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Analytics

Why hard to sell PLM ROI?

by Oleg on May 24, 2014 · 2 comments

plm-ROI

In business, ROI is one of the most fundamentals principles that can help companies to make decisions. To buy a software is an investment and therefore to be able to show ROI is an important part of sales and marketing activities. Manufacturing company will be trying to evaluate and compare ROI before the decision to buy and implement PLM system will be taken. Here is the problem. Historically, PLM systems and vendors have poor record to show PLM ROI. The simplest way to show ROI is to present it in the same method of measurement – money.

PLM-ROI-CIMdata

I read Why PLM Has CFOs Seeing Dollar $igns article by Arena Solution. In a nutshell, it speaks about how PLM can show measurable ROI.  It brings lot of comparison between ERP and PLM. I can see premises of the comparison – PLM is taking much broader scope of business influence – from early design and customer requirements to service and maintenance. The following passage from the article arguing about the fact PLM financial and business value of PLM is greater than ERP.

For years, a Product Lifecycle Management solution has been seen as a solution that makes the lives of engineering and operations teams easier. But more strategically minded CFOs now see PLM as a solution to maximize business results. In fact, many C-level executives are finding greater financial and business value in their PLM solution than even in their ERP systems.

Well, as I said, it is hard to judge without numbers. Article leads to white paper – Why CFO are Banking on Cloud PLM? (You need to leave your contact information to get access to the article, which is fine). White paper speaks about 3 sources of ROI from PLM implementation – manufacturing and internal operations, optimizing the supply chain, customer satisfactions.

Unfortunately, article brings many data points about %% of saving and less examples of how to convert it to $$ signs. I found two places where examples of specific $$ saving where presented – (1) $500M savings over 3 years on direct materials in supply chain in computer industry. (2) $640M in materials acquisition savings potential in supply chain in industrial products.

The comparison between PLM and ERP made me think why PLM ROI is much less visible. Why is it so hard to convince CIO/CFO and other top executives to invest in PLM programs? Here are couple of thoughts.

You need to be able to measure saving. IT efficiency, operation metrics and strategic competitiveness – these are important things. However, can you show me how companies are measuring these parameters and what systems are helping to do so? Historically, finance and accounting systems were focus on external reporting. The needs for such system arose from the need of owners (and management) for cost information upon which to base production decision. Originally (many decades ago), the objective of financial system was to provide external financial reporting (IRS, Wall Street, etc.). Even for the last 2-3 decades the focus shifted from external reporting and profit to total process efficiency, it is still not reaching much to the level of operational metrics mentioned in all PLM ROI documents. ERP is a system that mostly satisfying the needs of financial reporting. PLM is not there yet.

I found the following passage from the white paper provided by Arena a good confirmation to my assumptions above – PLM is not measured on balance sheet.

Of course, CFOs naturally see clear ROI when it comes to financial systems, such as enterprise resource planning (ERP), but PLM – at its core – is an intellectual property management system with huge value not normally measured in a balance sheet. Simply put: CFOs see how inventory translates to dollars in an ERP system but have not considered how product quality and time to market translates to tremendous cost savings

What is my conclusion? If you want to improve something, you must be able to measure it first. In my view, this is a main problem with PLM ROI. The focus of PLM system and vendors should be on providing systems and tools that can measure activities. Companies should do the same. It is a lot of changes, but without that, PLM will remain the system with huge potential. Which gives hard time to sales and marketing to “show me the money” of saving and ROI with PLM. Just my thoughts…

Best, Oleg

Picture credit to CIMdata.

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plm-business-data-lake

PLM downstream usage is a popular and well-known topic. Speak to anybody in PLM community about how to implement PLM beyond engineering department. You can easy discover the value of information located in PLM system for many users in enterprise and beyond. The perceived value of data is very high. However, PLM is consistency failing to capture downstream users. Among diverse set of reasons, I’d like to pickup 3 most visible – complexity, cost of licenses and misalignment with enterprise data management systems and strategies. The last one is specially interesting. PLM is traditionally perceived as engineering system, which is not visible on CIO level. Opposite to that, ERP and Data Warehouse (DW) solutions are traditional candidates to keep and share information. However, the life is not as sunny as you might think.

The following slideshare presentation caught my attention over the weekend – Changing the Paradigm Rivers of Information instead of data warehousing by Paul Nannetti of Capgemini. One of the key discussion points- how to change the information flow and availability of data in an enterprise organization. The traditional DW (Data Warehousing) approach means to bring all data in a central location in a normalized way. Opposite to that, author speaks about opportunity to provide information on demand to different groups of people using modern big data technologies. Here are few passages from the slide deck:

Changing the flow. Why IT needs to stop pushing back against local business views and start enabling them. Traditional DW approaches satisfy corporate needs but leave most users without the information they need 9 out of 10 said that they would have made better decisions in the past 3 years if they’d had all the relevant information. Changing the flow Enterprise Data Warehouse Business Data Lake BIM Changing the Paradigm. Retrospective to Predictive: Shifting BI from retrospective analysis to delivering insight at the point of action.

The following slides presents DW problem and future paradigm shift in how information will flow in the enterprise.

enterprise-dw-problem

from-enterprise-dw-to-rivers-of-information

I found the idea of ‘business data lake’ compelling. The three main enterprise system players – ERP, CRM and PLM will be trying to influence they way information will be delivered to this data lake as well as flowing downstream. It is clear that some modern technological approaches in data management will be mobilized to make it work. Big data Hadoop is one of them. Another aspect is changing landscape of data storage, data modeling and data delivery mechanisms. Store all data, because storage is cheap can be a new approach these days.

