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Type 3 Items. Each category lists the same savings. These categories are a result of the MTBF
(Mean Time Between Failures) assumption on the Returns worksheet.
Now, consider the net present value calculations for the AITs. Starting with the Cost column,
each system has an initial cost. This is the total cost required to start using the AIT system. For
the most party every cost after the initial cost is maintenance and annual costs. Note that the
RFID system and 2D+RFID system have an initial cost at year 10. Note that the assumption
here is that an updated RFID system is needed. Next is the Savings column. Initially there are
no savings for implementing an AIT. From year 1 to the end of year 4, there are negative
savings resulting from the sum of annual orders and first time returns after using an AIT system.
The end of year 5 is the first positive savings. At the end of year 5, Type 1 Items are returned
back to the dept and savings are accrued. This value can be calculated by adding the annual
orders, first time returns after implementing the AIT system, the sum of all savings under Type 1
Items. The next savings in year 6 can be calculated by using the following equation:
Savings
6
=Orders+(1-Type 1 Item MTBF %)(First Time Returns)
Note that after Type 1 Items have been returned, only 70% of items have not been returned. In
year 7 the similar calculations are made as in year 5. Again note that after Type 2 Items have
been returned, only 20% of items have not been returned. The equation here is the following:
Savings
8
=Orders+(1-Type 1 Item MTBF %-Type 2 Item MTBF %)(First Time Returns)
The savings remain the same until year 10.After year 10 all items have been returned. Hence,
savings after year 10 are equal to annual orders. The same methodology is used for all AITs
except for the new system costs for RFID and 2D+RFID systems. The Net column is the sum of
the cost and savings columns. The net present value is calculated using a presumed MARR of
12%.
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