A Cost Benefit Analysis of an 

Automotive Industry Solution to 

Intercontinental Supply Chain 

Operations

Susanne Müller

NISTIR 7654
NISTIR 7654

A Cost Benefit Analysis of an 

Automotive Industry Solution to 

Intercontinental Supply Chain 

Operations

Susanne Müller

Manufacturing Systems Integration Division

Manufacturing Engineering Laboratory

March 2010

U.S. Department of Commerce

Gary Locke, Secretary

National Institute of Standards and Technology

Patrick D. Gallagher, Director
1

Title: A Cost Benefit Analysis of an Automotive Industry Solution to Intercontinental 

Supply Chain Operations 

Author: Susanne Müller 

Keywords: financial/economic analysis, global operations, inventory management, 

case study, lead time, logistics/distribution, automotive 

Abstract: 

This paper describes a cost benefit analysis (CBA) of the Materials Off-Shore Sourcing 

(MOSS) project. The project focused on improving the operation of US inbound 

intercontinental supply chains of automotive parts. The MOSS project sought to reduce 

transit time, transit-time variability and inventory by providing a collaborative 

environment engaging original equipment manufacturers (OEM), suppliers, ocean 

carriers, logistics service providers, freight forwarders, and customs brokers. MOSS 

developed an innovative approach to resolving the significant problems of visibility, data 

quality, and customs compliance. The benefit analysis explains how MOSS contributes to 

reduce transit-times and transit time variability, and what benefits could be derived from 

it. The costs analysis considers one-time investments as well as recurring costs of 

deploying MOSS conforming software as ‘Software as a Service'. The results of the CBA 

indicate an economically feasible investment with a payback period of 3 months and give 

support for managers’ preparation of a possible investment decision. Difficulties for 

MOSS deployment are discussed, with emphasis on collaboration problems within a 

supply chain. 

1. Introduction and Problem Statement 

During the transportation of goods in intercontinental supply chains, managers cope with 

a serious lack of visibility, expensive and error-prone communications, as well as 

uncertainties of transport time and variability. Coyle et al. show that in the US economy, 

transportation costs amounted to 60 % of all logistics cost in 2007 [9] – partly because of 

these problems. This paper describes a cost benefit analysis (CBA) of a solution to 

improve operations of intercontinental automotive supply chains. The Materials OffShore Sourcing (MOSS) project put the solution forward, initiated by the Automotive 

Industry Action Group (AIAG) in 2005. 

1.1. Business-to-business communication 

Prior to project initiation, AMR Research Inc. conducted a survey of AIAG member 

companies to understand the current obstacles and processes of intercontinental 

transportation [4]. The survey revealed, among other things, that visibility is very limited 

during overseas transportation. Information about the shipment status, rarely available in 

a timely manner, remains mostly hidden in diverse proprietary systems. Only 20 % of 

respondents know when the cargo departs the foreign port, for example. Further, MOSS 

studies discovered that the lack of communication and documentation were one of the 

main reasons for delays and disruptions in intercontinental shipments. (AIAG, 2009) 

The analysis of the communication processes in intercontinental supply chains also 

showed that processes execute as isolated point-to-point exchanges between business 

partners, primary by use of phone, fax, email, and paper (see as Illustration 1). 
2

Illustration 1 Point-to-point communication in typical intercontinental supply chains without MOSS 

These types of communication caused the greatest problems for 90 % of respondents who 

move data through a long-distance supply chain [8]. Less than 10 % claimed electronic 

exchanges of data; e.g., Electronic Data Interchange (EDI). Overall, 80 % of all data was 

re-keyed at least once and 50 % of data multiple times [4]. 

Many documents are produced in the ocean transport of goods, traditionally created 

and processed in paper form and then re-keyed into the proprietary system. This adds 

time, cost and errors to the process. 40 % of respondents cited documentation-related 

reasons for delays or disruptions in intercontinental shipments [2]. 

1.2. Business-to-government communication 

Stakeholders are incurring unnecessary and high costs in their effort to comply with 

customs and other government agency requirements. For example, importers are required 

to file the Importer Security Filing (ISF) 24 hours prior to loading the container onto a 

vessel [27]. Since required data must be collected across the supply chain participants and 

their proprietary systems, the cost for implementing the ISF is high. The US National 

Association of Manufacturers (NAM) estimates in excess of $20 billion per year to fulfill 

the ISF requirements. Furthermore, they cite “that the proposed rule will create an 

estimated delay of two to five days before cargo can leave the foreign port of export” [19] 

We believe that these estimates are a bit exaggerated; nonetheless, it is likely that all 

governments will establish new compliance and targeting systems that will demand 

higher quality data. Failure to provide that data will result in additional delays, 

compliance problems, increased inspections, and monetary penalties [2]. 

