The material handling industry has, for many years, struggled with the problem of evaluating the reliability and availability (R&A) of complex material handling systems (MHS). Many complex systems, such as automated guided vehicle systems, automated storage and retrieval systems, and those used for order picking and sortation, are in place throughout the world, yet engineers are rarely able to adequately represent system R&A in a meaningful way. The major problem is that upon failure of individual components, these systems can often continue to operate at degraded levels of performance. In addition, this degraded performance is highly unpredictable. Currently there is no standardized method in the industry for communicating R&A characteristics of these systems. This has, at times, led to complex legal issues between customers and suppliers of these systems. This paper addresses some of these issues by proposing a "performability index" that quantifies the effect of component failure and repair on system performance. The method is based on the use of simple quadratic loss functions and discrete event simulation. An example for an actual flexible manufacturing system is presented to illustrate the approach.