Talking PLM in the Board Room

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1 Talking PLM in the Board Room Marc Halpern Gartner is a registered trademark of Gartner, Inc. or its affiliates. This publication may not be reproduced or distributed in any form without Gartner's prior written permission. If you are authorized to access this publication, your use of it is subject to the Usage Guidelines for Gartner Services posted on gartner.com. The information contained in this publication has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information and shall have no liability for errors, omissions or inadequacies in such information. This publication consists of the opinions of Gartner's research organization and should not be construed as statements of fact. The opinions expressed herein are subject to change without notice. Although Gartner research may include a discussion of related legal issues, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner is a public company, and its shareholders may include firms and funds that have financial interests in entities covered in Gartner research. Gartner's Board of Directors may include senior managers of these firms or funds. Gartner research is produced independently by its research organization without input or influence from these firms, funds or their managers. For further information on the independence and integrity of Gartner research, see "Guiding Principles on Independence and Objectivity."

2 PLM Challenge: Not Enough "Gain" for the "Pain" 2010 Survey Question: Please rate the level of success you have achieved in your PLM efforts in the following. Improving your business overall Improving the execution of product development processes Improving the availability of accurate product data Achieving the key technical objectives of the project n=62 0% 20% 40% 60% 80% 100% Successful Qualified Success Not Successful

3 PLM Myth: The Role of PLM Software During Product Innovation Activities 2012 Survey Question: What software tools do you use most frequently in your NPD&I efforts? Do you expect their use to increase or decrease? Rank - Use Today Internal Collaboration Rank - Expected Rate of Growth in Use Capability Voice 3 3 Powerpoint 4 4 Internal IM 6 5 Web Conferencing 2 6 Video Conferencing 5 7 External IM 12 8 Database-enabled apps 10 9 Portals 8 10 Sharepoint 7 11 FTP Telepresence Social Networking 9 14 Drop Box 14 n=558 2 Rank - Use Today - Anticipated fastest growth External Collaboration Rank - Expected Rate of Growth in Use Capability Voice 2 3 Powerpoint 4 4 Web Conferencing 3 5 External IM 10 6 Video Conferencing 5 7 Internal IM 6 8 Portals 7 9 Telepresence Database-Enabled Apps FTP Sharepoint 8 13 Social Networking 9 14 Drop Box 14 n=480

4 Do Industries Lose Profits From Unnecessary Product Costs? Likely Billions!

5 Key Issues 1. Why are priorities for product cost management during NPD increasing? 2. What are best-in-class practices for cost prediction and design for cost as part of NPD? 3. What IT capabilities improve cost predictions and design for cost?

6 Key Drivers Elevating and Impacting Product Cost Management During NPD IT Advances That Enhance Costing New Product and Manufacturing Technologies Higher Priority for Predictive Costing Growing Business Complexity

7 Brent equiv. oil price in 2011 US$ Growing Business Complexity More Factors That Elevate the Priority of Predictive Costing Wildly Fluctuating Raw Material Costs Conflict Minerals Historical Oil Prices in 2011 Dollars Price Growing Tangle of Regulations Demographics and Global Markets GPSD ELV REACH RoHS/WEEE EMC Directive And More

8 Shifts in Manufacturing "Style" Make Managing Costs More Complex What percentage of your organization's current manufacturing style is each of the following? What do you expect the percentage of your organization's current manufacturing style is each of the following to look like in five years? Higher Difficulty estimating costs er

9 New Product and Manufacturing Technologies Change the Rules of Predictive Costing Software enabling products impacts production costs 3D printing hyped to redefine product designs and manufacturing processes

10 Case Study A Product Costing Failure During NPD&I Inflicts Major Financial Losses Objective: - Win large volume business deal Approach: - Manufacturing department estimates costs - No governance over costing process - Sales pressures for lowest costs - Use of spreadsheets Results: - Integrity of cost estimates compromised - Supplier won large volume business - Heavy financial losses Critical Failure Factors: - Cost estimates not objective - No costing transparency - Little collaboration to estimate costs - Spreadsheet inconsistencies Lessons Learned: - Costing governance required - Importance of culture - Need transparent costing - Begin cost predicting during design - Use enterprise costing software

11 Key Issues 1. Why are priorities for product cost management during NPD increasing? 2. What are best-in-class practices for cost prediction and design for cost as part of NPD? 3. What IT capabilities improve cost predictions and design for cost?