1.3. Other challenges 

There are other challenges concerning strategic supply chain management and flexibility. 

Quick responses to supply chain design changes (including change of locations, service 

providers, or suppliers) are crucial to keep competitiveness. With a change of a service 

provider, problems may emerge with differing procedures and information technology 

solutions, and the cost for switching can diminish the advantage [10]. 

2. Problem resolution with MOSS recommendation and pilot 

MOSS project participants concluded that many of the problems described above could 

be resolved if stakeholders were to conduct their business processes and communications 

using a shared repository to collect all necessary information. Timely information would 
3

be available to all participants as it is produced. Users would include OEMs, suppliers, 

carriers, logistics service providers, freight forwarders, and customs brokers, as shown in 

Illustration 2. One’s access is based upon his role and business rules [2]. 

Illustration 2 MOSS-Shared repository of information with real-time access by all participants 

Processes coordinated with the MOSS solution include, at least, master purchase order 

specification, communication of order forecast, purchase order placement, transportation 

booking, and US customs clearance [10]. 

A shared repository will improve the stated problems of visibility, data quality, 

compliance and documentation. However, the idea of a shard repository across numerous 

participants cannot be implemented efficiently with conventional software and ordinary 

client-server technology. Up-front investments, maintenance and up-dates would be 

costly and flexibility in the supply chain design could mostly be realized with 

unjustifiable costs. 

The economically feasible MOSS solution is designed to be deployed as Software as a 

Service (SaaS), which avoids point-to-point communication. SaaS provides access to the 

software through the web without installation on users’ systems. Configuration of the 

software can be done in real-time web conferencing with the users, which is an essential 

enabling approach to cost-effective deployment [2, 10] 

There are two important capabilities of the new solution. First, it enables tracing of each 

unit of information through its entire "life cycle”. This reuse capability increases data 

quality dramatically since it avoids error-prone re-keying processes and redundancy. 

Secondly, it provides complete visibility into the flow of information, the execution of 

business processes, and shipment status. Neither of these capabilities is possible with a 

point-to-point communication between two partners. 

Interested readers are referred to a detailed description about the specification of the 

message types to the NIST MOSS Project Worksite [17]; and Denno and Comerford give 

insight into further information about the roles und their task within the MOSS model [3]. 

Similar commercial ideas are on the market – for an example see [11]. 

As part of the MOSS team, a software vendor developed MOSS-confirming SaaS 

solution, called Trade Collaboration System (TCS). The TCS was used in a pilot 
4

demonstration, which managed shipments of service part batteries in a Korean-U.S. 

automotive supply chain. The supply chain executes 1 379 ocean shipments per year with 

an annual purchase volume of $55 million. The remainder of this paper focuses on an 

economic analysis of the MOSS approach and often refers to this pilot [2]. 

3. Benefits Analysis 

The benefit analysis explains how MOSS contributes to reduce transit-times and transit 

time variability, and what additional benefits could be derived from them. First, we 

clarify our understanding of transit-time as the time during which the goods left the 

supplier and are received by the customer. Within the transit-time, goods are shipped 

between the overseas supplier and the US buyer’s premises. The current MOSS solution 

eliminates wasted time until goods are released from US customs. Sipahi et al. [23] take 

also this view, but call it ‘delay’, covering besides the pure transportation time, additional 

time for information collection, decision making, and communication. 

3.1. Direct benefits using MOSS solution 

3.1.1 eDocuments 

With MOSS, all necessary paper documents can be either attached as image paper 

documents to shipment information into the MOSS system or generated automatically as 

eDocuments (typically as pdf-format) by use of electronic information of the MOSS 

repository content. Image paper documents, such as certificate of origin or dangerous 

goods certificate, are provided externally by a government. Any participant, whose role 

in the supply chain allows it, can create system-generated documents on demand, in a 

pre-defined format, as soon as all needed information is available. Two such eDocuments 

were created for the pilot: e-invoice for cross-border movement and e-packing list, 

because missing or deficient invoices are the most cited cause of delays. 

