Product Lifecycle Management Creating corporate assets or simply controlling engineering data?

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1 IBM Global Services Product Lifecycle Management Creating corporate assets or simply controlling engineering data? PLM Managing corporate assets The semiconductor industry consists of a number of lines of business grouped around a common set of technologies. Yet, regardless of product orientation memory, application-specific integrated circuits (ASICs), microprocessor those capturing new market share have shifted from traditional Product Lifecycle Management (PLM) to the management of engineering intellectual property (IP) as a set of corporate assets. IBM conducted a New Product Introduction (NPI) survey to assess the continued correlation between technology offerings and enhanced revenues. The results? A continuance of a decade-long trend. But, we also uncovered a fundamental shift in the selling of semiconductor products.

2 Product Lifecycle Management Introduction Semiconductor companies are now offering design solutions rather than single products. Similar to financial institutions that categorized their offerings into sets of assets (for example, investment banking with financial planning) to create solutions, semiconductor companies are packaging sets of designs. Thus, the ability to offer semiconductor design solutions is being governed through asset management of engineering IP. Product Lifecycle Management (PLM) as it is defined today, both within and among enterprises, is a growing focus in the industry. Giga Information Group projects 20 percent growth in global PLM sales in 2003 to US$1.4 billion (excluding CAD/CAM sales). 1 A recent CIMdata survey of 180 companies found that 84 percent were planning new design collaboration projects in the next 12 months and that 70 percent were planning to maintain or increase funding in this area. 2 When evaluating the survey base, we focused on critical success factors linked to revenue growth and market share, including time to market, time to volume, process adherence and feature richness. We correlated a set of drivers to each success factor (see Figure 1). The results revealed interesting trends and gaps. In general, companies are mastering time-to-market concepts and thus are more comfortable outsourcing elements of their NPI cycles. Also, for those focused on IP categorization, we noted new licensing revenues associated with the repackaging of older designs, enhanced IP reuse, a stronger portfolio and simplified outsourcing decisions. However, in meeting time-to-market projections, many still experience pitfalls, such as: Failure to address design-manufacturing collaboration, undermining good time-to-market results with poor timeto-value results Sacrifice of portfolio-management discipline, leading to either eliminating products late in their development cycles or releasing products that don t sell, and again yielding poor time-to-value results. In the analysis, we correlated success factors and drivers to further detail industry needs and PLM activities associated with enhanced industry performance. The following areas were analyzed: Portfolio management including product selection, core product technology, and use of knowledge and IP Process quality including cost, speed, flexibility, internal and external collaboration, and capacity planning and supply chain optimization Toolset integration including clarity of customer requirements. 2

3 Drivers and critical success factors Drivers Time to market / Time to volume Quality, low-cost Feature richness Time to qualify processes High-quality new product development (NPD) processes X X X Internal collaboration X X X Reuse of knowledge and IP X Clear customer requirements X X Robust and integrated tools X X X External collaboration X X X Portfolio management X X Capacity planning and supply chain optimization X Design fl exibility and innovation X Core chip technology X X Experienced design resources X X X Figure 1: Correlation of drivers to a set of critical success factors. Note: Blank cells = not applicable. Source: IBM analysis. 3

4 Product Lifecycle Management Portfolio management For this study, IBM defined portfolio management as the development, maintenance and renewal, over time, of products and IP that best supports a company s desired market positioning and that optimizes return on investment (ROI) to emphasize revenue over cost. Inherent in the definition is resource and IP management, as these activities are strategic in maintaining an effective, and cost-effective, product portfolio. Although many companies have done well linking their corporate strategies to their product portfolios, we still see ineffective stage gates ( go or no go criteria and decision points) for controlling the flow of ideas into later stages where significant resources are spent developing them. While some companies eliminate up to 30 percent of products before they get to market, others report doing so just before or even after entering production. Still, others report eliminating virtually no products at all. And, several agree that they release too many products into the marketplace. All of these are symptoms of a product development and feasibility analysis process that is not working properly for critical designs, with an underlying lack of insight into market trends. These portfolio management issues are causing reduced realization of annual product revenue, with some levels less than five percent. Many issues stem from these underlying problems: Difficulties in capturing customer needs and in making effective demand forecasts Limited IP mining and an inability to absorb IP from acquisitions for reuse Ineffective resource alignment and resource allocation across projects, leading to limited creation of nextgeneration technologies and crisis management on existing projects A trend toward the development of platforms capable of supporting multiple product derivatives. In spite of this, most companies show low levels of component and design reuse when designing the derivatives with trends of less than 20 percent reuse in some cases. Where reuse is achieved, functionality is overwhelmingly the main criterion with little thought to cost, IP leverage and the like. portfolio management issues are causing reduced realization of annual product revenue, with some levels less than five percent. 4

