September 17 2015
One of the most important decision factors when investing in new electronic article surveillance (EAS) system – besides the return on investment – is the total cost of ownership of the particular solution.
Total Cost of Ownership refers to the total cost you incur over the lifetime of the system: It includes the purchase price plus the costs of operation, such as installation, service, and maintenance.
Printers are a great example to explain TCO. The price of certain printers is very low, but over the lifetime of the printer you need x new ink cartridges – each almost costing as much as the printer itself. To calculate the TCO of a particular printer, you would do the following calculation: TCO = (the price of the ink X number of purchase) + purchase price.
When choosing among different loss prevention solutions, you should not make your decision solely on the item’s purchase price, but also consider any additional costs this purchase will incur overtime.
Ultimately every financial decision boils down to ensuring the lowest total cost of ownership (TCO) and ensuring the highest possible return on investment (ROI). And there are several approaches that can be considered to achieve that – and we will look at some of them in more detail today.
1. Dimensioning For High ROI For Single Stores
Not every store carries the same merchandise, exists in a similar location and has the same risk of shoplifting. Therefore, they do not need the same level of protection.
To maximize the return on investment for each store, we recommend segmenting your stores into three categories and equipping them at the level that is needed:
- High-risk stores carry a high percentage of hot items and have a high theft risk due to location, etc. and need higher protection than average or low-risk stores.
- Average risk stores are in a lower risk location but carry a relatively high percentage of hot items. While the shrinkage levels are nowhere near the high-risk store levels, they still need significant protection.
- Low-risk stores: By definition, the shrinkage in these stores is low — but it still exists. Adjust the equipment needed to lower shoplifting risk. Here the return on investment is driven by reducing your shrinkage and enabling source-tagging, which the other stores will benefit from.
After you categorized your stores, you can assign these levels a particular loss prevention solution to match the level of protection you need. For low-risk stores, this could mean installing one antenna as a deterrent in combination with smart activators. This way you do not over-invest in some stores, but you also ensure that you achieve maximum return on investment for single stores, not just across all stores.
2. Lower Your Upfront Investment
While the upfront investment costs are only part of the TCO calculation, they consist of the upfront investment for the loss prevention solution and, therefore, represent a large chunk of the investment. This can be lowered through:
- A tiered approach – as described above
- Reduced freight costs by consolidating your source tagging and distribution efforts
- Power over Ethernet eliminating the need for electrical work – for large chains of stores that can easily save you hundreds of thousands of dollars
3. Maintenance, Service & Warranty
The biggest ongoing costs of a loss prevention system are the maintenance, service and warranty. However, there are some considerable cost savings if you choose a solution that offers online connectivity, remote device management, and system-internal health checks.
- Eliminate the need for preventive maintenance (e.g., annual health checks)
- Reduction of service calls by 70% through online maintenance as a service partner can solve most problems remotely saving you the hassle of schedule expensive in-house service appointments.
- Extended Warranty – look for an option to extend your warranty as long as possible to cover any eventual problems.
4. Labels & Source Tagging
The other variable costs are, of course, label and source tagging costs. Depending on which solution you chose, you might need to change how you tag. Consider partnering with your loss prevention provider to take advantage of cost-sharing with source tagging to lower your total cost of ownership.
- Leverage the “Halo Effect” as customers usually not know which items are protected and which not. This way, you can limit the numbers of protected SKU’s.
- Source-tagging of key articles not only ensures that these articles are protected, but it is also considerably cheaper than manual tagging.
- Only use the best quality labels in regards to deactivation or detection so you can ensure maximum protection.
5. Future Upgrade Path To RFID
Even if it is not sure that your organization will move eventually to RFID in the future, you should consider RFID-ready systems.
These RF-based solutions give you an easy and especially cost-effective way to upgrade hundreds of systems to RFID within a short period by simply clipping in the RFID component. When you are ready, you will have a hybrid RF/RFID antenna or RFID-only EAS antenna system.
Also, remember, the decision to upgrade to RFID should not be postponed due to financial reasons – RFID isn’t more expensive, it is all about choosing the right company and the right antennas for you.
Bonus Tip: Life Expectancy Of Systems
Since TCO is calculated over the entire expected life of the solution you buy, you must know how you can expect the systems to function before they need to be replaced. Choose a solution that has a long proven life expectancy – for example, decades of experience have shown that Nedap systems run on average ten years or longer.
Also, if you invest now in an RFID-ready system, you future-proof your EAS systems for years to come – no matter what your path will be.
Conclusion
Calculating an accurate TCO is crucial when deciding on a loss prevention system. Ask your short-listed loss prevention providers to calculate a detailed TCO for their solution (and work with you to lower it) to give you the needed information to make an informed decision.
Sales Director Nedap Retail Americas
Wouter Ubbels
Wouter is passionate in helping clients with their needs. As the Sales Director, Wouter will help his clients find the best loss prevention solution for their needs.
