APM Automation Solutions Ltd. ROI (Payback) Model Eyal Cohen APM Annual International Partners Conference May 4, 2011

What is the key competitive advantage of APM scanners? APM International Partners Meeting2May 2011

Key Competitive Advantage of APM Scanners Accurate Inventory Measurement APM International Partners Meeting3May 2011

WHY IT IS IMPORTANT TO IMPROVE INVENTORY MEASUREMENT ACCURACY ? May 2011APM International Partners Meeting4

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 May 2011APM International Partners Meeting6

Negative Effects of Inaccurate Inventory Measurement High safety stock levels Non-optimal utilization of storage capacity Excess ordering Excess delivery costs APM International Partners Meeting7May 2011

What is Inventory Carrying Cost? APM International Partners Meeting8May 2011

What Makes Up Inventory Carrying Costs? Inventory carrying costs are made up of the following.... May 2011APM International Partners Meeting9

What Makes Up Inventory Carrying Costs? (2) Capital costs include the investment in inventory.... May 2011APM International Partners Meeting10

What Makes Up Inventory Carrying Costs? (3) Inventory service costs include insurance, physical handling, and taxes May 2011APM International Partners Meeting11

What Makes Up Inventory Carrying Costs? (4) Storage space costs include public, plant, rented, and company owned warehouses May 2011APM International Partners Meeting12

What Makes Up Inventory Carrying Costs? (5) Inventory risk costs are made up of obsolescence, damage, shrinkage, and relocation costs May 2011APM International Partners Meeting13

Example of Yearly Inventory Carrying Cost List APM International Partners Meeting14 Carrying Cost Cost of money Taxes Insurance Warehouse Physical handling Clerical & inventory control Obsolescence Pilferage May 2011

Common Inventory Carrying Cost APM International Partners Meeting15 (1) Richardson, Helen: Transportation & Distribution, “Control Your Costs then Cut Them” Dec (2) Total inventory carrying costs can be estimated or be based on available customer data. Carrying Cost (1) Potential Range Cost of money6% - 12% Taxes2% - 6% Insurance1% - 3% Warehouse2% - 5% Physical handling2% - 5% Clerical & inventory control3% - 6% Obsolescence6% - 12% Deterioration & pilferage3% - 6% Total Cost (per year)25% - 55% May 2011

Inventory Carrying Costs In Summary Total inventory carrying costs can be broken down by May 2011APM International Partners Meeting16

How Companies Calculate Their Inventory Carrying Cost APM International Partners Meeting17May 2011

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 APM International Partners Meeting18May 2011

How APM Scanners Can Reduce Inventory Carrying Cost? APM International Partners Meeting19May 2011

APM International Partners Meeting20 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

APM International Partners Meeting21 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 Point Safety 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 APM International Partners Meeting22 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 Density2.9 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 May 2011 APM International Partners Meeting23 Investment APM 3DLevelScanner (MV Model)$6,700 Installation$900 Total investment$7,600 Saving calculation Reduction in safety stock$176,950 Carrying cost factor (per year)25% Total saving (per year)$44,150 Additional potential saving Lower maintenance cost (mainly anti bridging treatment) Scheduling for silos filling & emptying Accumulated storage by material type Theft control Total saving$44,150 ROI Net return on investment (ROI)$36,540 Net return on investment (ROI) (%)480% Payback Period (months)2 months

Case Studies APM International Partners Meeting24May 2011

Shemen Haifa, Israel Silo capacity 10,000 tons Material Soy Beans Price per ton $US 700 Error measurement rate by previous technologies15-20% Excess safety stock 1,500 tons APM error measurement rate 1%-3% APM safety stock 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 APM International Partners Meeting25May 2011

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 APM International Partners Meeting26May 2011

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) APM International Partners Meeting27May 2011

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 = 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 International Partners Meeting28May 2011

APM International Partners Meeting29May 2011