12 Predictive Product Costing Best Practices 1. Begin costing when designing products 2. Costing is an enterprise strategy 3. Costing practices should be transparent 4. Make costing win-win across the value chain 5. Software does not replace costing experts 6. Design for cost prioritizes customer-perceived value through the life cycle

13 Enable Win: Win Costing in Value Chains Need Trust and Software-supported Transparency Build trust relationships with suppliers and partners Share target costs and needed margins Perform joint data, simulation, and scenario analysis Share knowledge for continuous improvement From: Adversarial To: Collaborative Customer Supplier Customer Supplier

14 Major Manufacturer Improves Profitability Through Improved Costing as Part of PLM Objective: - Improve design for cost capacity Approach: - Gain executive support for costing program - Implement IT support for predictive costing - Adopted apriori software to support the effort Results: - IT is more effective than hiring more people - Increased costing capacity more than 3 times - Negotiate more effectively with suppliers - Significant cost savings Critical Success Factors: - Key costing challenge identified - Executive support - Systematic improvement of costing rules and database - Enterprisewide access Lessons Learned: - Standardization and transparency are key - Disciplined design for cost practices are essential - Replacing spreadsheets with an enterprise costing platform - Enhance the role of costing experts with software

15 Key Issues 1. Why are priorities for product cost management during NPD increasing? 2. What are best-in-class practices for cost prediction and design for cost as part of NPD? 3. What IT capabilities improve cost predictions and design for cost?

16 Successful Product Costing Begins Early in the Product Life Cycle With Engineering Transportation Increasing Ability to Influence Cost Supply Chain Optimization Manufacturing Operations Design for Cost and DFM Detailed Design Conceptual Design Design for Performance Product Architecture System Engineering Define Product Category

17 The Dilemma of Predictive Product Costing the Least Costing Knowledge Is Available When It Matters Most High Access to Cost Data and Knowledge Status Quo Lean Performance Zone "Muda" Zone Ability to Influence Product Cost Untapped Value High

18 The Dilemma of Predictive Product Costing the Least Costing Knowledge Is Available When It Matters Most High Transportation Access to Cost Data and Knowledge Factory Operations Status Quo Sourcing Lean Performance Zone "Muda" Zone Untapped Value Ability to Influence Product Cost High

19 The Dilemma of Predictive Product Costing the Least Costing Knowledge Is Available When It Matters Most Access to Cost Data and Knowledge High Transportation Factory Operations Status Quo "Muda" Zone Sourcing Detailed Design Ability to Influence Product Cost Lean Performance Zone Manufacturing Planning Systems Engineering Product Planning Untapped Value High

20 Leverage Enterprise Costing Software It Cultivates Predictive Costing Knowledge High Transportation Factory Operations Access to Cost Data and Knowledge Status Quo "Muda" Zone Sourcing Lean Performance Zone Manufacturing Planning Detailed Design Systems Engineering Product Planning Untapped Value Apply "design for cost" rules database High Perform design for Ability to Influence cost simulations Product Cost Implement commercial "design for cost" rule databases

21 Leverage Enterprise Costing Software It Cultivates Predictive Costing Knowledge Access to Cost Data and Knowledge High Transportation Factory Operations Status Quo Sourcing Elevated Value Lean Performance Zone Manufacturing Planning Detailed Design Systems Engineering Product Planning "Muda" Zone Untapped Value Apply "design for cost" rules database High Ability to Influence Product Cost