What is my conclusion? The changes in technologies and paradigms of data organization can be an opportunity for PLM system to get more influence outside of engineering. Existing DW approach is expensive. Existing major enterprise systems such as ERP are not flexible enough to provide a platform for “business data lakes”. By having access to existing data assets – design, engineering, supply chain and manufacturing, PLM system can facilitate better downstream information usage and wider adoption. Just my thoughts…

Best, Oleg

Pictures credit to Capgemini slideshare presentation.

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PLM-for-SME

PLM is in the focus on many companies these days. Questions how to improve processes, optimize cost and improve quality are important and PLM vendors are laser focus on that. But… with one small clarification . It works for large manufacturing companies. To transform business processes is the way PLM succeeded to deliver ROI and demonstrate clear value. It is hard to find large manufacturing company these days that is not implementing  kind of PLM. You can see multiple options – complete home made PLM system developed by IT department (usually based on some of available PLM toolkits), combination of older PDM/PLM system with some additional development and complete solutions from leading PLM companies.

However, when it comes to small manufacturing companies, the situation is very different. It is not rare to face the question “what is PLM and why do we need it?” as well as to see customers confused about the difference between PDM and PLM. The last one is a big misleading factor in PLM marketing. Few weeks ago I posted Why PLM stuck in PDM? The article raised lots of comments and opinions. The question I want to ask today is about why PLM software and strategies failed to deliver value to small manufacturing companies or so called SME (small and medium enterprises).

Speak to software vendors about PLM and SME and you will learn about top three PLM inhibitors – (1) limited financial resources, (2) lack of IT support and (3) diverse set of requirements. While PLM competition for large OEMs is getting stronger, SME becomes a very attractive opportunity for PLM to growth. It is an attractive and turbulent market with lots of innovative companies. Together with growing number of smaller suppliers. To win this market is a very interesting opportunity with significant growth potential.

SME remains a very challenging place for PLM vendors. The question about how to serve SME with PLM solutions is open for a long time. Large PLM vendors tried to serve these customers by scaling down their large PLM product suites and developing special packaged solutions. Newcomers tried to provide special applications for SME. Open source, SaaS, Out-of-the-box (OOTB) applications… After all, SME PLM marketshare remains very fragmented with lot of opportunities and no mainstream solution.

It made me think about some problems in existing PLM strategies for SME. I can see some similarity with mass customization trend in manufacturing. The time when car supposed to be “Ford” and “black” is over. Automotive and other manufacturers explored new opportunities to customize their solution to satisfy turbulent market with diverse set of requirements. So, focus on the niche markets and individual customer is important. In the past, it was a strategy Japanese firms captured marketshare in U.S. PLM vendors are trying to win PLM SME market by focusing on flexibility of their solution and OOTB applications.  The problematic part of this strategy is cost. This is where flexible PLM failed. The cost of PLM implementation is still very high. Marketing, sales, business development and implementation services are not allowing to PLM vendors to scale their PLM operations for SME.

What is my conclusion? Low cost and efficiency. When it comes to customization and fulfillment of diverse customer requirements, low cost and efficiency are “must have” components of your strategy. Flexible platforms and OOTB Apps are not enough. Cloud solved some problems related to cost and IT support but left implementation services cost open. PLM vendors need to think how to deliver PLM services at low cost or think about alternative strategies. So far, PLM vendors failed to deliver to SME. Cost of the delivery is too high. After more than a decade of “focus on flexibility”, I think it is a time for PLM vendors to find an alternative. Just my thoughts…

Best, Oleg

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Will cloud PLM go shadow?

March 25, 2014

If you are not familiar with the term “Shadow IT”, you better do. The term is not completely new. Wikipedia article provides definition and speaks about different aspects of shadow IT activities. Interesting enough it has both negative and positive aspects. While (in general) usage of non-approved by IT applications is not a good things, it […]

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January 26, 2014

Differentiation. Competitive advantage. Value sales. I’m sure you’ve heard these buzzwords many times. Competition is part of everyday business life. Usually, I don’t speak about competition. I searched across my blog and founded only one reference to competition related writing – PLM Competition Toolbox. But I want to look in my crystal ball today. Here […]

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7 rules for selecting PLM software in 2014

January 17, 2014

Enterprise software choice is a complex decision process. The time when you was able to buy a software from trusted XYZ vendor and sleep safe is over. These days IT and other software decision makers are facing challenges related to technological and business options related to new business models, cloud technologies, specific vendors, user experience […]

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PLM v BIM: Common or Different?

January 1, 2014

As a matter of fact, PLM and BIM domains are quite independent. Nevertheless, I can hear more and more voices recently trying to create a marriage between these two. The latest one that caught my attention just before New Year party was Jos Voskuil’s blog – 2014 The year the construction industry will discover PLM? It […]

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PLM Data Tagging Is Getting Some Traction

October 7, 2013

Tagging is one of the most popular ways to classify information. Tagging became a mainstream way to classify information in almost every web application these days. Initially introduced on photo sharing websites, tagging expanded almost everywhere. Tagging is an important feature of every “Web 2.0″ solution. You can read more on wikipedia here. Here is […]

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PLM real implementations: too long to be on-time?

July 7, 2013

One of the looongest US weekends I remember  is going to end. This is a time to get back from relaxing holiday atmosphere  to business reality. I’ve been skimming social channels and stumbled on PLM statistics posts published by my good friend and PLM blogging buddy Jos Voskuil. Navigate to the following link - PLM statistics–the […]

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Cloud PLM and disruptive technology economic impact

June 14, 2013

We love word “disruptive”. It is so nice and tasty. However, very often, we use it without thinking twice what does it mean. Read materials from many startups and large companies – you found lots of statements about “disruptive technology” or “disruptive innovation”. Wikipedia article provides a very decent definition of what disruptive innovation and […]

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