The following appraisal for savings on e-invoice and e-packing list is based on paper 

processing costs of $50 and $30, respectively. These estimates encompass the 

administrative costs of creating the document, and downstream handling such as rekeying, mailing, faxing, courier services, review and correction, and document retention 

[2]. With MOSS solution, the costs could be reduced by $30 per e-invoice and $20 per epacking list, total savings accumulate to $50 per shipment. 

It is hard to estimate the savings for e-documents, because information about the cost of 

paper invoices varies significantly – as low as $8 and as high as $70 [5 and 22, 

respectively; reasons 15]. Moreover, 30 % of respondents from the automotive sector of 

MOSS survey have costs between $20 and $50 and 12 % of more than $50. So, obviously 

the assumption of paper invoice cost is placed at the upper range. However, there is a 

common understanding, that switching to e-invoicing can save 60 % to 80 % of costs [2, 

5, 7, 22]. 

3.1.2 Time and cost savings in process tasks 

Taking processing of eDocuments as a given and coming back again to use the 

advantages of the shared information repository, MOSS is able to reduce both time and 

cost to process shipment documentation of a shipment and, therefore, increase process 
5

efficiency. MOSS participants had no intent to make substantial modifications to the 

business process flow at the current stage; nevertheless MOSS is able to eliminate all the 

processes that 

• Create e-mails to forward information to other parties 

• Provide information to an other party through other media than e-mail, by making 

phone calls and faxing 

• Receive and process this type of information without any value added (open email, reading, and placing its content in context in a workflow) 

The following table shows how the supply chain participants were involved in 

creating information (marked as ) and in processing the task with almost no value 

added (marked as X) in the pre-MOSS process. 

Table 1 Involvement of supply chain partners in low value added activities in the pre-MOSS process 

Activities Supplier 3 PL Freight 

Forwarder 

Ocean 

Carrier 

US customs 

broker 

Buyer 

Description of goods, etc.  X 

Ocean booking X  X 

Documents preparation 

(Paper invoice, paper 

packing list, dangerous 

goods certificate, certificate 

of origin) 

 X X X X 

Shipping instructions  X 

Drayage request  X X X 

Bill of Lading X X X  X 

Advanced Shipping Notice  X X X

Arrival Notice X  X X 

With MOSS, all the non-value added process tasks (marked with ‘X’) could be 

eliminated. The duration of 8 minutes per task and a $15 salary per hour is assumed to 

quantify the 21 avoided tasks (marked with ‘X’). The result is a cost saving of $42.00 per 

shipment. These savings, however, do not show the primary effect to transit-time, 

because the waiting time between the parties involved are probably the key for significant 

reduction. That time is not estimated for this part. 

3.1.3 Comply with US customs 

The MOSS solution is designed to provide compliance with U.S. C-TPAT and WCO 

standards for secure trade. Since it makes all data and documents electronically 

accessible to a customs broker when needed, customs entry can be done electronically, 

upon pre-arrival basis. For that, delays at border entry points can be reduced and 

additional time can be saved with fast or immediate release after arrival at the port [25], 

without going in further detail. 

Using the electronic clearance process with a MOSS also streamlines brokers’ and 

customs’ internal processes resulting in concomitant cost reduction. We anticipate similar 

savings in customs’ broker fees to those experienced with the U.S. Customs and Border 

Protection (CBP) Free and Secure Trade (FAST) initiative on US-Canada and USMexico land crossings [26]. There, broker expenses were reduced by 50 % with complete 

electronic processing like a MOSS-process. Since customs’ broker fees for the MOSSpilot shipments are about $50 per entry, savings could be obtained of $25 per shipment. 
6

The ISF (also known as 10+2), effective since January 2010, requires information for 

all foreign imports due to security reasons. It consists of 10 data elements, collected and 

composed from different supply chain parties. Recall that the NAM claimed 2-5 days 

delays before cargo can leave; MOSS solution provides all of the ISF data within seconds 

in a uniform format across deployments. It is obvious that time delays due to ISF 

requirements do not occur using MOSS conformed solution. Actual cost data from 

trading partners show that ISF compiling cost is reduced with MOSS from $25 to $2 per 

shipment, which result in savings of $23 per shipment [2].

The CBP FAST initiative resulted also in lower freight costs due to significant 

reductions in border wait times. Further monetary benefits will result from fewer delayed 

shipments, fewer customs inspections, fewer monetary penalties, and less storage and 

insurance fees, among other things [25]. Those benefits should be considered as MOSS 

benefits, but are not quantified in this paper. 