22 Leverage Enterprise Costing Software It Cultivates Predictive Costing Knowledge High Access to Cost Data and Knowledge Analyze data Transportation Capture data Factory Operations Status Quo Associate costs to product design Sourcing Lean Performance Zone Manufacturing Planning Detailed Design Systems Engineering Product Planning "Muda" Zone Compare actuals to predictions Untapped Value Apply "design for cost" rules database High Ability to Influence Product Cost

23 Leverage Enterprise Costing Software It Cultivates Predictive Costing Knowledge High Access to Cost Data and Knowledge Analyze data Transportation Capture data Factory Operations Status Quo Associate costs product design Sourcing Lean Manufacturing Performance Zone Planning Detailed Design Systems Engineering Product Planning "Muda" Zone Compare actuals to predictions Untapped Value Apply Perform "design design for for cost" cost rules simulations database High Ability Enhance to Influence design Product for cost Cost rules Update "design for cost" rule databases

24 Leverage Enterprise Costing Software It Cultivates Predictive Costing Knowledge High Access to Cost Data and Knowledge Analyze data Transportation Capture data Factory Operations Status Quo Associate costs product design Sourcing - Continuously improve Elevated Value Lean Manufacturing Performance Zone Planning Systems Lean Performance Zone Detailed Manufacturing Design Planning Engineering Product Planning "Muda" Zone Compare actuals to predictions Untapped Value Apply Perform "design design for for cost" cost rules simulations database High Ability Enhance to Influence design Product for cost Cost rules Update "design for cost" rule databases

25 Predictive Product Costing Software Must Be Multi-faceted Collaborating with suppliers Measure and analyze manufacturing costs BOM Management Apply continuously improving costing knowledge Measure and analyze MRO and service costs

26 Software Requirements for Master BOM Management Ability to make and break multi-dimensional relationships Flexibility to add and remove attributes for all BOM views APIs to link supporting application categories: - ERP, MES, planning optimization, product development environments, and service applications Search capabilities Flexible editing of BOM items and attributes Comprehensive change management and change reporting Ability to easily compare BOMs

27 The Predictive Costing Software Landscape ERP software: - Most "granular" history-based cost estimating - Most useful for cost estimates based on history: Example vendors: IFS, Infor, Oracle, SAP PLM-based offerings: - "Rougher-cut" history-based estimates than ERP - Predictive capabilities improving: Example vendors: Dassault Systemes, PTC, Oracle (PLM), SAP (PLM), Siemens (PLM) Specialty offerings: - Best of class predictive capabilities - Capable of history-based estimates depending on ERP interfaces: Example vendors: apriori, Boothroyd Dewhurst, Costimator, Facton, Siemens (Perfect Costing Solutions)

28 Recommendations Costing managers and experts: - Audit costing practices across your company and value chain - Identify opportunities to improve predictive costing practices Product development managers: - Encourage NPD, manufacturing teams, and suppliers to collaborate IT leaders and costing managers: - Win executive support through a compelling business case IT decision makers: - Pay careful attention to predictive versus history-based capabilities - Predictive power, transparency, and governance support all matter!

29 Action Plan for the Costing Program Lead Monday morning: - Request an evaluation of costing performance: Assign members of NPD, manufacturing teams, and costing departments to collaborate on the effort Next 90 days: - Conduct audit to identify top costing priorities - Present a cost-benefits analysis to senior executives Next 12 months: - Select appropriate software and service providers - Begin implementation

30 Recommended Gartner Research Hype Cycle for Discrete Manufacturing and PLM, 2013 Marc Halpern and others (G ) Hype Cycle for Process Manufacturing and PLM, 2013 Leif Eriksen, Simon F Jacobson and others (G ) Cool Vendors in Product Design and Life Cycle Management, 2013 Marc Halpern, Janet Suleski (G ) Cool Vendors in Product Design and Life Cycle Management, 2011 Marc Halpern (G ) For more information, stop by Gartner Research Zone.

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