6 Ways Asset Tracking Factors Into the Bottom Line
Nearly every on-site employee in the U.S. is responsible for some sort of physical asset. It could be a set of keys, a uniform, a stack of documents, a laptop, a company car, even a piece of equipment worth more than their yearly salary. Whatever the case, we’re all familiar with the scare of losing something valuable.
In this light, it’s no surprise that more and more organizations are implementing asset tracking systems. These systems include inventory management software, real-time location systems (RTLS), custom Internet of Things (IoT) initiatives, and item identification programs of all sorts. The goal is typically to save money.
But what financial factors really fuel, or should fuel, projects like this? The list could go on seemingly forever. Here are just six main factors that shed light on both the problem and the solution.
- The value of lost inventory
- Your costs to replace missing items
- The value of unused or unneeded physical space
- Work hours spent checking inventory or looking for lost assets
- Delays in key operations
- Revenues produced by skipping the delays altogether
1. The value of lost inventory
There are dozens of reasons assets could go missing. They could be left somewhere and forgotten, or shipped by mistake. Plenty of inventory gets stolen as well. Or it could just be that the current count is out of date. The issue of lost inventory is common to virtually all industrial interests. It’s also an expensive one, costing billions of dollars every single year.
Whatever the case, it’s important to calculate the actual value of the inventory you’re missing. You bought it—or perhaps made it—after all. Even if you only know your costs and your current inventory, this will give you a clear picture of the value of keeping that inventory and the risks of losing it.
2. Your costs to replace missing items
The costs to replace missing items might sound like the same value just described, but there’s more to it. For instance, your costs also include your profit margin had you been able to sell any lost inventory. Costs can be even higher if you need to go through lengthy approvals and purchasing processes in order to get replacement units.
Costs for replacing items can also feed into several other factors, like the price of unused space and the temporal delays missing items create for you. For instance, if a missing box of product means you can’t ship to a customer, this delay is an extra costly one. And then there are accountability issues that add work hours or tax and insurance issues as you sort out the value of the inventory you’re keeping on hand.
Long story short, replacing lost assets typically requires more than just swiping a credit card or signing a new purchase order.
3. The value of unused or unneeded physical space
For physical assets, space is often one of the most expensive factors to consider.
In industries like warehousing, paying for square footage without something to fill it is a huge cost driver. Having a faulty inventory count can also cause businesses to pay for more space than they actually need. These kinds of costs go up dramatically if it’s not just space we’re talking about—say, if you add temperature control, security, cleaning crews, insurance, tax, or other costs to maintain that space.
This gets more and more complicated as the scope of a project expands. Bigger spaces mean more variables in how well you can optimize. The larger the space, the more places there are to lose things and the longer it takes to search for them. Higher quantities of assets make it harder to determine how long you’ve had each item, and whether some might be expiring soon.
Although few businesses can actually cut their rent or property tax by discovering an extra storage closet, you might be surprised how many costs factor into maintaining space that isn’t being used well.
4. Work hours spent checking inventory or looking for lost assets
If you’re familiar with the problem of lost stuff, you might have started crunching these numbers. One company calculated that they spent 47% of their time “just looking for the right tools.”
And who does the searching? I once toured a repair facility that hired a teenager to run around with a clip-board, checking inventory all day. This is rarely the case, though. More often, it’s a permanent employee with other critical work to do that ends up looking for something missing.
These people can be highly-trained, qualified workers whose time is valuable. In hospitals, nurses and doctors often have to do their own searching for missing wheelchairs, IV pumps, or other assets. In facilities with heavy machinery that needs servicing, machine technicians often have to go hunting for the assets they need.
One aerospace company, for example, lost thousands of highly-paid technician hours every year. The problem? Technicians needed specific tools for overhauling and repairing aircraft. Lacking an accurate system to track these tools, the technicians had to spend their own time hunting for each item. Once they implemented a real-time asset tracking solution, these lost hours translated directly into flight time as aircraft were moved more quickly out of repair bays and back into service.
5. Delays in key operations
As hinted in the previous example, this can be the most expensive loss of all. Missing equipment often delays operations like maintenance or assembly. Misplaced pallets or boxes can delay shipments to customers. Shipping the wrong box or pallet can be even more expensive, while introducing yet more delays.
Aberdeen Research says that unplanned downtime in manufacturing can cost as much as $260K per hour. I’ve heard informal accounts of even higher costs; one automotive company reported losing as much as $1M per hour if a single assembly line was delayed.
Whatever the value, there’s a harmful ripple effect when operations get stalled for something even as small as a misplaced work order.
6. Revenues produced by skipping the delays altogether
This can be a happier number to calculate, since it represents money your business can pocket with the right countermeasures in place.
One small company—which relied on its sales team to pack and ship sold product after closing a sale—discovered that 40% of its team’s hours went to looking for the correct items to ship. Translated into revenues, this means their sales team was likely selling close to 40% less than they could be, if they only had a better way to pick and pack each sold item.
Similarly, eliminating inventory shut-downs might enable your business to take on new projects. In healthcare, knowing exactly where to find medical supplies in the moment you need them could mean the difference between visiting four patients or visiting five. One large study indicated that IoT asset management could generate as much as $9.4M in new revenues per individual project.
There’s also the issue of stakeholder trust. When you deliver on time, safeguard the items entrusted to you, and keep a careful tally of who has what, you’re a lot more likely to garner trust from customers, coworkers, managers, shareholders, and anyone else connected to your work. It’s hard to undersell this value in today’s business world.
Bonus: Costs to implement asset tracking or inventory management systems
One more financial factor to consider closely is the overall cost to implement an asset tracking solution. Costs here could range from software subscriptions to major infrastructure investments, planned shut-downs of a facility, and training programs for new tech or policies affecting your employees.
Most asset tracking systems will come with upfront installation, administrative, and training costs as well as maintenance and upgrade fees incurred over time. All of these can vary greatly depending on the solution you choose. But if you’ve gathered your information on related costs—like the ones described above—you can validate the ROI and be sure you’re making a decision that works for you and your business.
More about Connecting Assets: 5 Things to Keep in Mind
No matter how good the process or technology is, it’s unlikely that we’ll ever truly get to the point of 100% asset visibility and inventory perfection. We can, however, move a lot closer than where we are now. It’s worth the reminder that, especially for large, capital-intensive businesses, there’s significant money to be saved and generated, even with a few small changes. More about the IIoT Impact on Asset Performance Management.
Read also this article focused on asset tracking by Stephen Taylor on our website.
This article was written by Stephen Taylor, the Director of Communications at WISER Systems, Inc., a leading ultra-wideband (UWB) provider of precise localization. When he’s not at work, he likes to jam on his violin, write creatively, or wander through the forest. Someday he’ll try all three things at once.