant’s fault, but the fixed-cost meter still runs during idle hours. Using that time well, for extra PMs, training, or projects, is the plant’s opportunity. 

Real-world example: the PM that ran long. A four-hour planned PM on a packaging line took seven hours. The wrong gasket was kitted, costing 30 minutes to source the right one. Two technicians showed up without the right calibration tool, costing 45 minutes. Startup defects after restart threw away 90 minutes of product. The PM itself was fine. The planning around it was not. That extra three hours cost about $9,000 in lost contribution, and a 30-minute pre-PM kitting check would have prevented most of it. 

The seven big losses 

These are the seven unplanned losses you have the most control over, and they’re the ones that move OEE the most. This is where most reliability programs focus, and rightly so. 

1. Setup and Adjustments. Deviation from a set standard of time. For example, a scheduled 30-minute changeover takes 45 minutes. The 15 minutes that was unplanned cost you units, equating to profit lost.  

1. Breakdowns. Unplanned stops of 10 minutes or more that need a part to fix. This is the most visible loss, which is exactly why it gets too much of the attention. A single major breakdown can wipe out a week of contribution margin on a critical line. 

1. Process Failures. Unplanned stops of 10 minutes or more that do not need a part: sensor faults, software glitches, control logic, operator confusion. These get missed because they don’t look like classic breakdowns, but they burn just as much time and often force a quality check on whatever ran before the stop. 

1. Speed Losses. The gap between design speed and actual run speed. This is the most insidious loss in the building. A line built for 100 units a minute that runs at 80 has lost 20% of its capacity, and not one minute of it shows up on a downtime sheet. 

1. Minor Stops. Stops under 10 minutes. Death by a thousand cuts. Two hundred short stops of three minutes each add up to 10 hours of downtime a week, invisible on the dashboard because no single event is big enough to notice. 

1. Startup Defects. Defective product made during warm-up after a stop or changeover. Most plants accept this as “just how it is.” It isn’t. Reducing startup waste is one of the highest-return quality plays available. 

1. In-Process Defects. Defective product made during normal running. This is a direct hit to material and labor cost, because a defective unit carries the full cost of being produced and generates exactly zero revenue. 

Real-world example: the minor stops nobody sees. On a frozen-meal packaging line, the operator hits reset about 100 times a shift to clear minor jams from a tray feeder. Each reset takes 90 seconds. That’s 150 minutes per shift, two and a half hours of downtime, every shift, never logged because each event is under 10 minutes. At $4,200 an hour in lost contribution, that’s $10,500 per shift, or about $7.5M a year across three shifts. The fix was a $14,000 redesign of the tray-feed transfer. Payback: less than one day. 

Read those two examples back-to-back and you can see the lesson. The loud loss, the breakdown, gets a war room. The quiet loss, 90 seconds at a time, gets a $7.5M annual bill and no attention at all. 

Try it yourself 

Walk one of your lines for 30 minutes during normal running. Tally three things: 

• Every time the line stops or hesitates. 

• Whether each stop was over or under 10 minutes. 

• Whether anyone wrote it down. 

Then ask how much of what you just watched is actually making it into your reported OEE. The gap between what you saw and what got recorded is your minor-stops opportunity, and it’s usually a lot bigger than anyone expects. 

Key takeaways 

• Equipment losses split into 4 scheduled and 7 unplanned. The 7 unplanned are the ones that move OEE. 

• Speed losses and minor stops are the most under-counted, and often the largest. 

• Most plants over-focus on breakdowns because they’re visible. The bigger money usually hides in minor stops, speed, and quality losses. 

• If you can’t tell a Process Failure from a Breakdown, you can’t match the right strategy to the loss. 

Coming next, Part 2, Post 3: The 9 Human Efficiency Losses.