One of the biggest and most accessible earning you can expect from better visibility on your shipment is in-transit stock reduction. Translating capital reduction into recurrent savings is possible, through a standard rate called WACC (Weighted Average Cost of Capital). Usually this rate is between 8% and 12% but some fast growing industries can potentially use a WACC of 15% to 20%. For our exercice, let’s consider a “conservative” WACC of 10%.
The average value of a regular container is usually between 50k€ and 100k€. It of course varies a lot depending on the industry (if you’re in the electronic of the health industry it can be counted in M€). Our objective being to address the majority of the transportation market, let’s consider it at 50K€ per container.
The last parameter you’ll need is the cost of your tracking services. Safecube solutions will probably cost you 20 to 35€ per shipment (depending on volumes and destinations). Let’s say 25€ per shipment.
I’ll make it easy for your and do the math*. In those conditions, if you want to have a positive ROI on your tracking services you need to save at least 1.8 days of inventory. To put this number in perspective, if you had to pay 100€ per shipment (usual cost of GSM tracking services) you would have to save at least 8 days of inventory.
Reducing 2 days of inventory with full visibility on your End to End intercontinental shipment is very accessible (I’ll walk you through some concrete examples in my next post). Reducing 4 to 6 days is possible but requires some focus, and agility. Going above will be very difficult.
In conclusion, if your good are worth millions of euros, you’ll just need a reliable solution that works and you will not really care about the price. Otherwise, Safecube is the only solution today that can give you access to a quick and accessible ROI for the vast majority of intercontinental shipments.
* If you want the details of the calculation here it is!
X is the inventory reduction (in days)
Y is the average number of container you are shipping every year
The value of your inventory reduction is X/365 * Y * 50k€
The yearly cost of your tracking services is (Y * 25€)
You want to make sure that you’re saving more than you’re spending, which means
inventory reduction value * WACC > Yearly cost of tracking services
If you replace that by the formula above:
X/365 * Y * 50k€ * 10% > Y * 25€
X > (25€*365) / (50k€ * 10%)
X > 1.8 days