Validating the Possible

The ROI of PLM

The ROI of PLM

“Validating the Possible”

April 2011

April 2011

John MacKrell Vice President ‐ j mackrell@cimdata com

John MacKrell, Vice President ‐ [email protected]

Tel: +1.734.668.9922

CIMdata’s Mission

Strategic consulting for competitive advantage in global markets

CIMdata is the leading independent

CIMdata is the leading independent

global strategic management consulting

and market research authority focused

l

i

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PLM

exclusively on PLM.

We are dedicated to maximizing our

clients’ ability to design and deliver

innovative products and services

innovative products and services

ROI & Benefits are Driven by 3 Factors

Recursive relationship among people, technologies, and processes

Existing business processes may be enhanced using PLM

P

rocess ering _nology _s

People B usiness P Reengine a tion T ech n C apabilitie s B Inform a _C Processes Technologies

New processes enhance how PLM is used

For maximum benefit, can’t optimize any one factor! For maximum benefit, can’t optimize any one factor! For maximum benefit, can t optimize any one factor! For maximum benefit, can t optimize any one factor!

ROI Balance: Costs vs. Benefits

A real and quantifiable analysis is required

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Costs are real

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Benefits must be real too

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Benefits must be real too

ƒ So benefits should, if possible,  be estimated in the same method  of meas rement Mone

of measurement—Money

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fi

ROI Highlights

Understanding the impact of PLM

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Determine and address business opportunities

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PLM benefits received by any two companies will differ—

PLM benefits received by any two companies will differ

understand yours

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The appraisal method causes the team to better understand 

the business

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Benefits & ROI help management:

ƒ Make educated investment decisions ƒ Reduce the risk of wrong decisions ƒ Avoid getting the wrong solution z

People improve in areas where they are measured

PLM – The Definition

PLM – integrating people, processes, business systems, and information z

Strategic business approach

ƒ NOT just technologies ƒ Consistent set of business solutions z

Collaborative creation, use,

management & dissemination

ƒ All product/plant definition information – the virtual product 

z MDA AEC EDA CASE analysis documentation z MDA, AEC, EDA, CASE, analysis, documentation, …

ƒ All virtual product processes

z Processes that plan, design, produce, support, … Full Product Lifecycle

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Supports the extended enterprise

PLM Spans the Product Lifecycle

PLM touches all phases of a product’s life and the entire value chain

Planning

Conceptual 

Design _EngineeringProduct 

Manufacturing Portfolio

Requirements

Planning Engineering _{Manufacturing}  Engineering Simulation &  Validation Management Build and  Produce Disposal &  Recycling Sales &  Distribution Maintenance & Repair Test &  Quality In‐service  Operation

PLM Costs

The obvious side of the ROI equation

Cost Model for PLM Solutions

Typical cost elements

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PLM software & maintenance

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Hardware (additional needed for PLM) & maintenance

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Hardware (additional needed for PLM) & maintenance

ƒ What gets charged to PLM?

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PLM appraisal selection and

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PLM appraisal, selection, and 

implementation planning

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Solution implementation

Solution implementation

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Training

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Business and system administration

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Business and system administration

Software Costs

Various cost aspects exist z

Client licenses

ƒ Subscription licensing may be possible ƒ Or none at all with Open Source z

Server licenses

f d l d ƒ PLM software modules, e.g., document management, parts management,  product structure, engineering change management, etc. z

Software maintenance or subscription

p

ƒ Annual fee, usually a % of value of installed SW z

Database management software

ƒ For meta‐data z

Other:

ƒ Application integrationApplication integration

Selection & Implementation Costs

These costs are usually much more than the software itself z

Internal costs for system selection, appraisal & justification, 

implementation planning

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Internal cost of subject matter experts

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Cost of lost user productivity (time away from job)

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External consultancy

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Training (internal and external)

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Data and process modeling

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Integration with applications

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Tailoring and/or customization

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Data capture & cleaning

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Business and system administration

Cost Factors

Main cost drivers for the implementation of PLM z

Number of users & sites

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Implementation phasing

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Implementation phasing

ƒ By solution, group or project

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Number of PLM solutions to be deployed

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Number of PLM solutions to be deployed

ƒ PDM, visualization, DMU, collaboration, CAD, Dig. Mfg… z

Quantity of legacy data to be cleaned & moved

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Number of other systems to be integrated (CAD, ERP, business 

planning, etc.)

