Build to Scale: Bringing PLM to the Masses
As globalization continues to level the playing field, smaller enterprises embrace PLM solutions as a go-to-market strategy for managing and scaling growth, and enhancing visibility and communication within the supply chain.
U.S. retailers and manufacturers are acutely aware of the importance of managing and controlling product flows, especially as increasing capacity, congestion, and business continuity concerns threaten timely distribution and profitability during peak shipping seasons.
The growth of new markets in Asia, Europe, and South America has similarly introduced myriad outsourcing opportunities for manufacturers, further extending the breadth and depth of global supply chains, and increasing the demand for seamless product visibility and real-time information sharing among business partners.
Successfully building a global network that can accommodate and assimilate these rapidly changing dynamics requires a coordinated internal strategy supported by sophisticated yet accessible technology. The difficulty is figuring out where best to steer this collaborative approach.
For larger, discrete industries, the sheer magnitude of supply chain issues—controlling the flow of parts and components from myriad suppliers and contract manufacturers, managing the design and development of new and existing product lines, and expediting the distribution of these goods to retailers and end consumers—has underlined the efficacy of Product Lifecycle Management (PLM) solutions.
PLM exposure has been largely limited to industries with highly variable, complex product lines and dense supplier networks—notably the automotive, aerospace, and electronics sectors. Globalization, however, is gradually changing this paradigm.
Several trends have emerged:
- Smaller businesses now have global leverage thanks to web-based technologies and the support of third-party logistics providers. This ultimately allows them to compete with larger counterparts.
- The emergence of new markets creates growth opportunities for businesses that traditionally were one-dimensional.
- The importance of inbound logistics and effectively managing product at point-of-origin has yielded far-reaching efficiencies throughout the supply chain.
- PLM solution providers are quickly recognizing growth potential in non-traditional markets. They now increasingly tailor their offerings toward small and mid-sized businesses (SMBs) that formerly were hesitant about investing in new go-to-market strategies and technologies.
A Common Misconception
Large-scale manufacturers were early adopters of PLM strategies simply because the design, development, and distribution of products are the crux of their business.
"Products are the lifeblood of manufacturers. Without products, they are merely service providers," says John Moore, vice president and general manager, enterprise solutions, ARC Advisory Group. "PLM is the foundation of a manufacturing company—it doesn't just manage products in transition, but creates entirely new classes of products that allow a company to stay competitive."
Accordingly, discrete industries will account for most of the growth in the PLM market, notes a recent report by the Dedham, Mass.-based consultancy.
"The discrete industry remains by far the largest single sector for PLM solutions in 2003, representing nearly 90 percent of the total market," the study notes, pointing to the automotive industry as the single largest market for PLM solutions.
"The balance of the PLM market is represented by the process industries, which, while small, will see above-average growth over the forecast period. Both the consumer products goods and food and beverage industries will be particularly fertile markets for PLM solutions over the forecast period," the study continues.
Experts expect the worldwide market for PLM software and services to grow more than 11 percent over the next five years. The market was $5.3 million in 2003—the ARC study forecasts it will grow to more than $9.2 million by 2008.
Despite these growth trends, a common misconception among smaller businesses is that cost and structural concerns make investing in PLM systems prohibitive, and therefore not a priority.
To the contrary, the demand of increasingly global supply chains has SMBs reengineering their approach to managing product lifecycles, according to recent studies by Boston, Mass., think tank AMR Research.
"There is a common misconception that midmarket manufacturers' business processes are not as complex as their multi-billion-dollar counterparts," notes the report, SMBs: Your PLM Options, by Michael Burkett, Dineli Samaraweera, and David O'Brien.
"This is not true, and in many cases, smaller manufacturers have grown more complex as they've taken over the design and manufacturing tasks outsourced by their large Original Equipment Manufacturer (OEM) customers," the study explains.
"Global compliance, engineering change management, and design collaboration have increased the cost of doing business where only the most sophisticated manufacturers survive."
Taking a proactive approach to controlling product development from design through fulfillment empowers smaller enterprises to become better supply chain practitioners, drive down costs, and compete more effectively with upper-tier companies.