5 Process quality Companies are exceptionally aware of the benefits that process improvement activities bring, particularly given the growing complexity of technology and design requirements. Not surprisingly, improvements to process quality were listed among the highest-priority items for semiconductor companies. However, it is apparent that companies are not always focusing their attention on the breadth of the problem (see Figure 2). For example: Poor integration of design and manufacturing activity is common, with only 50 percent of the companies having adopted the established best practice of designing the manufacturing flow and supply chain prior to, or in parallel with, live design work. Most companies view PLM and IP as an internal rather than an external issue, with levels of customer and supplier integration lower than expected. As the value chain continues to disaggregate, and with ever-higher levels of design and manufacturing outsourcing, a complete change of mind-set is due in this area. Many companies miss the importance of workflow for translating process design into both system functionality and actual behavior. And, many companies still overlook the ability of current PLM systems to support step definition, documentation of routings; approval and sign-off by management (often with condition-based reconfiguration); and the assembly of data and documents. Almost all companies report that communication between design and manufacturing has recurring gaps. Few companies have tools and product data access spanning the divide between design and manufacturing. 5

6 Product Lifecycle Management Product development processes have less than 25 percent value-added time. Some key reasons for this are: Time distribution Poor information access and sharing Lack of standard processes and tools Poor coordination across the business within design and also supply chain High levels of ECOs drive rework Changes often late in the design process; cross-product line impacts missed Poor coordination with external partners: processes, information, change notices and so on Multiple prototype runs Poor IP leverage; existing parts redesigned due to lack of access or discipline Shortage of engineering staff Waiting Rework Manufacturing support Marketing support Miscelaneous Training Value added Poor accountability and measurement. Figure 2: Illustrative Key reasons for low value-added time. Source: IBM engagements,

7 Toolset integration and robustness In general, the semiconductor segment has not fully adopted integrated PLM toolsets. Thus, the following behaviors are still leading causes of poor customer communication, hindered product-recall processes and low product acceptance: Multiple point solutions allow the product data set to be fragmented and duplicated into multiple versions across disparate legacy systems. CAD and other systems do not integrate with productdata vaults. Clarity of customer requirements Many, if not most, technology companies claim to be customer-centric. Yet, the semiconductor segment maintains a strong emphasis on products over customers. Given the capital intensity of the industry, this is not surprising. Chip fabrication plants are expensive assets requiring the maximum throughput to achieve acceptable return on invested capital. As a function of this environment, an average of 71 percent of existing products surveyed are designed with reuse of existing manufacturing capacity in mind. Design and manufacturing data is stored on separate, often disconnected, systems. Attempts at collaboration are decidedly asynchronous, using fax, phone and both with external entities and even internally between different design centers. Not surprisingly, 80 percent of respondents report some or regular gaps in communication between functions, and most identify toolset issues as barriers to process improvement. The picture is somewhat reminiscent of attempts to implement concurrent engineering in the 1980s and 1990s when attempts to change business processes and organization for the better were thwarted by lack of automation. But today, most companies recognize the capability and ease of implementation from available toolsets and are now integrating automation successfully. the semiconductor segment maintains a strong emphasis on products over customers. 7

8 Product Lifecycle Management But the issue is that the customer perspective appears to be ignored. For example, when generating product concepts or requirements, we noted these consistencies within the sample: Most companies use fit with strategic direction ( we are going to make this because this is what we make ) or competitor analysis ( we are going to make this because our competitor is making it ) as their main decision criteria. While 60 percent also rely on existing customer research, only 20 percent undertake research for successive new products. Almost 80 percent of our sample reported that the primary method of gathering new customer requirements is through requests from customers to their marketing department, and 90 percent reported that the most frequent avenue for those suggestions was to contact the account representative. In other words, new product needs are gathered as a by-product of taking orders for existing products. One is left with the impression that without proactive customers, many companies in the segment would receive no new product ideas at all. Responding to stated needs is one definition of customer-centric; a better one is actively shaping and capturing those needs. Non-product differentiation opportunities Core competition: Price and performance Availability Service and technical support Compatibility with complementary products Partner network support Forecast and commit Support and service Channels Customer strategy Integrate OEM, CEM and distributor demand forecasts to increase accuracy Integrate sales or customer portal with Advanced Planning System (APS) forecasting tool to improve product availability Create tiered service levels by customer prioritization Implement a proactive support model to reduce crises Enable systematic routing and escalation of customer service requests (CSRs) Figure 3: Non-product differentiation opportunities. Source: IBM Alliance management Increase channel visibility and control to create consistent customer experience regardless of channel Evaluate channel and alliance partner capabilities and needs to clarify roles Customer satisfaction Customer analytics Clearly segment and prioritize customers Integrate customer satisfaction results into performance measures Analyze customer data to drive service and product differentiation 8

