APM Annual International Partners
Conference
May 4, 2011

2 May 2011 APM International Partners Meeting

Key Competitive Advantage of APM Scanners
Accurate Inventory Measurement
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WHY IT IS IMPORTANT TO IMPROVE
INVENTORY MEASUREMENT ACCURACY ?
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• 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
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Negative Effects of Inaccurate
Inventory Measurement
• High safety stock levels
• Non-optimal utilization of storage capacity
• Excess ordering
• Excess delivery costs
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What Makes Up Inventory Carrying
Costs?
• Inventory carrying costs are made up of the following . . . .
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What Makes Up Inventory Carrying
Costs? (2)
• Capital costs include the investment in inventory . . . .
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What Makes Up Inventory Carrying
Costs? (3)
• Inventory service costs include insurance, physical handling, and taxes
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What Makes Up Inventory Carrying
Costs? (4)
• Storage space costs include public, plant, rented, and company owned warehouses
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What Makes Up Inventory Carrying
Costs? (5)
• Inventory risk costs are made up of obsolescence, damage, shrinkage, and relocation costs
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Example of Yearly Inventory Carrying
Cost List
Carrying Cost
Cost of money
Taxes
Insurance
Warehouse
Physical handling
Clerical & inventory control
Obsolescence
Pilferage
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Common Inventory Carrying Cost
Carrying Cost
(1)
Cost of money
Taxes
Insurance
Warehouse
Physical handling
Clerical & inventory control
Obsolescence
Deterioration & pilferage
Total Cost (per year)
Potential Range
6% - 12%
2% - 6%
1% - 3%
2% - 5%
2% - 5%
3% - 6%
6% - 12%
3% - 6%
25% - 55%
(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.
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Inventory Carrying Costs In Summary
• Total inventory carrying costs can be broken down by
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How Companies Calculate Their
Inventory Carrying Cost
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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
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How APM Scanners Can Reduce
Inventory Carrying Cost?
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APM’s scanners improve inventory measurement accuracy by 15%-20%
Reducing the safety stock by 15-20%
Reducing the carrying cost of the safety stock by 15-20%
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Safety Stock Level
Before and After Installation of APM Scanner
Maximum LeveL
Minimum Level - Reordering Point
Safety stock without 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
More storage room
Less safety storage
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Minimum Level - Reordering Point
Safety stock with APM Scanner
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Example: Financial Value of 10% Reduction in Safety
Inventory
Silo size
Width (meter)
Height (meter)
Volume (cubic meter)
Calcium Carbonate
Density
Weight (ton)
Cost per ton (US$)
Max (100%) value of the stored materials (US$)
Reduction in safety stock (%)
Total reduction in inventory (US$)
7.8
25.5
1,218
2.9
3,532
$500
$1,765,904
10%
$176,590
May 2011
The reduction in inventory is directly related to size of the silo and value of the stored materials.
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Example: Carrying Costs and ROI Calculation
Investment
APM 3DLevelScanner (MV Model)
Installation
Total investment
Saving calculation
Reduction in safety stock
Carrying cost factor (per year)
Total saving (per year)
Additional potential saving
Lower maintenance cost (mainly anti bridging treatment)
Scheduling for silos filling & emptying
Accumulated storage by material type
Theft control
Total saving
ROI
Net return on investment (ROI)
Net return on investment (ROI) (%)
APM International Partners Meeting
$6,700
$900
$7,600
$176,950
25%
$44,150
$44,150
$36,540
480%

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•
Silo capacity
• Material
•
Price per ton
• Error measurement rate by previous technologies
•
Excess safety stock (10,000@15%)
• APM error measurement rate
• APM safety stock (10,000@3%)
•
Reduction in safety stock
10,000 tons
Soy Beans
$US 700
15-20%
1,500 tons
1%-3%
300 tons
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 $25,000
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Gadot -BioChemical Industries, Israel
• Silo capacity
• Material
200 tons
Citric Acid
• Price per ton US$ 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 $7,600
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Gadot -BioChemical Industries (cont.)
• Additional savings:
– Penalty (5%) US$ 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)
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• Silo capacity 80 tons (refilled every week)
• Ordering level –
• Material – Sugar
• Error measurement rate using previous
• Error measurement rate using APM scanner
40 tons
US$ 350 per ton
17-25%
1-3%
• Reduction in inventory using APM Scanner =
(80 ton* 20% less 80 ton@*3% = 13.6 ton* $350)
$4,760
• Higher maintenance cost for bi-weekly clean-up of the radar sensor compared with once a year clean-up needed for APM Scanner
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