Conversely, dismissing the potential advantages of a PLM strategy results in poor control over product information and processes. "Business will suffer for failing to act because of slow customer response, an inability to meet increasing supplier qualification requirements, the severe costs of globalization, and the high pace of product change in modern-day markets," the authors add.
AMR predicts the influence of larger manufacturers and early adopters will ultimately trickle down to mid-tier enterprises, and that PLM spend in this segment will increase 16 percent through 2008.
"Midmarket manufacturers will follow the trend of larger manufacturers, increasing their investment in PLM over the next several years. This investment is driven both by smaller manufacturers' need to be electronically connected in a global supply chain, and by new and existing vendors providing applications that are now digestible for this market," the report concludes.
Tying PLM into SCM
The recognition that managing product development extends beyond the design and engineering phases to many other functions within a company is gradually taking hold as businesses see the overlap between supply chain management (SCM) and PLM processes.
PLM is not an application, rather a strategy, notes Moore. It incorporates six specific subsets:
- Requirements definition and innovation management.
- Program and project management.
- Collaborative design.
- Product data management (PDM).
- Management of the manufacturing process.
- Service and support management.
These specific processes run the gamut of a product's lifecycle, from initial design and sourcing of materials through fulfillment and aftermarket support. Businesses need to examine how change management throughout a product's maturation impacts other processes within the supply chain such as forecasting, sales and marketing, transportation, and distribution.
For example, "while PDM solutions have been on the market for a number of years, their adoption and use has been limited to addressing the needs of an enterprise's engineering department," says Moore.
"Companies are quickly realizing that PDM can no longer be confined to engineering, but must become the foundation and repository for all product-centric information, to enable a multitude of cross- division business processes."
Akin to SCM, a sound PLM strategy underscores the importance of seamless communication and data integration during product development.
Where SCM drives compliance and efficiency among suppliers, manufacturers, third-party intermediaries, and consignees, PLM drills down one step farther, identifying changes at specific points during a product's lifecycle, and managing these exceptions throughout the supply chain.
Conceptually, both SCM and PLM strive for seamless visibility into product data and movement, empowering engineering, logistics, sales, and marketing groups to make proactive decisions with that information.
While discrete manufacturers are beginning to make progress tying PLM processes into other internal departments within their enterprises, the growth curve for smaller businesses is considerably slower.
Still, SMBs are leveraging PLM solutions as a go-to-market strategy for managing and scaling both internal and external growth, and enhancing visibility and communication within the supply chain. PLM, essentially, is becoming a means to more efficient SCM.
"You cannot communicate across the supply chain if you do not have control of the product you are moving," says Paul Giancona, Agile Software Corporation's vice president of channel marketing.
Supply Chain Kinetics
PLM plays a vital role in dictating how enterprises embrace SCM.
"PLM defines what products will be built, how they will be built, and what markets they are intended to serve," says Moore. Because these applications support vital logistics activities—supplier sourcing, data management, and forecasting, among others—managing product data throughout the production pipeline can have a significant impact on overall supply chain efficiency.
Partnering with a PLM solutions provider enabled Color Kinetics, a Mass.-based manufacturer and retailer of intelligent solid-state LED lighting systems, to support and scale growth of its product portfolio, facilitate data integration among disparate business partners, and extend its reach into new markets.
"Customers come to us because they want to create an effect," says Fritz Morgan, vice president of engineering for Color Kinetics. They don't realize that "creating an effect" requires a great deal of collaboration and communication with contract manufacturers and suppliers in Asia.
With more than 10,000 installations worldwide, Color Kinetics' lighting systems are primarily used in retail, hospitality, hotel, casino, and museum settings, as well as in high-end residences.
"We do virtually all our manufacturing in China but most design work is done in Boston," says Morgan. "We work directly with lighting designers to help specify a set of our products, and develop a system to meet their needs.
"Creating these types of lighting systems requires a bill of materials (BOM) containing all the parts that go into a product. It is important to maintain the accuracy of the BOM, so our groups in the United States and China work with a common document to make sure the right components are going into a product, and that it is being built correctly," he adds.
Additionally, when Color Kinetics makes changes to a product, it needs to quickly communicate those changes to its contract manufacturers, suppliers, and internal departments.
