An ROI Model for Remote Machine Monitoring

Vending operators face a declining economy and are looking for new ways to save money, grow sales, and increase profit. Many operators have profited and grown because of a direct investment in technology, but the benefits have historically been difficult to understand and measure.

Several operators have proven results with real numbers. My past articles have explored technology topics in significant detail, but I have never put together all the financial results in a return on investment (ROI) model.

This article will present the true measurable ROI when implementing and deploying vending management software and remote monitoring solutions.

For the sake of simplicity, we will not include consideration of cashless, but the good news is that cashless and remote monitoring solutions are being increasingly offered as one solution.

While there is no average vending operator, the ROI model in this article is based on financial information in the National Automatic Merchandising Association’s 2008 operating ratio report.

MODEL FOR ANALYSIS: A LARGE OPERATION

For purposes of demonstrating potential benefits, I will use a larger than average operation, as it more clearly demonstrates the financial benefits of remote machine monitoring. The company in this model has annual revenues of $7 million; individual annual route sales total $350,000, cost of goods are 49 percent, and baseline profit is $133,000 (1.9 percent of annual revenue.)

In order to calculate a full ROI, we need to understand: 1) the profit benefits that technology can provide, and 2) the full costs of implementing technology solutions.

Vending management software and remote monitoring can help increase profit in many ways, and some remote monitoring providers are offering Web-based features that have traditionally been offered by management software providers.

To keep the analysis simple, this article attributes certain benefits to each of these systems (vending management software and remote monitoring), and describes how the systems working together can provide the best overall return.

The chart above outlines the various benefits and how they are provided. For the ROI model presented, cash accountability, pre-kitting, and merchandising are modeled as benefits of a software system, while dynamic scheduling, reduction in sellouts and machine uptime are modeled as benefits of a remote monitoring system.

DEX ALONE CAN ELIMINATE CASH SHORTAGES QUICKLY

A software system should be able to provide several benefits, though some are harder to achieve than others. If you are utilizing DEX in most machines, you should be able to almost eliminate cash accountability shortages.

Assuming that the average company has a cash accountability problem of 2 percent, this benefit shows up in the profit and loss statement as a direct benefit to the top line with no increase in costs.

PRE-KITTING CAN ELIMINATE ROUTES

Pre-kitting — where the warehouse “pre-packs” bins for each snack machine and pre-stages orders for drink machines — makes drivers much more efficient by:

• Eliminating the “counting trip”, and
• Eliminating all the shuffling around in the back of
  the truck.

Pre-kitting also minimizes inventory on the truck, and some operators have even been able to switch to much smaller delivery trucks.

For the ROI model, we assume a conservative annual truck cost (driver, gas, insurance, maintenance, and truck depreciation) of $70,000 and assume that moving to pre-kitting allows the business to consolidate 25 percent of its routes. In other words, a 20-route company will only need 15 routes after switching to pre-kitting.

Pre-kitting also requires additional warehouse help, but oftentimes, companies use part-time or low cost
help for this.

For the model, we assume conservatively that a single additional warehouse can pre-kit four routes at an annual cost of $30,000 per year.

ITEM-LEVEL TRACKING YIELDS HIGHER SALES