Clarity on PLM

What I learned this week … is that product cost is not getting the attention it deserves in PLM. I was presenting on the future of PLM in a PLM-focused event last week in Helsinki. My topic was the future of PLM, and I based my discussion on the four dimensions of PLM expansion (recently updated past post). I got a great question from one of the participants. He wanted to know “why I hadn’t included cost in the future of PLM?“ My response? Good question!

Product Cost in PLM

Product Cost Management (PCM) in PLM is something that I used to bring up on a regular basis. Design for cost is an important initiatives. Particularly as companies are trying to remain lean in uncertain economic times, controlling cost is critical. Even in good times, designing products with optimal cost structures is hugely important to driving high profit margins. So why has this dropped off of my radar? Is the problem being addressed? Is the problem solved? No.

The problem still lingers, but I haven’t seen as many companies willing to try to address it. Perhaps this complicates the roles of ERP and PLM, and companies don’t want to deal with a hard decision on which system supports which part of the process. ERP and PLM both have the potential to help, and should be a part of the solution. But neither ERP nor PLM are ready to take on the PCM challenge fully.

• ERP
  • Has historic costs
  • Understands multi-currency, locations, volumes, other sourcing factors
  • Generally handles cost for the execution of procurement and manufacturing
• PLM
  • Has new parts
  • Understands product content early when costs are locked into designs
  • Generally handles product development decisions in the innovation lifecycle

So each system has some thing to offer. So why instead of addressing this properly with the right combination of ERP and PLM, do companies continue to use masses of disconnected spreadsheets to solve the problem? At least I can hope that they are managing the spreadsheets in PLM so it is readily available and can be reused. But that is only a partial solution. We need a better answer.

Challenges

ERP and PLM both bring value as seen above, but both fall short. Here are some of the issues:

• New purchased parts - ERP is not involved in the early parts of design, and doesn’t help with estimating costs of new parts. PLM (for the most part) doesn’t have a rich enough model for sourcing. I have seen “cost” as a single field too many times, without any concept that the cost will change based on volumes, locations, currencies, etc.
• Newly engineered parts – For brand new parts, there is not historic data to work from. Costs need to be developed based on product characteristics like materials and manufacturing complexity. Comparisons can help, but ERP typically doesn’t know enough to determine which parts are similar in their construction

Who will step up?

Are vendors ready for this? Agile has had a cost model for some time. Siemens partnered with ATK. Dassault Systemes invested in this area. PTC just announced that their InSight product analytics product will address cost. So there is hope. There are also specialty vendors like Akoya and aPriori that help engineers estimate cost based on product attributes. Why haven’t SAP PLM and Oracle (with Agile and ERP) done something about it?

More importantly, are manufacturers ready? Adidas CIO mentioned Design for Cost at a PLM user conference (PTCuser) yesterday. But I don’t hear it often enough. I haven’t seen the momentum that something as important to profitability as cost deserves.

Implications for Manufacturers

If manufacturers aren’t willing to integrate cost into their design processes (and PLM), they will be stuck with spreadsheets. And actually, the question was broader. The question also addressed other financials in addition to cost. For example, is PLM addressing product pricing? Product forecasting? While I think that it makes sense for PLM to address this, I have seen little activity in this area to this point. What a shame. What a great opportunity for someone to step up.

So that is my rant for today, I hope you found it interesting. Why did this fall off of my radar? Did it fall off of yours? Have you done something to address this? If you did let us know about it!

A quick peek into some research on … how manufacturers and vendors plan to react to the market for CAD, CAE, PLM, and other engineering software in 2010. Last week I posted the first part of my research for COFES, Engineering Market Research Results from COFES 2010. Last week I reviewed how 2009 predictions played out and what the survey participants expect from 2010. Today, I plan to focus on what they are going to do about it.

The Research Findings – What Comes Next?

Let’s jump right in. 2009 was a bad experience for most companies in our market, but the outlook for 2010 looks a lot better. Stunning analysis on my part, isn’t it? More details are in the prior post, but I realize I stating the obvious based on what most of you are experiencing. So what did the survey say will happen in the engineering software market between now and this time next year (2011)? It is not all positive.