A Simple Lifecycle
Three years ago, Color Kinetics partnered with software provider Arena Solutions to help manage its product lifecycle. Arena PLM, its proprietary on-demand solution, offers a novel approach for SMBs such as Color Kinetics.
"Historically, PLM tools have been complex to use," says Mike Topolovac, CEO of Menlo Park, Calif.-based Arena. "If done well, however, simplicity and sophistication go hand-in-hand. We've developed a sophisticated tool that is very accessible."
The on-demand approach allows businesses to pay for technology only when they use it, which provides the flexibility to increase or decrease capacity as necessary. Unlike client/server applications, Arena PLM is delivered over the Internet, making it less expensive and easier to use.
"We could have customized our own version but we were looking for a simple interface to a relational database," says Morgan. "With other systems, we had to go through five or 10 screens just to enter a single part. Also, these systems required us to set up templates—it meant spending more money to get a 'customized' system."
Before partnering with Arena, Color Kinetics used Excel spreadsheets to send data back and forth via e-mail with partners in Asia. "We never had the most up-to-date BOM; we were always several revisions behind in that process, so we made a tremendous number of mistakes," Morgan adds.
Now, Color Kinetics can tell a contract manufacturer that a change has come through, then record when it makes that change—all within a common database. Because it is an online application, information is updated frequently and changes or additions to the system can be made on the fly.
"It enables us to create the BOM and load all the design documents—including drawings, schematics, data sheets for parts, and user guides—on the system during the design phase," says Morgan. "We use that as the common exchange between the groups in China and the United States."
This flexibility allows Color Kinetics to increase development speed, "because we're using the most up-to-date data as opposed to searching through dated information," says Morgan. "With Arena PLM we process engineering change orders (ECOs) 75 percent faster than we used to."
It also simplifies the quoting process and gives Color Kinetics greater leverage in selecting suppliers, and facilitating integration with new partners.
"I can enable new manufacturers to view the BOMs for a product, as well as the design material and information they need to do a quote. I can easily get quotes from several different manufacturers to make sure I get the best price," he says.
Given increasing consumer expectations in today's business environment, this communication between suppliers and manufacturers is even more critical, notes ARC's Moore.
"As manufacturers look to deliver products to market more rapidly, product information has to be imbedded in the process so they can ensure the product's quality, and that it complies with regulations and requirements of a given region, country, or agency. Companies have to work closely with suppliers to make sure this process is seamless," Moore says.
The same holds true for collaboration in other areas within an enterprise, including forecasting and logistics activities. "We generate a market requirements document with initial forecasting information that we use for the first build," says Morgan.
"For more mature products, we link Arena PLM to the Oracle system we use for our financials and logistics. In this instance, Arena PLM acts as the parts master—essentially the gold standard for the latest revision on all the parts and finished goods."
The database gets transferred frequently to Oracle so Color Kinetics employees can use the system to determine, for example, if they need to get a better price from a supplier, or see where parts are being used across their different product lines to figure out how many they need, explains Morgan. With the Arena system, specific parts that are being used in numerous different products can easily be identified.
"We know the volume of those products from the Oracle system and our historical data, so we can then forecast our projected growth rate on raw parts and finished goods," explains Morgan. "The Arena system enables this to happen easily because it is pulling all that information in one place. It gives our supply chain group the visibility it needs to function more efficiently."
As a result, Color Kinetics now produces a greater number of products faster and with better accuracy—and it has a historical record to document changes made during a product's development.
"Before, we relied on people to save a different file every time they made a change," says Morgan. "Arena PLM eliminates human error."
Managing its internal product flows similarly allows the manufacturer to more efficiently scale external growth, creating a progressive blueprint for future expansion.
"We're in the process of changing our manufacturing base and evolving our suppliers as the company grows. In order to add larger and higher-quality manufacturers to your network, you need to be able to simplify that information exchange," says Morgan.
"The ability to get information in and out, and to look up and approve product changes anywhere in the world, is very powerful."
The way that goods are brought to market today creates an additional demand for PLM, says Agile's Giancona. "Products themselves are more complex, the cycle times are more compressed, and the supply chain is scattered throughout the world. These three factors all conflict with each other.