3.1.4 Reduce firefighting activities 

We conclude from the effects of streamlined and faster process combined with error-free 

communication and visibility that MOSS will reduce significantly the time and cost for 

humans to resolve communication problems due to data and transcription errors, 

unforeseen delays and consequential tasks - summarized as “firefighting activities. The 

MOSS-survey within the automotive industry revealed (1) 30 % of the respondents have 

added staff to handle problems, disruptions and/or issues related to government 

compliance over past 2 years, and (2) 15 % of shipments are delayed because of data 

deficiencies [2]. To estimate avoided costs, we conservatively assume that each 

problematical shipment involves at least 3 parties, each 10 min with a labor cost of $15 

per hour. That adds to a total of $7.50 per delayed shipment considering variable labor 

cost only, which is probably far behind the reality. To distribute those costs over all 

shipments of the pilot trade lane (1 379 shipments either or not delayed), there is an 

average savings of $2.25 per shipment. 

3.1.5 Qualitative effects of MOSS 

The holistic view of the supply chain provided by MOSS presents a new opportunity to 

(1) capture, track, and report performance by individual trading partners, and (2) perform 

end-to-end analysis of the entire chain. Up-to-date status information about the location 

of the goods enables measurement of compliance performance and cost transparency for 

each of services rendered in their movement. That is put into practice by a milestone 

reporting tool, also based on MOSS, and performed in the pilot. Moreover, this tool can 

readily identify potential or actual problems, the culpable party, and possible contingency 

plans. Such real-time visibility indices enable quick and targeted remedial actions and 

interventions resulting in improved efficiency, higher arrival/delivery predictability, and 

stability in the transport process. It also improves the manager’s ability to develop 

strategies in case of disruptions such as split shipments, alternate routings, and carrier 

changes. Finally, MOSS enables overall performance measurement and risk assessment 

for the entire supply chain. That does not speed up the execution of processes, and so it 

does not directly influence the transit time, but it is a precondition for time-saving 

activities and continuous improvement across the supply chain. 

The design of supply chains, which includes partner selection and business process 

integration, is difficult. MOSS facilitates the implementation of strategic supply design 
7

decisions through its Software as a Service (SaaS) deployment. Such a deployment can 

enable reconfiguration of partners, locations, trade lanes, and transport modes quickly 

and with lower cost. Additionally, strategic and operational decisions can be fulfilled 

easily - for example, to switch to a more efficient partner who needs less transit-time or 

to relocate consolidation centers with lower costs. 

Another challenge within the design of supply chains is to align incentives that induce 

participants to behave in ways that maximize supply chain performance. Among others, 

Narayanan and Raman highlight poor information distribution as one hurdle [20]. 

Partners with the better information improve their own performance and the performance 

of the entire chain as well. MOSS can decrease information differences with its visibility 

capabilities by tracking and monitoring more business variables, thereby making hidden 

actions visible [20]. 

Using MOSS, supply chain managers will have more confidence in the stability of the 

business processes, close more gaps for delays and transit-time variation, and enable 

continuous improvement. This, in turn, will cause a movement away from reactive 

“firefighting” towards a more pro-active response to unforeseen problems. As a result, 

managers will be able to reassess and improve sourcing strategies, order management, 

supplier management, transportation costs, price negotiations, and inventory levels. 

3.1.6 Results of the direct benefits 

Table 2 summarizes cost savings of a MOSS solution of about $142 per shipment

identified above. For the sample trade lane the savings reach almost $200 000. 

Table 2 Direct benefits with MOSS 

MOSS-pilot Savings per shipment Savings-Pilot 

(1 379 shipments)

eDocuments $ 50.00 $ 68 950 

Time savings in process tasks $ 42.00 $ 57 900 

Comply with US customs $ 48.00 $ 66 200 

Reduce firefighting activities $ 2.25 $ 3 100 

Total ≈ $142 ≈ $196 000 

3.2. Benefits due to reduced transit-time and transit-time variability 

Beyond the cost savings, in our context it is almost more important to evaluate the 

savings associated with reductions in transit-time and transit-time variability. As already 

outlined, MOSS has various impacts to this issue; however, in the following we try to 

determine details gleaned from the pilot experience. 