• Continued Consolidation – Over half of the respondents predict “continued consolidation within the industry.” This is not all bad, by the way. The market for suites of applications always relies on innovation around the edge and consolidation into an integrated offering. This has been true for other markets as well, for example the way ERP became such a large suite of solutions. I expect we will also see the kind of consolidation expected in most mature markets, where companies acquire older solutions to scale up their customer base and maintenance revenue. 
• Fewer New Entrants – Almost half (44%) of the participants believe there will fewer new companies coming into our market. I have heard that it is still difficult to get venture funding, so this doesn’t surprise me. I hope this changes, because I think market innovation is much easier in a “garage” than in a big corporate R&D center.
• Entry by “Others” – A third that responded to the survey see further entry into this market by “non-traditional” vendors like SAP, Oracle, and possibly others through acquisition. Interestingly, less than half that many (15%) believe those same companies will enter by developing their own solutions. See Who Will Disrupt PLM Giants? for more of my thoughts on that.

The Research Findings – What Are We Doing About It?

So that explains what we think will happen, but what are market participants planning do it about it? In a word, grow. In two words, grow profitably.

• Over 1/2 of companies polled listed “grow in existing markets” and “grow in new markets“ in their three responses. What clearer message could we get? Companies are upbeat about 2010.
• But wait, 40% say they also have “remain lean” in their strategies for 2010. I believe there are two drivers behind this. The first is caution. Yes, we are recovering. But no, I haven’t talked to a lot of people that are 100% confident that it will continue or that we won’t have a “double dip.” But there is another reason, in my opinion. That is profitability. Companies that remain lean in growth markets make nice profits. It is not sustainable over the long haul because people get overworked, but as a business strategy it works.

Implications for Manufacturers
So what does this all mean if you are a manufacturer? First, you are facing many of the same conditions. Your businesses are also planning to grow, but you will likely stay lean. One of the way to stay lean is to get the most out of the resources you have, which I believe will help fuel the engineering software market recovery. To remain lean, many manufacturers will upgrade tools and automate processes to improve efficiency. 2010 will be a busy year. But would anybody trade a busy 2010 for a repeat of 2009? I doubt it. Let’s get things rolling again, and then as growth is sustained let’s start to invest and get people back to work.

So that was a quick peek into some recent research on how companies plan to react to the recovering market in 2010, I hope you found it interesting. Does the research reflect your experiences? Do you see it differently? Let us know what it looks like from your perspective. Please feel free to review more free research and white papers about PLM and other enterprise software for manufacturers from Tech-Clarity.

What I learned this week … came from some discussions with Chris Williams yesterday about my blog post SAP – Too Much, or Too Little Credit for PLM? in combination with a conversation over breakfast with Oleg, author of PLMTwine. In both conversations I kept hearing about who is going to disrupt the big PLM vendors (Dassault Systemes, PTC, Siemens PLM). Maybe I am just a small thinker, but there seems to be a lot more talk about disruption than actual disrupting going on. Time to share my thoughts, with the expectation that I might be eating my own words on this very blog over the next couple of years.

Disrupting Giants

Maybe it is my jaded view, but I don’t see technology being the disruptor to PLM. I have drawn as many “waves of technology” charts as the next guy, and discussed how difficult it is for vendors to move from one technology to the next big wave. But two things have happened:

• Enterprise software companies have managed to gain significant scale
• Vendors have gotten smarter at riding waves of technology

Already I am sure there are people disagreeing. Let me share my experience.

The Technology Wave Argument

Let’s start with the technology waves. Who will out-technology the big vendors. Will it be a SaaS play like Arena Solutions? Will it be open source like Aras? Or a brand new technology, like Chris William’s Vuuch? Or a more generalized infrastructure technology like Microsoft SharePoint? Or the king of disruption (they are disrupting everybody, I think I heard the words “disruption” and “Google“ at breakfast with Oleg more times than I orderd another cup of coffee (that is saying a lot).