"Five years ago, managing product information effectively was the responsibility of the OEM; now, it is handled by the supply chain. In order for small companies to do business with the next tier, they have to be able to demonstrate control over product revisions, share information electronically, and comply with regulatory agencies," Giancona adds.
The stakes are even greater for early-growth businesses that don't have the resources or infrastructure to absorb supply chain mishaps.
"Most startup manufacturers don't have a sophisticated IT infrastructure," says Giancona. "Their core competency is engineering and manufacturing parts. For these companies cash is everything, so if a manufacturing run is blown because someone used the wrong version of a product, it could ruin their business."
Using PLM on Demand
Similar use of PLM applications among virtual manufacturers helps them manage growth without making costly investments in IT infrastructure.
Colubris, a Waltham, Mass.-based global provider of secure and scalable multi-service wireless LAN systems, began deploying Agile Software Corporation's On Demand PLM product last year to help support and develop its product lifecycle.
"With On-Demand PLM, you can host Agile on-site," says Giancona. "Many companies choose to do so because they have back-office systems they need to integrate with, or they are not comfortable putting the application outside the company. We will host it for the customer and assume responsibility for maintenance, backup, and system utilities, as well as regular upgrades."
Since its inception five years ago, Colubris has grown rapidly to become a leading provider of WLAN solutions, and today has more than 1,000 customers worldwide. Leveraging the technology of San Jose, Calif.-based Agile has enabled Colubris to control movement of goods in its supply chain network, cut costs, and ensure delivery of quality products to its customers.
With nearly 100 percent of its manufacturing outsourced globally, the key to Colubris' growth has been its ability to create a reliable communication pipeline among its supply chain partners.
"The decision to work with Agile was an easy one," says Ken MacLure, vice president of operations for Colubris, "because most of our operations staff used its PLM technology in previous jobs." The real strength of Agile's solution is its capacity to grow with the customer, he adds.
The nature of the solution and its capacity to facilitate communication among various business units has also fostered a working environment that is more efficient.
"The classic method for conducting PDM—using ECO boards and meeting about once a week—makes it difficult to transfer information quickly among team members," explains MacLure.
"With the Agile system, a lot of peer pressure is associated with the ECOs because everyone is notified at the same time—whether they're internal employees, or vendors running the web-based application. People feel pressured to look at the ECOs and do the necessary diligence, so companies can drastically reduce time on their affectivity dates."
Ultimately, the flexibility of Agile's On-Demand PLM gives smaller businesses such as Colubris the necessary tools to anticipate changes within a product's lifecycle, and communicate revisions to other partners in the supply chain as well as to internal departments within the enterprise.
"Before tools such as Agile's existed, outsourcing a test process always yielded one common complaint: 'If I'd only known about the change earlier, I could have reacted more effectively to the customer's needs,'" says MacLure. "Now, everyone is involved with changes so early that those excuses are virtually eliminated."
The next five years will be a critical phase in the continuing evolution of PLM strategies and technologies, highlighted by further consolidation and a split in the market between strong design-centric suppliers of PLM-enabling solutions, and ERP-centric PLM solution providers, according to ARC's Moore.
Businesses that emphasize product engineering and innovation will select design-centric solutions; those driven by order and transaction management will lean toward ERP-based solutions.
The emergence of new markets, the increase in outsourcing, and the introduction of numerous suppliers and contract manufacturers into the supply chain will similarly influence how choose to companies approach PLM.
As Asia continues to grow its industrial manufacturing base, greater demand will arise for CAD tools and solutions for manufacturing process management and PDM. Decreased manufacturing in the United States and Europe means a shift toward more service-oriented PLM solutions.
Ultimately though, the consumer will dictate in what direction manufacturers move, both in terms of the products they build, and the systems they put in place to expedite time to market.
It drills down to how quickly companies can plug and unplug various partners into their supply chain to get product to market and move faster than competitors, notes Moore.
"Companies with good business processes for engagement and disengagement are the ones that will succeed in the future," he says.
As such, PLM strategies enable smaller businesses to more effectively manage product portfolio growth, enhance supply chain flexibility and speed, expand into new markets, and compete with businesses outside their tiers.