3.2.1 Estimation of reduced transit-time 

There was a 34-day transit-time for the MOSS pilot Korean-US trade lane. This time is 

between departure from the suppliers’ premises and arrival of the goods in the buyers’ 

warehouse. This is within the industry range as stated in the MOSS survey [2]. 

Illustration 3 pictures how much time was spent for the various actions on the way. 

 
8

Illustration 3 Average transit-time in the MOSS pilot and MOSS’ focus

Since MOSS sought to reduce wasted time during the transportation process, the highest 

impacts seem to be at the port of loading and at the port of entry. The goods do not move 

at those places; but, they literally wait until various providers carry out required 

export/import compliance and additional handling. Traditionally it is customary that 

carriers expect to receive the goods two to three days prior to their being loaded on the 

ship, and maybe more following the NAM statement. 24 hours before goods are loaded 

on the vessel, advance cargo information has to be submitted to the US CBP, including a 

vessel’s cargo declaration and the ISF [2, 27]. The experienced waiting times in the pilot 

of 8.5 days at the port of loading and 4.5 days at the port of entry seem far too high. 

Unfortunately, the pilot demonstration ran parallel to the existing process; therefore, we 

can only assume the effect of MOSS on wasted time at the ports. 

For the port of loading we assume that all the required documentation could be done 

within 2 days by using a MOSS conformed system, and take advantage of the benefits 

(e.g. ISF, and eDocuments) described above. However, it is commonplace that additional 

factors cause delays at the port, which cannot be solved with a MOSS implementation. 

Notteboom [21] gives capacity and infrastructure constraints as well as increased port 

congestion as some examples. The Korean port ‘Busan’ of the pilot lane is also affected 

by that [28], thus we take additional 2.5 days for such causes. Finally, we assume that a 

wasted time reduction of 4 days is very reasonable for the MOSS pilot, but probably in 

the upper range for other shipments. 

For the port of entry the statistical mode of the broader set is 2 days [2], so the pilot 

also exceeds the average. Since pre-arrival customs clearance can come to an almost 

immediate release, we need only account for the time necessary to physically moving the 

goods to unload the vessel and to transfer to further end-haul facilities [25 and 26]. 

Thereby, we assume that a time reduction of 1 day at the port of entry is realistic. 

Summarized, the total assumed transit-time reduction is 5 days. 

3.2.2 Liquidity effect of a lower transit-time and transit-time variability 

The most important consequence of transit-time reduction with MOSS is the possibility 

to reduce supply chain in-transit inventories. 2007 US economy indicated that 

organizations face inventory carrying costs of 34 % on average of total logistics cost. [9]. 

Besides inventory other effects are explained shortly. 

First, there is a one-time liquidity effect, since a 5 days inventory value is taken out of 

the chain. Avoiding those 5 days and with them ocean transportation expenditures 

($1 400 per shipment) and customs (3 % of $55 million purchase value), there is a onePort of loading

Ocean transit

Port of entry

Transport to

final destination

Supplier to

port of loading

Σ34 

(days)

0.5 8.5 11.0 4.5 9.5

MOSS MOSS

Port of loading

Ocean transit

Port of entry

Transport to

final destination

Supplier to

port of loading

Σ34 

(days)

0.5 8.5 11.0 4.5 9.5

MOSS MOSS
9

time liquidity effect of $800 000 for the MOSS pilot (1.46 % of purchase volume). This 

assumed decrease of 5 days may not be effective for all imports or trade lanes. Therefore, 

we calculate a one-day decrease, which amounts to $160 000 (0.29 % of purchase 

volume) ceteris paribus. 

A second one-time liquidity effect is the reduction of buffer inventory by reducing the 

safety-stock level or reorder point. This effect depends on the decrease of transit-time 

variation. Since during the pilot, all cargo needed the same time and previous data is not 

available, the effect of MOSS on transit-time variability and inventory reduction could 

not be estimated directly. Survey respondents pointed out that supplier, U.S. customs, and 

customs in export country as top 3 reasons for lead-time variability; and the meridian of 

respondents had a transit-time variability of 10 days [2]. Replying to the survey, MOSS 

has a positive impact at least to the supplier and the US customs, as outlined above. 

