What Is the ROI for Product Lifecycle Management (PLM)?
For CFOs, as Bob Dylan once sang, “The times are a changing.”
In today’s fast-paced bottom-line driven economy, there’s an increasing trend for CFOs to vet and even drive technology investments. The ROI of a smart technology investment is too impactful for CFOs not to be involved in these conversations.
To demonstrate why product lifecycle management (PLM) systems have increasingly caught the attention of CFOs, Arena offers its own proprietary analytics coupled with aggregated ROI metrics derived from studies from Aberdeen, Accenture, AMR, CIMdata, Gartner, IBM, and Oracle to provide a guideline for determining a potential range of measurable financial benefits of PLM.
Let’s take a look at ROI metrics that make a compelling business case for investing in PLM.
Manufacturing and Internal Operations
Internal operational efficiency improvements offer the clearest ROI analysis. The ability to monitor processes against milestones, including reduced engineering change order (ECO) and new product development (NPD) cycle times, accelerated time to market (TTM) and performance goals are very important to the CFO.
These process efficiency improvements are all tangible, demonstrable proof points that can be analyzed as true “financial benefits.” Here is a cross section of some industry-specific internal efficiency ROIs:
|Industry Manufacturers||Internal Efficiency ROIs|
ECO cycle time reduced from 33 days to 5 days
ECO cycle time reduced by 50%
ECO admin expense reduced by 60%
NPD cycle time reduced by 20%
Quality efficiency increased by 40%
FDA document cycle time accelerated by 90%
Engineering admin efficiency increased by 80%
However, even after a persuasive engineering or operations manager presents these compelling findings to executives, the prudent CFO may be unlikely to open the purse strings until he or she understands explicitly how product lifecycle management ensures streamlined internal process improvements across the enterprise cross-functionally.
The answer is as simple as two words: “synchronization” and “collaboration.”
New product development (NPD) and new product introduction (NPI) require synchronization of efforts among engineering, operations, quality, manufacturing and global supply chain teams, making sure all are on the same page—a nontrivial challenge considering the frequency of product design changes. PLM solutions provide a collaborative environment for centralizing, controlling, and analyzing complex and constantly changing product information.
Optimizing the Supply Chain
PLM not only benefits internal processes but streamlines supply chain efficiencies as well. Unfortunately, a recent report by Ernst and Young discovered all too often “too many manufacturing executives disregard supply chain optimization and its immediate and lasting impact on growth and profitability.”
But smart, strategic-minded CFOs are making a more concerted effort to team up with their supply chain counterparts to maximize efficiencies. These new allies — despite having different roles and priorities — each shares responsibility to beat the competition and make decisions that lead to increased market share and improved profitability.
Arena has seen thousands of product companies turn to PLM to streamline processes and optimize their supply chain for maximum business benefits. But the business value of PLM is particularly powerful when a single product development platform, which units ALM, QMS and PLM, is relied upon.
A list of these measurable supplier optimization benefits follows:
|Industry Manufacturers||Supply Chain Optimization ROI|
Reuse improved from less than 2% to 59%
$500M savings over 3 years on direct materials
Costs for packaging reduced by 10%-20%
Direct materials spend reduced by 5%-10%
$640M in materials acquisition savings potential
Material cost reduced by approximately 2%-3%
PLM enhances supplier relations and supply chain collaboration. It enables buyers to make informed purchasing decisions to comparatively shop for quotes on parts and find alternatives to expensive components with long delivery times. In addition, PLM empowers CFOs with greater visibility into their company’s key performance indicators and identify potential risks that may impact their supply chain and, ultimately, their company’s finances.
For example, Dodd Frank, a regulation that includes strict SEC filings, will make high tech companies and their suppliers more accountable to prove they do not use any conflict minerals in their electronic components. PLM enables manufacturing executives, including CFOs working with their supply chain counterparts, to improve access and management of key contacts at every company across a high tech supply chain to better ensure compliance.
It’s a happy enterprise manufacturing world when supply chain executives and CFOs work together, jointly leveraging PLM solutions, to transform their supply chains into collaborative information-driven value chains. This world does not have to be a fantasy.
Rarely discussed—even by solution providers themselves—is PLM’s ability to streamline efficiencies that result in greater customer satisfaction. A list of these measurable customer satisfaction benefits follows:
|Industry Manufacturers||Customer Service ROIs|
Order to manufacture cycle time reduced from 4 weeks to 1 day
Customer order errors eliminated by 100%
Purchasing order cycle time reduced by 30 minutes per transaction
Sending out-of-date product records to customers eliminated by 100%
Customer RFQ to prototype cycle time reduced by 50%
CFOs know that shipping quality products ‘on time’ to customers pays higher dividends than revenue generated by the product itself.
And that’s language even a numbers-driven CFO can appreciate.