The Business-Case for PLM: How to Measure Value
/Drive added revenues or reduce the cost of goods and/or overhead expenses
Do you have P&L responsibilities or hope to have someday? Then if PLM is not part of your strategy, you may want to reconsider. PLM is just as vital as your ERP solution and some will argue that it is the most important aspect for any engineering/manufacturing business.
Product Lifecycle Management
As the name suggests, PLM is basically the processes and activities designed to support a product’s lifecycle. This cycle might originate in sales and progress all the way thru obsolescence. Certainly ERP folds in as a transactional mechanism to support the treatment of released items … for example, ordering, inventory, scheduling, etc. But the dynamics of a product lifecycle is inherently far from transactional. The activities require a real or perceived central repository of product data coupled with mechanisms to treat work flows, processes and collaboration. And since each company blends in a combination of their own business requirements, cultural, and industry nuances, it is vital that this platform is flexible and can grow with the needs of the organization.
Over the years, companies often extend PLM as their needs evolve. It might start with a better way to manage CAD drawings and assemblies … hence a product data management (PDM) solution. As the business grows, functional extensions are added such as other data bases to support engineering change and related non-CAD files, utilities to support data extractions and transfers, along with spread sheets and emails to support pseudo workflow processes.
And as much as everyone might adjust, make due, accept, and resign themselves to “what is”, there is no doubt that numerous improvements are possible.
But treating those possibilities as tactical efficiencies or “eliminating key strokes”, etc., invariably add more to an evolving cobbled collection of precariously assembled components. This process is not sustainable.
So how then to escape this evolutionary orbit?
Consider starting with the P&L (profit and loss) statement as a frame of reference to identify value.
PLM Can Reduce Costs
At the gross margin segment of a P&L, there is clear opportunity to drive shorter sales cycles as well as reduce the cost of goods. Shorter sales cycles potentially represent improved sales and simply doing more for less. And, it can be argued that better sales tools, estimation techniques, specification development methods, etc., can all contribute to shorter sales cycles depending on the nature of the industry.
Tactics such as “reusing parts” and “reducing cost of quality” translate into reducing the cost of goods sold. Redesigning parts that already exist and that now require a new vendor, etc., clearly adds to expenses. And, if the engineering change cycle isn’t as automated or complete as possible, the potential for scrap and/or returning stock drives additional expenses and extends time to market.
On the lower half of the P&L are multiple overhead expenses that contribute to operating the business. The simple one is the “total cost of ownership” or TCO. This is the expense of maintenance, subscription and upgrades for example. If you are using software from any of the big global PLM vendors, the monthly or yearly fees can be disproportionate to the value they ultimately drive. Even if you have a homegrown system, the required man-power to maintain and support the DYI activities can be more expensive than people think.
Since PLM is commonly initiated or operated within the engineering, planning, production and possibly segments of manufacturing, the immediate business value is most likely going to come in the form of a reduction in the cost of goods and cost of quality, as well as potentially lowering the cost of ownership.
What if implementing PLM along with best-practice processes can cut the cost of goods by 5% by the second year? That is a dramatic value proposition that would get anyone’s attention.
And There’s More … PLM Can Drive Revenue
But, there is money being left on the table; PLM is under-utilized in driving a shorter sales cycle time. Depending on the nature of the business, existing engineering and released data is ideally suited to readily supporting sales automation mechanisms, configurable quoting options, and prototyping/evaluating cycles.
So the encouragement to evaluate PLM solutions is to step away from tackling the tactical issues and features. Pretend you have to sit in on your next company’s board meeting (or maybe you already do) and present the value proposition for pursuing a PLM solution. It’s amazing how remaining details fall out of this approach.
About Practical PLM
Our mission is to help engineering/manufacturing companies achieve the promise of product lifecycle management (PLM). We do this by exploring practical action steps that drive business value and that yield measurable revenue contributions and/or reduced expenses.
PLM is a combination of business strategies, best practices and technology. Hence, this monthly newsletter looks at business drivers, processes, along with considerations for various technologies.
The Aras PLM platform is a cornerstone of this trifecta. Aras is the fast growing PLM vendor today. The vdR Group is a full service partner of Aras.
Copyright © 2015 The vdR Group, Inc., All rights reserved.
All trademarks belong to their respective holders. Content, responses and opinions expressed are not necessarily shared by Aras.
Written by Martin van der Roest - Martin has nearly 3 decades of experience in the systems and software development business. A majority of this time has been spent in the product lifecycle management (PLM) space with a specific focus on solutions for engineering and manufacturing organizations.