Together with the other benefits of information sharing, MOSS is able to reduce 

uncertainties as one of the many reasons for transit-time variability. Heydari et al. [13] 

examine the effect of increased lead time (comparable with transit-time) variability, and 

demonstrated effects like inventory fluctuations, and increased order variances. Since the 

buffer stock in the pilot lasts for 90 days, we assume that an impact of transit-time 

reduction could reduce the buffer levels by at least 7 days. The MOSS survey justifies the 

7 day assumption, as it reveals that respondents keep 16-25 days (meridian) of buffer 

stock to cover ocean shipment delays [2]. One day buffer stock reduction could improve 

liquidity approximately by $150 000 (based on purchase volume of $55 million), thus a 7 

days reduction is commensurate with $1 050 000. 

3.2.3 Savings caused by reduced inventory 

The most important impact of transit-time reductions can be quantified with on-going 

reductions of inventory carrying costs and inventory values, assumed in the one-time 

liquidity effect. Coyle et al. [9] define inventory carrying cost as capital cost, storage 

space cost, inventory risk cost (like obsolescence risks, damage, pilferage) and inventory 

service cost (like insurance and taxes). Capital cost applies to both, in-transit and buffer 

inventory, whereas the other cost, in here summarized, as inventory maintenance costs 

are relevant for buffer stock only. We used 6 % for capital cost and 8 % inventory 

maintenance cost, covering administrative expenditures and handling costs as well. Those 

percentages were experienced in the MOSS team [2], and literature shows 25 % and 24 % 

[18, 9, respectively]. 

Using these assumptions for inventory carrying costs to quantify the savings of the 

MOSS-pilot, with reductions of 5 days in-transit stock ($800 000) and 7 days buffer stock 

($1 050 000), there are on-going savings of $195 000 for the MOSS-pilot

(approximately 0.35 % of purchase volume). Considering the 1 day reduction scenario

for both, in-transit ($160 000) and buffer stock ($150 000), there are on-going savings 

incurred of approximately $30 000 (0.06 % of purchase volume) 

Table 3 summarizes the performed calculation. 
10

Table 3 On-going savings resulted of a reduction in transit-time and transit-time variability 

Type of 

inventory 

reduction 

Value of 

inventory 

Savings 

(6 % capital cost; 

8 % maintenance for buffer)

Percentage of 

import value 

In-Transit 

[5 days] $ 800 000 MOSS-Pilot 

Buffer 

[7 days] $1 050 000 

 $195 000 0.35 % 

In-Transit 

[1 day] $ 160 000 MOSS – 

1 day scenario 

Buffer 

[1 day] $ 150 000 

$ 30 000 0.06 % 

4. Costs Analysis 

4.1. Initial investment 

As mentioned above, MOSS solution was deployed as SaaS. The initial investment, 

calculated in this section, refers to the cost of setting up the business relationship between 

a buyer and a seller. They are also the costs of performing supply chain analysis, 

configuration, and training. Supply chain stakeholders and the software provider(s) 

collaborate to perform these activities. With its "business process-orientation", the 

configuration task typically would not require advanced information technology skills, 

but only operational knowledge of the supply chain. The initial investment for the 

particular software used in the MOSS pilot was $32 000 per deployment [2].

4.2. Recurring costs 

The recurring costs, realized as subscription pricing and SaaS deployment, are 

expenditures for providing trading partner connectivity, user access and support and, 

transaction handling [2], see Table 4. 

Table 4 Recurring costs per month/ year per buyer/ seller relationship in MOSS-Pilot 

Activity Cost per 

task 

(per month)

Quantity 

Required 

Activity 

Total 

(per month)

Activity 

Total 

(per year)

Trading Partner connectivity $500 6 

[trading partners] $3 000 $36 000 

User Access and Support $100 20 

[user] $2 000 $24 000 

Transaction handling $ 25 1 379 

[shipments (pilot)] $2 873 $34 475 

Total recurring costs per year ≈ $95 000 

Since the on-going cost of SaaS is proportional to the level of usage, predictable 

subscription pricing causes variable expenditures, which simplifies budgeting, forecasting 

and cost calculations. The result is a highly flexible solution with low up-front 

investment, easy configuration, and minimal maintenance [1, 10]. Additionally, it can be 
11

implemented incrementally, one trade lane at a time. This implies that investment can be 

distributed over time and future deployments can benefit from lessons learned. More 

detailed discussions, such as who does host the system and which party does pay which 

contribution, are beyond this papers’ scope. 

