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.
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…
Picture credit to CIMdata.