9 How do your processes rate? Our research is based on a detailed questionnaire with nearly 180 questions, but you can begin to assess your own company with just a few. As you look at your current organization and plans for the future, consider the following questions: How effectively are you filtering ideas in the early stages, before significant resources have been expended? Is a market reassessment part of every review before passing a project to the next stage? Is manufacturing involved early enough in the process to drive reuse of manufacturing capacity? Have you created processes that not only integrate PLM tools, but also instantiate those tools into processes that increase productivity? Are your product enhancements truly customer-driven or reactive? Do you regularly assess all projects in the portfolio in order to balance risk? Do you assess what you should outsource through a standardized make-versus-buy decision process? Do you know what your differentiation is today and what it will be in the future? 9

10 Product Lifecycle Management Conclusions Management of IP as an asset remains a challenge. Yet, industry leaders are meeting the challenge with process redesign; enhanced portfolio management; integration of marketing, engineering and manufacturing metrics; and automation of fully integrated PLM systems. Others are beginning to design benchmarking practices and develop their own roadmaps. Regardless of ROI, enhanced PLM practices have emerged as a fundamental requirement of business. As such, semiconductor companies must embrace this paradigm shift and begin to measure IP asset intensity. When this shift is under way, it will be easy to leverage IP for multiple uses, including licensing and reuse. Additionally, companies can develop fewer numbers of products and those products can perform better enhance portfolio management through better stage-gate filters, offer better demand-forecasting and achieve deeper customer understanding. All these goals are realistic and attainable through leverage of internal and external collaboration environments and the management of integrated product data. Research methodologies Our prior research indicated that, across all stages of the economic cycle, effective innovation generally fuels superior fi nancial results. Thus, we conducted the IBM New Product Introduction Survey to study that trend and determine the effectiveness of semiconductor companies PLM processes in Data was gathered from global companies defi ned as leaders in the development of memory chips, microprocessors, ASICs and analog chips. The survey consisted of nearly 180 questions, asking respondents about their processes, technology and management techniques to generate ideas, create products, manage IP and manage their product portfolio. To browse other resources for business executives, we invite you to visit our Web site at ibm.com/services/strategy 10

11 About the authors Marilyn Stemper, an IBM Business Consulting Services partner, leads the Collaborative Product Commerce practice in the western United States and also consults directly for Fortune 100 clients in the high-tech industry. Marilyn can be reached at References 1 Rugullies, Erica. Market Overview: Collaborative Product Development. Giga Information Group. 20 November CIMData. Late Breaking News. 22 October Dr. Peter Williams is a Director with IBM Business Consulting Services with experience in PLM issues and business-to-business collaboration stretching over more than ten years. He has worked with many Technology companies and also in the Defense and Aerospace sectors. Peter can be reached at peter.r.williams@us.ibm.com. Contributors Andrew Snoey Consultant, Collaborative Product Commerce practice, IBM Business Consulting Services Dan Greenberg Co-Lead, Industrial Sector Team, IBM Institute for Business Value Jonathan Cooper Consultant, Industrial Sector Team, IBM Institute for Business Value 11

12 Copyright IBM Corporation 2002 IBM Global Services Route 100 Somers, NY U.S.A. Produced in the United States of America All Rights Reserved IBM, the IBM logo and the e-business logo are trademarks or registered trademarks of International Business Machines Corporation in the United States, other countries, or both. Other company, product and service names may be trademarks or service marks of others. References in this publication to IBM products and services do not imply that IBM intends to make them available in all countries in which IBM operates. Printed on an IBM Infoprint Color System Full-Color Digital Printer. G

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