Looking for help in making intelligent capital expenditure decisions?

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1 Looking for help in making intelligent capital expenditure decisions? Total Cost of Ownership Decisions: Making Intelligent Choices An NCR White Paper 2009 Experience a new world of interaction 2009 NCR Corporation

2 Recession impacts wide range of industries 1 According to a 2009 study by Deloitte and Stores Media, 1 the recent recession starting with the credit crunch and declining housing market has impacted a wide range of industries. The subsequent slowdown in consumer spending has resulted in the closings of some retail stores and restaurants with store closings up 25 percent year over year. 2 As some stores close their doors and sell their assets, other retailers in better-performing market segments may consider purchasing these used assets (such as point-of-sale equipment) at heavily discounted prices. Although used assets may sound attractive, the hidden costs may outweigh the benefits. This white paper provides a brief background of the recession s impact on retailing and information to help make intelligent Total Cost of Ownership decisions regarding used POS equipment. Store closings lead to increased availability of used equipment Until consumer spending shows signs of sustained growth, retailers will look to cut costs, consolidate support functions and reduce payroll. Retailers will also closely scrutinize their real estate holdings and operating environment, exiting some markets and closing unprofitable locations. It is important for retailers to analyze the total cost of purchasing and implementing used equipment. Most often, after careful analysis, the retailer will find new equipment to be the most cost-effective option. Greg Egan, Vice President, Retail Product Line, NCR Corporation Some retailers who remain committed to doing business and reducing costs may consider purchasing used equipment. But without an analysis of the total cost of purchasing and implementing used equipment, how can retailers know whether this is a viable, cost saving option? As retailers discontinue operations or close locations, they typically sell assets, including used point-of-sale equipment. Used equipment can be available for resale at heavily discounted prices, sometimes at or below distributor cost. 1 Global Powers of Retailing, Deloitte and Stores Media, January RIS News, April 2008

3 Making intelligent capital expenditure decisions 2 With emphasis on cost reduction during a recession, it is easy to lose sight of the actual cost of running a retail business. Retailers need to accurately analyze the cost of capital equipment ownership over its lifetime. What might appear to be short-term cost savings could end up being significantly more expensive in the long-run. Retailers considering purchasing used point-of-sale (POS) systems should consider the following hidden costs of used POS equipment: Firmware/BIOS upgrade requirements Used equipment will require firmware and BIOS upgrades to make versions consistent with existing POS systems. This cost may be included in the used hardware price, or it could be a hidden incremental cost passed onto the buyer. There is associated labor to upgrade equipment after delivery from the used hardware vendor before deployment, and considerable added cost if travel to each location is required after hardware deployment occurs. Maintenance certification and testing requirements Testing may be required by the maintenance service provider to certify whether the used equipment contains the same parts and is in the same condition as new POS equipment, creating additional costs. If the used equipment does not have consistent parts, the service provider may impose limits on existing hardware maintenance agreements, including lowering the discount for stores with used equipment, refusing to service stores that do not have new equipment, or requiring the retailer to modify the used equipment so that is consistent with new hardware. Any of these requirements will create considerable additional costs for purchasers of used equipment. Parts consistency and reliability Unfortunately, there is no way to confirm whether used equipment has been properly maintained. Used equipment may contain service parts that were not tested or certified, resulting in undesired or random application behavior. Replacement parts used may have a shorter shelf life than the industrial-grade components used in new equipment. Additionally, when equipment is from an unknown origin, there is no way to tell whether a cleaned piece of equipment spent its prior life next to a hot, greasy fryer, or in an upscale boutique retail store. Time and materials charges for out-of-scope work could be incurred for inconsistent or damaged hardware.

4 3 Operating systems Operating systems may need to be re-licensed if the original operating system does not match the required operating system for the retailer. Microsoft requires that the operating system running on POS hardware match the label affixed to the equipment. This label, called the Certificate of Authenticity (COA), was installed before the POS hardware was shipped to the original customer, and matches the original customer s operating system requirements. Unlike a desktop operating system used at home or in an office, Microsoft Embedded operating systems have additional restrictions (such as not having upgrade or downgrade rights), but carry a more attractive acquisition price. For example, a used POS terminal with Microsoft Windows XP Professional for Embedded Systems would need to be re-licensed if the point-of-sale application and image requires Windows Embedded for Point of Service (WEPOS). The operating system image must match the COA on the bottom or back of the POS terminal. Multiple POS Hardware Model Types A POS system product class typically will have many different models. Even within the same class and model, the hardware components may be slightly modified. Because used equipment often comes from a variety of sources, each POS terminal may have been upgraded at a different stage in its lifecycle, or perhaps not at all. Memory configurations, for example, may be inconsistent, which could make future upgrades more costly and time consuming. NCR is committed to continuous product improvement. As product lines mature, enhancements are often made to improve quality, stability, and even functionality. Used equipment customers may not be receiving the latest and most stable technology available. Compliance with the Payment Card Industry (PCI) Data Security Standard requires that the latest software images to be used contain the most current operating system and security updates. Used hardware may not contain the latest operating system image, and a new image may be required. Obtaining a new operating system image disk from the OEM may add additional cost and slow down the deployment cycle.