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)

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Level of tailoring needed

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Training

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Training 

PLM Benefits

Metrics quantify the benefits in the ROI 

Metrics Help You Understand…

Some of the reasons why metrics are important

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When, where, and how people are using PLM

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The effect of PLM on the business & its processes

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The effect of PLM on the business & its processes

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How well the business objectives for a project have been 

satisfied

satisfied

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If sponsors are receiving a return on investments

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Areas that need improvement

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Requirements for future implementations of technologies & 

processes

processes

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The ongoing success of your business solutions

Nature of Metrics

Metrics should meet a number of criteria

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They should measure direct cost, time, count savings

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They should be measured both before and after the project is

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They should be measured both before and after the project is 

implemented (to set baseline)

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They should be reported automatically (vs manually)

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They should be reported automatically (vs. manually)

ƒ Facilitate the process ƒ Assure timely reporting z

They should be evaluated to ensure they don't create an 

unwanted behavior

ƒ Can they be manipulated to show inappropriate results or hide problems ƒ Do they violate how people are motivated

Guiding Your PLM Program

Indicators of program progress provide direction

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PLM project metrics track the PLM program’s progress

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PLM business metrics help you understand how well the PLM

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PLM business metrics help you understand how well the PLM 

program is supporting the enterprise’s 

business objectives, e.g.,

ƒ Cost ƒ Quality ƒ Time to market ƒ Time‐to‐market z

Both indicate how to adjust the PLM 

program’s scope & timing to maximize

program s scope & timing to maximize 

your return on investment

Example Benefits 

Example ranges of benefits based on actual experiences

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Time‐to‐manufacturing—10% to 50% reduction

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Engineering change process—10% to 70% reduction

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Design review process—50% to 80% reduction

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Increased productivity 10% to 20% increase

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Increased productivity—10% to 20% increase

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Product development costs—25% to 40% reduction

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New part numbers—5% to 15% reduction

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Time to find information—75% to 90% reduction

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Design errors—10% to 25% reduction

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Time‐to‐design—15% to 70% reduction

Benefits for Business Performance

Win against the competition z

Enables innovation, predictability, company flexibility, and 

better management

ƒ Respond more swiftly to new challenges, new markets, etc. ƒ Good management depends on rapid access to full and up‐to‐date  information information ƒ Companies first to harness PLM will raise barriers of entry for their  competitors E bl i ti ith t i ƒ Enable communications with partner companies ƒ Support global manufacture, assembly, or service ƒ Support global product execution

Companies who continue to ignore PLM will learn

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Benefits for Business Performance

Quality Initiatives z

PLM enables Quality Assurance  

ƒ Uphold a reputation for excellence and reliability through product lifecycle ƒ Quality impacts legal, contractual, liability, cost savings, competitive, human  resource, and environmental issues

ƒ Support total quality management initiatives & other initiativesSupport total quality management initiatives & other initiatives

ISO 9000 Objectives: ISO 9000 Objectives: ISO 9000 Objectives: ISO 9000 Objectives:

“To supply quality products that don’t come back, to “To supply quality products that don’t come back, to

customers who do.” customers who do.”

