UID – then what? ROI from deploying Track & Trace by Data Capture Institute, Inc.
Data Capture Institute has been tasked by A2B Tracking Solutions to estimate the return on investment (ROI) that organizations can expect when budgeting for tracking of items under their control. Tracking and tracing of items is the next logical step for those who are implementing UID and wish to maximize UID benefits while streamlining operations. For background, the Department of Defense adopted a Unique Item Identification (UID) program in 2004. UID obliges the DoD’s large support community including the armed services and its contractors to mark and register their valuable property. No specific timetable has been given yet regarding the location or circumstances that would trigger event recording that is related to this property. It follows that each operating unit with responsibility for property will now begin to plan for data collection and analysis of item activity, in order to improve their operations and reduce costs for activities under their control.
A structure is needed to assist those who want to track and trace the property they manage. This begins with seeking background to determine return on investment (ROI). We will begin by stating several references and assumptions.
- The FAA Bar Code Asset Tracking System (BCATS) piloted in 1996-2001 has scalable benefits that are valid for this analysis.
- The MCI bar code marking and component tracking system (Scanman) was begun in 1995 and has scalable benefits that are valid for this analysis.
- The Logistics Item Unique Identification Task Force study published in June 2010 has applicable benefits to the community exploring this tracking opportunity.
DCI designed the MCI Scanman system and consulted with MCI throughout the program implementation. DCI designed and implemented the FAA BCATS system under prime contract with the FAA. DCI was a member of the DoD Integrated Product Team that designed the UID program. From this unique involvement, we contributed to the ROI background and analysis for this field of work, which we share here.
Return on Investment (ROI)
ROI is traditionally defined as the “return” (incremental gain) from an action divided by the cost of that action. Gains from an investment are divided by investment costs. An ROI ratio greater than 0.0 (or a percentage greater than 0%) means the investment returns more than its cost. The higher the ROI, or percent of gain over cost, the better. A companion measure of a good enterprise investment is expressed as the payback period, or time (months or years) until the investment cost is recovered. The shorter the time for investment recovery time, the better.
The Logistics UID Task Force report predicts program costs of about $7 billion and annual cost savings of about $4 billion, equaling 57% ROI at program maturity. The MCI tracking system ROI was seen to be 35% when MCI gave suppliers the asset labels and rose to 80% when the suppliers of assets created and applied the labels. The FAA financial analysis showed a 75% ROI and an ultimate payback of 20 times cost, over 20 years. From the above range of asset tracking experiences we see an expected ROI of about 50%.
The return rate for an organization beginning now to control their UID marked items using modern track and trace technology, such as A2B’s UC!Web™ software, would be much higher. The reason is this: In the three examples discussed above, the cost of labeling or marking assets was a large initial investment that reduced the payback and extended the investment recovery period. The assumption in this analysis is that item marking under the UID mandate has been already accomplished, or even paid for under a DoD sponsored cost recovery methodology. That being the case, the ROI should exceed 100% (full cost recovery) within a year of expense. More exact analysis can be easily determined.
In cloud based software, with little or no user infrastructure expense, one can take an annual license cost, say $10,000, and compare this to an incident of cost avoidance at that location. Using traditional inventory and reporting experience, and an example of items worth $50,000 that are misplaced and/or misreported at that site during the year, the payback for deploying track and trace software, would be $40,000 per year, or 400% ROI per annum. The investment recovery time would be quite rapid, or one fifth of a year – less than two months.
Readers are invited to do some back-of-the-napkin analysis of their own, with the insight of a known facility. For a more rigorous and detailed analysis, Data Capture Institute will be pleased to respond to an invitation to visit and provide an exacting study and report.