5 Benefits of new, advanced POS technologies 4 New equipment provides the benefits of the latest advanced technologies, design improvements, and energy efficiency cost savings. Additionally, new equipment typically carries a warranty and can be supported as is by maintenance service providers. Retailers considering purchasing used POS systems should first understand the compelling benefits of new POS equipment: POS headroom for the future New POS hardware, with optimized technologies, provides significantly more headroom for the future than previous generation hardware. New, optimized technologies can include extreme performance, increased scalability and enhanced serviceability to make the checkout process easier for both customers and employees. New POS hardware incorporates faster and more robust next-generation technologies to accommodate retailers future needs. Maximized investment dollars with longer product life In addition to providing more robust technologies to meet future requirements, new equipment maximizes investment dollars. New POS assets can be used for a longer period of time than used equipment, providing an extended product life. Multi-tiered manageability increases system availability New POS equipment offers advanced local and remote manageability features to accelerate problem resolution, reduce downtime and help lower costs. Enhanced local diagnostics through an LED dashboard can provide unique visibility to system health. Additionally, Intel Active Management Technology (AMT) enables out-of-band remote management capabilities, even if the operating system is down or the terminal is turned off. This is accomplished by a unique dedicated communications channel that runs below the operating system. Innovative design improves serviceability New POS equipment includes innovative design that provides tool-free access to internal modules, dramatically improving serviceability. These serviceability improvements accelerate repair time and help drive down Total Cost of Ownership. 7 Year Energy Cost $450,000 Lower operational costs through energy savings New POS hardware lowers operational costs through energy savings. For example, by incorporating new energy-efficiency, low-power architecture, the NCR RealPOS 70XRT consumes about 50 percent less power than the previous generation model and many competitive offerings. For a business with 1,200 POS terminals, this energy savings decreases operational costs by $214,673 over seven years (see chart below). In addition, energy efficient equipment reduces the carbon footprint associated with product use. 400, , , , , , ,000 50,000 0 NCR RealPOS 70XRT: Exceptional Energy Efficiency Estimated 7-Year Energy Cost Savings for 1200 POS Terminals $214,673 Previous Generation Terminal Energy Cost Savings $214,673 RealPOS 70XRT RealPOS 70XRT can provide estimated cost savings of $25.56 per unit per year versus previous generation POS* Equates to $214,673 in energy cost savings for 1200 POS terminals over 7 years! * Energy cost savings based on the following assumptions: Energy cost: cents per KWh (Source: U.S. Dept of Energy) Comparison between RP70 and RP70XRT Celeron models Usage: 16 hours Operational and 8 hours Standby * Actual results may vary based on configuration and usage Fewer upgrades and certifications required New POS equipment typically does not require upgrading or certification because it is tested and certified with the optimal configuration upon purchase. Generally, there are not additional costs incurred for these processes. Variety of warranty and support options available New POS equipment usually carries a warranty and can be supported as is by maintenance service providers, with a variety of service program options to retailers. The warranty reduces maintenance costs during the warranty period.

6 Example business impact model for used POS equipment 5 The example below helps illustrate the financial differences between new and used POS equipment. This example includes the following assumptions: Hardware includes POS and basic peripherals Used equipment that is four years old can be purchased at a 50 percent discount from new equipment Staging includes equipment configuration and imaging Used equipment is shipped to a third party for refurbishing, to clean and verify operational status prior to being shipped to the retailer location Used hardware requires a memory upgrade and an operating system upgrade to meet retailer s standard requirements New hardware includes standard one-year depot warranty In summary, this example shows that used equipment costs more per year than new equipment, and has a shorter lifespan. Hardware POS and Peripherals New Equipment $2,800 (New) $1,400 (4 years old) Staging $120 $120 Memory Upgrade Included $50 Operating System Upgrade Included $200 Warranty Included $150 Cost per Year Source: NCR Internal Estimates $2,920 (7-year life) $417 New with 7-year anticipated life Note: Numbers may vary depending on hardware configuration and condition of equipment. $1,920 (3-year life) $640 Used with 3-year anticipated life

7 Summary 6 The chart below illustrates this example, comparing the cost and anticipated lifespan for used and new equipment. Since the used equipment is expected to last about three years, it must be repurchased at the end of year three. The total cost for two purchases of used equipment is higher than a single purchase of new equipment with an anticipated seven-year life. The bottom line: new equipment would have a longer life and lower annual cost. Total Equipment Cost Cost per Year by Estimated Years of Life POS systems are a mission-critical business function. At the most basic level, retailers rely on POS systems to transact customer purchases. At a higher, more strategic level, retailers rely on POS systems to enhance the customer experience, empower employees and reduce costs. In today s uncertain economic environment, intelligent business decisions regarding key retailer assets are vital to reduce Total Cost of Ownership, improve revenues and margins, and satisfy customers. Cost per Year $ Purchase #1 High Cost, Short Life $640 Cost per Year with 3 years of life Low Cost, Long Life New Equipment $417 Cost per Year with 7 years of life Purchase #2 TOTAL $3840 New Equipment Purchase #1 New Equipment TOTAL $ Estimated Years of Life Source: NCR Internal Estimates Note: Numbers may vary depending on hardware configuration and condition of equipment.

8 Why NCR? With over 125 years of retail experience, NCR is a leading global provider of assisted- and self-service solutions. We help our clients around the world improve their customer interactions, implement change quickly and proactively, and transform their businesses to become leaders and change agents. We can help you, too. NCR Corporation 1700 S. Patterson Blvd Dayton, Ohio USA For more information visit: Experience a new world of interaction NCR continually improves products as new technologies and components become available. NCR, therefore, reserves the right to change specifications without prior notice. All features, functions and operations described herein may not be marketed by NCR in all parts of the world. Consult your NCR representative or NCR office for the latest information. NCR RealPOS is either a registered trademark or trademark of NCR Corporation in the United States and/or other countries. All brand and product names appearing in this document are trademarks, registered trademarks or service marks of their respective holders NCR Corporation Patents Pending EB