Product Lifecycle Management: A New Path to Shareholder Value?
by Jim Heppelmann, CEO, PTC
Modern manufacturing has succeeded in delivering levels of quality, safety and sheer variety that would have been inconceivable to the enterprise owner of even 20 years ago. The "flattening" of the manufacturing world, to borrow a phrase from Thomas Friedman, has availed today's manufacturer of versatile new labor pools, expanded sources of raw materials, flexible and competitive capital reservoirs and, of course, emerging markets of unprecedented scale.
The benefits of this new manufacturing environment are self-evident. But the complexity of the resulting supply and distribution chains—the extended manufacturing enterprise—is immense. And there lies the potential price the manufacturer pays to leverage the great opportunity of a truly global marketplace. With complexity comes risk; time to market, ability to innovate, competitive advantage and return on capital—shareholder value itself—are subject to more variables than ever.
Nowhere in manufacturing are the stakes higher than in automotive production. Bringing a car from concept through design to production is a study in complexity. Automakers must coordinate intricate global supply chains, massive production facilities, and huge payrolls, and bet it all against a fickle and unpredictable car-buying public. It's a gamble that every auto manufacturer works to win by deploying the best technology strategies against the industry's most daunting challenges, including fierce competition, time to market and cost control.
Not surprisingly, chief among these challenges is cost control. In industry terminology, the list of components for any product is known as the "BoM" or Bill of Materials. The majority of a product's cost resides in the BoM, and in its management resides the greatest potential to drive the type of cost savings that can stack the deck in the house's favor, and improve shareholder value. BoM management can impact 80 to 90 percent of a product's cost during its design and sourcing stage, well before the car is manufactured, assembled or shipped.
If BoM management is a critical discipline in the search for competitive advantage, technology is a likely and logical tool for its mastery. But poorly conceived technology strategies can complicate risks, and ill-informed IT investments worsen already long odds of success. In keeping with trends begun in the 1990s, however, manufacturers reflexively turn to enterprise resource planning—ERP. Almost by definition, ERP focuses almost entirely on the manufacturing, inventory and service of the physical product. But these stages of the product's lifecycle become real only after all the design and sourcing decisions are made, and often too late to significantly affect a product's profit margin.
The high stakes that define automotive manufacturing have driven these automotive companies to become leaders in enterprise innovation. Recently, many have elected to implement a powerful, enterprise-wide software solution, complementary to ERP, to manage the product's digital life - known as product lifecycle management or PLM. PLM solutions manage all the product components located in the BoM, while facilitating the internal and external—truly supply-chain-wide—collaboration that automotive manufacturing demands. Cost and performance are affected more in the critical design phase than in any other, and it is here that PLM is central to a winning product design.
Why is the adoption of PLM, so evidently an essential tool in managing the early, digital phases of a product's lifecycle, late in emerging vis-à-vis ERP? In the early 1990s, manufacturers began to see the value of single enterprise-wide resource planning solutions that integrated manufacturing, logistics, distribution, inventory, shipping and accounting. Manufacturing ERP software promised to improve the calibration and coordination of these business functions, enhancing visibility and delivering better control.
According to The McKinsey Quarterly, manufacturers were quick to adopt this approach and the systems that made it real, investing more than $300 billion globally during this early period of development. Companies in every manufacturing arena deployed ERP successfully, squeezing out inefficiencies, standardizing processes and making it easier to define and adopt best practices. ERP effectively helps manage recurring transactions, and is ideal when planning and accounting for the ongoing, physical manufacturing of a product. But it can only pick up and effectively manage the physical life of a product when its digital life has been thoroughly and collaboratively managed up to that point.
PLM - The Promise
PLM emerged as a response to the inherent promise of effective management of a product's digital life. It addressed the growing needs of product design organizations as they struggled to manage, synchronize and share increasingly complex, interdependent computer-aided design files—the basic intellectual property that defines a product—among global teams and supply chains. Additionally, PLM met the need for better management of the engineering and product design processes that define the early stages of any product's lifecycle—cars or otherwise. All these variables are captured in, and defined by, that Holy Grail of cost control—the BoM.
Better Decisions, Made Faster
In the 2008 AXIS Report, the Aberdeen Group describes a PLM solution as one that supports product development by "managing product information, including design data such as CAD models, documents such as specifications, and BoMs as a single product definition; tracking, managing, and automating governance and creation processes, such as portfolio management, program management, release management and change management." In other words, PLM enables the users and creators of product information to make better product development decisions.
PLM is a flexible, dynamic environment that can manage product knowledge and data as it flows from and to a wide variety of sources. PLM streamlines the process by which new products are developed, improved and refined, creating a framework for continuous process improvement and cost savings. And PLM can be deployed in phases—addressing the most essential processes first, according to a specific manufacturing scenario, and adding additional modules and functionality over time. Manufacturers can proceed at their own pace, better managing costs and resources, and measuring their success as they proceed.
PLM and the Bill of Materials
Where ERP consolidates the systems and processes around a product's physical life, such as materials and inventory, PLM focuses on the systems and processes related to a product's intellectual assets.
All essential information defining the product is captured in the engineering BoM, including information from mechanical and electrical designs as well as the increasing amount of embedded software code. But the BoM's importance does not diminish at this point. It is also fundamental in the creation and maintenance of manufacturing BOMs (MBOMs) and service BoMs, which follow that product through its extended lifecycle.
Ideally, the BoM also provides analytic data for better management decisions, on tradeoffs between suggested design modifications and other critical factors like cost and compliance. Once designs are tested and validated in digital form, and finally approved, the information is handed off to the ERP system, by which a product's physical manufacture is managed.
Having visibility into and control of products while they are in digital form allows companies to make decisions that have maximum impact on the cost to design, source and retire products earlier in the product development cycle. PLM can give companies the power and flexibility to innovate, and then deliver more value through management of information in the BoM. In so doing, PLM can have an even larger impact on business performance than ERP: innovation delivers added value, which drives revenue and profit growth. Shareholder value is enhanced, while competitive advantage is optimized through process improvement.