David Hoyle

David Hoyle——ISO 9000 HandbookISO 9000 Handbook

Support TQM: Support TQM:

Total Quality Management Total Quality Management

Benefits for Business Performance

Regulatory issues z

PLM supports industry regulations and requirements

ƒ Industry requirements, e.g., QS 9000, FDA, RoHS, WEEE, REACH … regulations ƒ Environmental, health, and safety considerations z

Provides access any time, anywhere to valid information and 

proves the capability to satisfy regulators

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PLM maintains a traceable system of record

Benefits for the Organization

Facilitate effectiveness of the organization z

Improve corporate communications

ƒ Integrate product development across divisions of a company  ƒ Break down geographical barriers ƒ Provide concurrent access to all enterprise resources

ƒ Access to all product data (e g the technical library) from every desk ƒ Access to all product data (e.g., the technical library) from every desk

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Support organizational change

ƒ Corporate reorganizationsCorporate reorganizations ƒ Acquisitions

ƒ Implementing concurrent engineering & other initiatives ƒ Business process re‐engineering

PLM Building Knowledge

Creating & managing your intellectual assets to enable innovation Intellectual  Intellectual  Assets Assets

Traditionally, the knowledge Traditionally, the knowledge of the organization is the of the organization is the

(Incorporate  (Incorporate 

Principles) Principles)

of the organization is the of the organization is the sum of that which is held sum of that which is held by its people by its people

Knowledge

(Patterns) Information (Relationships) ( ) Data (Items) ( p )

Adapted from Knowledge Management by Gene Bellinger

Data Reuse Creates Value

Your intellectual assets need to be leveraged

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Allow product developers to easily re‐use parts, designs, & 

processes

“Up to 80% of the work done in an engineering department is

“Up to 80% of the work done in an engineering department is

identical or very similar to work done previously”

identical or very similar to work done previously”

identical or very similar to work done previously

identical or very similar to work done previously

From Research by Arthur D Little From Research by Arthur D Little

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The more your data is used and reused the more value it 

produces for your enterprise

ƒ Re‐use proven designs with confidence ƒ Avoid prototyping and testing

ƒ Avoid re using failures and repeating the same old mistakes ƒ Avoid re‐using failures and repeating the same old mistakes

Benefits for Users

PLM is attractive to users

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PLM is a consistent data source: one place to look

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Provides shared access to data

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Provides shared access to data

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Links data

ƒ Inter‐data relationships provide a more complete view of information ƒ Inter‐data relationships provide a more complete view of information ƒ Powerful search facilities—by attributes, browsing, full text retrieval ƒ Visibility to all product information through a common source

Benefits for Users

Empowering the organization with the right information z

Empowers workers

ƒ Provides easy access to knowledge & expertise z

Reduces  burden of administrative tasks

ƒ Automates tracking ƒ Records who, what, where, when, etc. ƒ Automatically links related information (e.g., viewable data to geometric  model, models to specifications), p ) ƒ Transfers BOMs to ERP, avoid re‐keying ƒ Automatic versioning and revision tracking  z

Encourages use of a common terminology

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Improves personal productivity

Benefits for the Product or Service

Improve customer’s perception of products & services z

More quickly respond to customer queries

ƒ Navigate through data ƒ Search and find ƒ Discover related information Costs 100% Defined Costs z

Facilitate rapid product 

improvements early in 

product development cycle

50%

product development cycle

ƒ When the big decisions are needed ƒ When committed costs are high and 

Time

Engineering Manufacturing After-Sales

0%

Benefits for the Product or Service

Facility production and maintenance z

Facilitate longer production runs

ƒ Cut time‐to‐production, time‐to‐commissioned ƒ Benefit from profit margin on additional production ƒ Gain value from larger market share for the product z

Cut plant down‐time with PLM and project management

ƒ If the “product” is a plant or facility, cut non‐productive time ƒ Opportunity to improve planned maintenanceOpportunity to improve planned maintenance

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Facilitate hand‐off of product data

ƒ A petrochemical plant owner‐operator estimates the cost of movingA petrochemical plant owner operator estimates the cost of moving 