5. Results of the costs benefit analysis and critical discussion 

5.1. Financial Results 

The result of the CBA shows an economically feasible solution considering quantified 

benefits, initial investment and recurring costs. It is based on the 1 day reduction 

scenario. Note, one-time liquidity effect is not relevant to this analysis. The commonly 

used indicators including net present value (NVP), internal rate of return (IRR), and 

payback period are presented to justify an investment decision. 

Net present value (NPV) is defined as the present value of one or more future net cash 

flows, less any initial investment costs [12]. The cash flow for the pilot is composed of 

$126 000 on-going benefits ($196 000 savings due to improved process efficiency and 

$30 000 for saved inventory carrying cost), and $95 000 for recurring cost, see Table 5. 

Table 5 Cash flow for the MOSS pilot in a 3 year period 

Year 

0 1 2 3 

Initial Investment -$32 000 0 0 0 

On-going benefits 

(compare Table 2and Table 3) +$226 000 +$226 000 +$226 000 

Recurring costs 

(compare Table 4) -$ 95 000 -$ 95 000 -$ 95 000 

Net Cash Flow +$131 000 +$131 000 +$131 000 

The 3 year period reflects the depreciation period for software products. A discount rate 

of 6 % (0.06), identical to the rate for cost of capital, is assumed to convert the 

anticipated net cash flows to their present market values [6]. For a 3-year period, the 

NPV is approximately $320 000 as shown below: 

NPV = Initial Investment + (Net Cash Flow1 x (1+0.06)-1 + Net Cash Flow2 x (1+0.06)-2 

+ Net Cash Flow3 x (1+0.06)-3) ≈ $320 000. 

The NPV is obviously positive and has a significant magnitude. Therefore, this 

investment would earn its 6 % cost of capital and additionally make a present-value 

contribution of $320 000. Considering that this value is based on 1-day reductions in 

buffer and in-transit inventory, this is a remarkable result. 

The Internal Rate of Return (IRR) is defined as the interest rate at which the NPV is set 

to zero. In effect, it is the rate at which the sum of discounted cash flows is equal to the 

initial investment. Managers typically use the IRR for ranking investment alternatives. 

NPV = 0 = Initial Investment - (Net Cash Flow1 x (1+IRR)-1 + Net Cash Flow2 x 
12

(1+IRR)-2 + Net Cash Flow3 x (1+IRR)-3); IRR=4.06 (≈ 400 % interest) 

Payback Period is defined as the period required recovering the initial investment. For 

some organizations this is a key metric. 

Payback period = initial investment / net cash flows per year 

= $32 000 / $(226 000-95 000) = 0.24 yrs ≈ 3 months. 

The payback period of 3 months and an IRR of 400 % demonstrate that the investment 

of a MOSS deployment is economically reasonable. 

5.2. Critical discussion 

Since the benefits of MOSS seem to be overwhelming, which the financial results above 

seem to support, there is the question, why doesn’t every company immediately start to 

deploy a MOSS solution. The precondition for a Moss deployment is that supply chain 

partners collaborate and are willing to apply the MOSS solution. Therefore, OEMs 

should not force suppliers and logistics service providers to implement MOSS without 

taking into account its relationship to them and their profitability concerns [16]. MOSS as 

an information technology just simply cannot replace personal relations, mutual 

understanding as well as a professional supplier and customer relationship management 

[14]. The latter aspects are relevant keys to build trust between the supply chain partners, 

which is a precondition to accept that the best performance of the supply chain even 

though it might not be optimum for a single partner. [20] 

On the one side, MOSS provides information to (1) master the transportation process 

collaboratively and efficiently and (2) make fast and effective decisions in case of 

unforeseen interruptions. Both are probably in everybody’s interest. But on the other side, 

since MOSS gives insight into the progress of operation, it can provide data needed to 

analyze critical points and identify responsibilities for certain actions. If the relationship 

between the partners is not grounded on trust, not every partner will be willing to share 

this type of information about its business. That means that a crucial challenge of a 

MOSS deployment is to create win-win situations in order to give incentives for 

collaboration for every participant. Benefits, costs and risks must be distributed over the 

partners and they must be negotiated trustfully [24]. From that viewpoint MOSS is also 

able to give the information necessary to warrant trust, enable continuous improvement, 

and improve profitability [20]. 

6. Acknowledgements 

The author would like to acknowledge the invaluable support from the MOSS team 

members in the writing of this paper. Especially, the author would like to thank Peter 

Denno from the National Institute of Standards and Technology for his precious advice 

and proofread work on this paper. 

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