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PLM claims to speed manufacturing, cut R&D costs, and boost sales.
Doug Bartholomew, CFO Magazine
May 1, 2003
While ERP systems are often viewed as all-encompassing, particularly for companies in the manufacturing sector, new software is emerging that tackles a broad range of functions largely untouched by traditional applications. Dubbed PLM, for product life-cycle management, the software manages products from conception to manufacturing to service and retirement.
For the most part, the companies that use PLM make things: the automotive, aviation, high-tech, and apparel industries are among the early adopters. But the software also can be useful for construction firms and other companies that deal with complex designs. Even such "products" as power plants, which have a long life cycle, can benefit from software that aggregates the reams of data that pertain to repair, maintenance, and other aspects of their life cycle. PLM, as Kevin O'Marah, vice president of PLM at consulting firm AMR Research, notes, is "the system of record for your products — it's the documentation of everything that constitutes the product."
But PLM is more than just a documentation system. Like ERP, PLM is a set of interconnected modules, each of which addresses a specific function. But whereas ERP is designed to handle primarily transactional data, PLM manages all the unstructured data associated with product design and manufacture. It includes basic computer-aided-design (CAD) data, the foundation of most products designed today, but goes beyond drawings to provide, for example, a digital, collaborative project environment that allows computer-based design to extend well beyond one person's desktop. Postdesign, product specs can be shared with suppliers and customers. PLM software can also simulate the manufacturing process so that mechanical designers and engineers can try out virtual manufacturing workflows to see which will prove most efficient.
Like ERP, PLM software can be used by finance, sales, manufacturing, and service groups — any constituency that needs product information, including cost per unit and service history: the software presents a customized set of views and associated data to each type of user.
Of special importance to financial executives is PLM's ability to act as a digital bloodhound, sniffing out wasteful or excessive spending on, for example, research and development. "Companies are extremely haphazard in the way they measure the results of R&D spending," reports O'Marah. Despite the fact that "R&D budgets are a sacred cow," he adds, in today's climate no arena is immune to cuts.
PLM can save money in the product-development process by encouraging engineers to make smarter decisions about which parts should be "standard" and which should be custom designed.
IBM, which offers its own PLM portfolio with Dassault Systemes, its business partner of 22 years, claims to have saved its customers more than $1 billion while doubling on-time delivery for some customers and reducing cycle time from 72 to 16 weeks for new products. "We're real believers in this technology because it's worked for us," says Edward Petrozelli, general manager of IBM's PLM division.
One of PLM's strongest selling points is enhanced collaboration. "We can check dimensions and engineering valuations online in real time with customers or among our own support engineers around the world," says Rich Marando, director of advanced engineering and technology at automotive supplier Dana Corp.'s Structural Solutions Group, based in Reading, Pa. "This technology is the wave of the future. It compresses our new vehicle programs by a phenomenal amount of time."
How Much It Costs
Although they may work wonders for those trying to design products concurrently with suppliers, most full-bore PLM systems don't come cheap. "A company could buy a piece of PLM technology for $50,000," says O'Marah. More likely, though, companies looking to install a comprehensive package are facing a multiyear rollout with a price tag ranging from a couple of million to tens of millions of dollars, depending on company size and the number of employees using the system.
Most companies have so much data, so many functions to include, so many processes to integrate, and so many interconnections to make that the ROI of a broad PLM implementation can be hard to measure. That's the rub for PLM: it appears to be just a bit too big and too sweeping for most companies to take the full plunge. Instead, many businesses tend to buy pieces of the software in the hope of connecting them someday.
At auto supplier ThyssenKrupp Budd Co. (TKB), for example, "we have not implemented pure PLM, because the cost is so high," says Harold Hoffman, vice president of IT at the Troy, Mich. - based firm. The company projected the cost of a total PLM package for 500 active users across two divisions at $3 million over three years, including installation and operating costs.
But TKB does use a CAD system and Web-based visualization software from EDS Corp. for various tasks, including production-line simulation. Not only do products have to be designed, but so do the production lines on which they'll be built. Some PLM modules are specifically tailored to do assembly-line simulations to achieve the optimum arrangement of robots, welders, presses, operators, and so on.
The software essentially allows the company to do a sophisticated "what-if" analysis on various facets of the production process, a far more efficient approach than trial and error on the factory floor. As one example, the company found that it could deploy forklift trucks rather than parts trains, cutting costs by 50 percent.
Similarly, the Cessna aircraft unit of Textron Inc. is employing PLM one piece at a time. "It is a challenge to communicate the cost savings," says Jeff Schiesser, director of business integration. "Our strategy has been to demonstrate the benefits to management and to keep reinforcing to them why we're spending all this money on technology."
Cessna began with a product data system, which keeps track of all product drawings, specifications, and engineering design changes. "We're still in the midst of integrating the design-and- build processes," says Schiesser, "but we have already connected six or seven different systems into a PLM suite." The system now extends to such areas as inventory control and tracking Federal Aviation Administration certification requirements. Already nearly one-third of Cessna's employees use various PLM modules, but, says Schiesser, "we're just progressing down the chain to see how this [PLM] all works together."
PLM Piece by Piece
PLM may do things that ERP can't, but it needs to be integrated into ERP systems so that all employees deal with the same product data. At Krebs International, a Tucson-based maker of hydrocyclones and slurry pumps used in the mining and dairy industries, 'we wanted to send our bill-of-materials engineering data into ERP, so that we have a total summary of all the parts in our ERP system,' says Mark Holmberg, manager of engineering processes. Sounds useful, because today most companies endure a painful manual process of reentering such data as engineering changes from the PLM systems that design products to the ERP systems that actually run the assembly lines. But, he says, 'it may be more work to integrate it than we are able to do right now.' ERP vendors are adding PLM functionality, according to AMR Research analyst Kevin O'Marah, either by developing their own modules (SAP, Oracle) or partnering with other firms (PeopleSoft, QAD).
Even if ERP integration issues have to wait, Krebs is still happy with what PLM can do, particularly its ability to enhance collaboration. The company wants to avoid reinventing the wheel — literally. With PLM it can create engineering drawings of new versions of its 50-inch-diameter cylindrical cyclone separators in less than 1 hour, versus 8 to 12 hours previously. "This has improved our responsiveness to our customers," says Holmberg.
Besides boosting engineering productivity, the PLM software helps Krebs's sales reps produce price quotes on the spot for customers. "There are 30 driving parameters that the customer can select from and change, and the PLM system automatically takes into account hundreds of parts, thousands of formulas, and more than 100 rules" to generate a price, says Holmberg.
Orders Should Pick Up
Projected sales, in billions of dollars, of PLM software and services.
Source: Arc Advisory Group
2002: $5.1 billion
2003: $6.2 billion
2004: $7.1 billion
2005: $9.0 billion
2006: $11.0 billion
2007: $14.0 billion