Benefits for Business Process 

Streamline design reviews and approvals z

Provide a formal mechanism to evaluate product 

developments at major milestones

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Allow many users to see product data and make comments 

on that data

ƒ Review the design rather than merely its documentation ƒ Allow users to see product definition information z

Supports review teams having a collective competency 

greater than that of the designers

ƒ E g include representatives ofE.g., include representatives of 

marketing, purchasing, manufacturing,  servicing, test, inspection, reliability,  quality assurance

Benefits for Business Process 

Improve change processing (1 of 2) z

Make changes earlier in the process

ƒ Improved access to design information ƒ Work with more up‐to‐date information ƒ Support concurrent processes z

Reduce cost of managing and tracking changes

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Establish & maintain procedures for the identification, 

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documentation, review & approval of all changes across 

whole product life cycle

ƒ Engineering Change RequestEngineering Change Request  ƒ Engineering Change Order ƒ Engineering Change Record

Benefits for Business Process 

Improve change processing (2 of 2) z

Major process for control of a product 

ƒ Implement using workflow z

Tracks the impact of a change

ƒ Cost and time ƒ Part and document relationships ƒ Where used investigations

ƒ Ripple effect: one change can require another 3D NC

PART Ripple effect: one change can require another z

PLM captures the approval or rejection of a change for audit 

and history

and history

ƒ PLM enables electronic comment/markup  ƒ PLM enables rapid communication of changes

Benefits for Business Process

Increase efficiency by streamlining processes z

Improve the purchasing cycle

ƒ Effective purchasing depends on managing data and processes as well as good  cross‐functional communications   z

Speed work orders

ƒ Work orders, with all relevant reference documentation and data in a folder,  distributed electronically

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Unify multiple BOMs

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Unify multiple BOMs

ƒ E.g., engineering, manufacturing, purchasing

Benefits for Business Process

Increase efficiency by streamlining processes z

Improve cross‐functional integration and collaboration

ƒ The purchasing cycle ‐ profit from larger discounts, fewer suppliers, reduced  inventory, fewer errors resulting in scrap ƒ Change management cycle

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Speed response in emergencies

ƒ Predefine processes to access a complete data set

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Encourage & enable continuous improvement

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Encourage & enable continuous improvement 

of processes

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Enable business transformation

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Enable business transformation

Examples of Metrics

Applicability & importance vary by company & PLM project

Business Metrics

PLM Project Metrics

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Time to access data

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Software delivered against plan

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Time to access data

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Plant down‐time for 

maintenance

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Software delivered against plan

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Tasks completed on time

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Cost of IT resources

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Cost of changes

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No. of standard parts/no. of 

special parts

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Number of processes 

(workflows) implemented

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Quantity of legacy data migrated

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No. of successful bids/month

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Tooling costs or assembly costs

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Quantity of legacy data migrated

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Number of licenses delivered

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Number of users implemented

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Scrap, inventory rates, or re‐work 

rates

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Warranty costs returns or MTBF

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Number of users trained

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Number of PLM solution errors 

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Warranty costs, returns, or MTBF

reported

Benefits of Open Source

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Minimize cost of PLM licenses

ƒ Lower capital expense for PLM shortens payback period & lowers up‐front  risks risks z

Be clear that just because you don’t have to buy PLM licenses, 

you don’t have to buy the infrastructure (database operating

you don t have to buy the infrastructure (database, operating 

environment, visualization tools, other product design 

software, etc.) 

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Reduce software maintenance & tailoring costs

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Reduce Total Cost of Ownership

p

ƒ Decrease initial start‐up costs & ongoing costs z

Result is improved ROI, achieved more quickly with better 

Internal Rate of Return (IRR)

Parting Advice

How true it is!

“If you torture data sufficiently it

If you torture data sufficiently, it

will confess to almost anything.”

Fred Menger,

CIMdata 

Strategic consulting for competitive advantage in global markets

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