APM Automation Solutions Ltd. ROI (Payback) Model Eyal Cohen APM Annual International Partners...

APM Automation Solutions Ltd.APM Automation Solutions Ltd.

ROI (Payback) Model

Eyal CohenAPM Annual International Partners

ConferenceMay 4, 2011

What is the key competitive advantage of APM scanners?

APM International Partners Meeting 2May 2011

Key Competitive Advantage of APM Scanners

Accurate Inventory Measurement


WHY IT IS IMPORTANT TO IMPROVE INVENTORY MEASUREMENT ACCURACY ?

May 2011 APM International Partners Meeting 4

APM International Partners Meeting 5

Improving Inventory Measurement Accuracy

Substantial Cost Savings Across the Supply-Chain

May 2011

Financial Aspects of Inventory

• Inventory costs money• Carrying and handling of inventory costs

money• Efficient ordering saves money• Safety stock costs money and can be

reduced by accurate inventory measurement

• Accurate Inventory Measurement is the basis of efficient operation and cost reduction


Negative Effects of Inaccurate Inventory Measurement

• High safety stock levels

• Non-optimal utilization of storage capacity

• Excess ordering

• Excess delivery costs


What is Inventory Carrying Cost?


What Makes Up Inventory Carrying Costs?

• Inventory carrying costs are made up of the following . . . .


What Makes Up Inventory Carrying Costs? (2)

• Capital costs include the investment in inventory . . . .



• Inventory service costs include insurance, physical handling, and taxes



• Storage space costs include public, plant, rented, and company owned warehouses



• Inventory risk costs are made up of obsolescence, damage, shrinkage, and relocation costs


Example of Yearly Inventory Carrying Cost List


Carrying CostCost of moneyTaxesInsuranceWarehousePhysical handlingClerical & inventory controlObsolescencePilferage

May 2011

Common Inventory Carrying Cost


(1) Richardson, Helen: Transportation & Distribution, “Control Your Costs then Cut Them” Dec. 1995(2) Total inventory carrying costs can be estimated or be based on available customer data.

Carrying Cost (1) Potential Range

Cost of money 6% - 12%

Taxes 2% - 6%

Insurance 1% - 3%

Warehouse 2% - 5%

Physical handling 2% - 5%

Clerical & inventory control 3% - 6%

Obsolescence 6% - 12%

Deterioration & pilferage 3% - 6%

Total Cost (per year) 25% - 55%

May 2011

Inventory Carrying Costs In Summary

• Total inventory carrying costs can be broken down by


How Companies Calculate Their Inventory Carrying Cost


Inventory Carrying Cost Calculation

1. Over 65% of all companies do not compute inventory carrying cost, but use rough estimates instead.*

2. The “rule of thumb” for inventory carrying costs is 25% of inventory value on hand

3. The cost of capital is the leading factor in determining the percentage of carrying cost.

* Richardson, Helen: Transportation & Distribution, “Control Your Costs then Cut Them” December, 1995


How APM Scanners Can Reduce Inventory Carrying Cost?



APM’s scanners improve inventory measurement accuracy by 15%-20%

Reducing the carrying cost of the safety stock by 15-20%

Reducing the safety stock by 15-20%

May 2011


Safety Stock Level Before and After Installation of APM Scanner

The immediate benefit of accurate volume measurement is reduction in the need for safety stock by at least 10% of the silo storage volume

Minimum Level - Reordering PointSafety stock with APM Scanner

Maximum Level

More storage room

Less safety storage

Maximum Level

May 2011

Example: Financial Value of 10% Reduction in Safety Inventory


The reduction in inventory is directly related to size of the silo and value of the stored materials.

Silo size Width (meter) 7.8 Height (meter) 25.5 Volume (cubic meter) 1,218

Calcium Carbonate Density 2.9 Weight (ton) 3,532 Cost per ton (US$) $500 Max (100%) value of the stored materials (US$) $1,765,904 Reduction in safety stock (%) 10% Total reduction in inventory (US$) $176,590

May 2011

Example: Carrying Costs and ROI Calculation


InvestmentAPM 3DLevelScanner (MV Model) $6,700

Installation $900

Total investment $7,600

Saving calculationReduction in safety stock $176,950

Carrying cost factor (per year) 25%

Total saving (per year) $44,150

Additional potential savingLower maintenance cost (mainly anti bridging treatment)

Scheduling for silos filling & emptying

Accumulated storage by material type

Theft control

Total saving $44,150

ROINet return on investment (ROI) $36,540

Net return on investment (ROI) (%) 480%

Payback Period (months) 2 months

Case Studies


Shemen Haifa, Israel• Silo capacity 10,000 tons• Material Soy Beans• Price per ton $US 700• Error measurement rate by previous technologies 15-20%• Excess safety stock (10,000@15%) 1,500 tons • APM error measurement rate 1%-3%• APM safety stock (10,000@3%) 300 tons • Reduction in safety stock 1,200 tons

• Actual reduction in inventory value per year $840,000

• Saving in carrying costs per year (25%) $210,000

While the investment cost for APM MVL2 System - $25,000


Gadot -BioChemical Industries, Israel

• Silo capacity 200 tons

• Material Citric Acid

• Price per ton US$ 800

• Material buildup inside the silo blocked 40% of the silo volume

• Error rate when using previous measurement 80 tons (200*40%)

• APM- measurement error 6 tons (200*3%)

• Using APM reduced inventory value by 74x800 $59,200

• Saving in carrying cost per year (25%) $14,800

While the total investment for APM MV Scanner$7,600


Gadot -BioChemical Industries (cont.)

• Additional savings:– Penalty (5%) US$ 3,200 per order on

returned of excess 80 tons (ordering 200 tons while free capacity is only 120 ton)

– US$ 6,000 - cost to remove build up materials (per event)

– Cost of operation downtime due to lack of material (per case)


Kraft Food, Sweden

• Silo capacity 80 tons (refilled every week)

• Ordering level – 40 tons

• Material – Sugar US$ 350 per ton

• Error measurement rate using previous 17-25%

• Error measurement rate using APM scanner 1-3%

• Reduction in inventory using APM Scanner = $4,760(80 ton* 20% less 80 ton@*3% = 13.6 ton* $350)

• Higher maintenance cost for bi-weekly clean-up of the radar sensor compared with once a year clean-up needed for APM Scanner


APM Automation Solutions Ltd. ROI (Payback) Model Eyal Cohen APM Annual International Partners...

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