OK, let me share some history that I lived through (maybe you have too). In the ERP world, many players have come and gone. Some have crashed and burned due to their own mismanagement, some have become obsolete in technology and withered away, and others tried and failed trying to migrate to new technology. So why doesn’t this happen to the current largest enterprise software vendor, SAP? Long ago, SAP burst onto the scense with Client-Server architecture with R/3. But truth be told, that transition was a slow and deliberate one. Since that time they have moved their technology along several times. Each time slowly, methodically, and never scrapping the old solution and going for broke on the new one. Countless others tried to grab the brass ring and jump to a new architecture, and drove their companies into the ground.

So while some get frustrated by slow evolution of architecture by big PLM vendors, I say they are being prudent. They are moving deliberately. Some say that will be their downfall. I say slow evolution is the best practice they learned from SAP’s success in ERP. I have heard the “we are going to make SAP (or Oracle, or whatever) obsolete pitch hundreds of times. Some from really great ideas and technologies. But where are they now? Part of the answer lies in the next section.

The Benefit of Scale

The key question in disrupting giants is what can you do that they can’t respond to? What can you where they can’t buy or build their way to the next generation? Particularly when most vendors are several steps ahead of the majority of their customers? Current vendors need to show a vision and a path, but revolution is pretty scary to most of the manufacturs they count as customers. As Oleg points out, and here I agree, one thing they can’t compete with is “free.” But I do not forsee the day that there will be an effort of the scale it takes to develop a full, integrated, PLM system. That is not just technology – it is data model and process as well. Let’s face it, this stuff is complex. But here is the thing. If one of these technologies gets hot, won’t the vendors with scale just acquire it? We are not talking about a solution with the broad interest and potential of word processing (Google Docs) or a brand new idea like social networking (Facebook, etc.). Who except a major enterprise player would invest in disrupting the PLM market? Who would find that investment appealing?

So is it SAP PLM? Or Oracle with their Agile solutions? They have the scale, do they have the will? Is PLM an interesting enough market that they will invest enough to compete with best-of-breed? Realizing, of course, that they have the advantage of their installed base in hand? Perhaps? But I don’t see this happening overnight. I believe the big ERP vendors will get to a level where they can compete, but the big PLM vendors have enough scale to stay ahead. SAP and Oracle will be players in the market, but I don’t think they will own it.

Bottom Line

Will their be acquisitions? Mergers? Sure. The names may change (I didn’t expect UGS to become Siemens PLM), but the assets (software and customer base) are large enough to live in. In my opinion. Unless they fall to their own mistakes, I don’t see a sudden displacement coming. I hope that I am not eating these words at some point, but if I should I will. But that is the way I see it.

Implications for Manufacturers

Buy the solution that works for you. Invest in it. Markets move slowly and software takes a long time to go away. Focus on the solution that meets your business needs, and that you feel you can grow with. Buy a solution that will fit the direction of your PLM vision. Keep an eye on new technologies and see where you can apply them. But I wouldn’t lose too much sleep about disruption right about now.

So have I just grown closed minded? Have I always been a small thinker and I just didn’t know it? Or am I making some sense? I hope you found it interesting. Let me know what it looks like from your vantage point.

A quick peek into some feedback on my research on … the Evolving Roles of ERP and PLM in the manufacturing industry. First, thanks to Oleg for his feedback an continuing the ERP-PLM conversation on PLM Think Tank. Oleg made some very good points and provided some good research on the research. But in the spirit of a healthy debate I want to “myth bust” his response. I will address each of the sections in his response idividually, although I split the first one into three responses.

Responses and Reactions

Managing Innovation (Busted) - The title to Oleg’s report does not reflect the thrust of my paper, but he touches on a topic that is near and dear to my heart. He makes a strong point that innovation can’t be managed. I think the first two responses to his post say a lot, particularly the first one, show that this isn’t the case. No, we are not going to automate innovation with a product line of robots. But the energy and time of smart, innovative people can be harnessed and guided to produce more results by following an innovation process. I call this operationalizing innovation. It is about process. Really.

Distinct Roles of ERP and PLM (Busted) - The point that I was making in my paper is that ERP and PLM serve different purposes. PLM helps drive product innovation, ERP helps execute the business of manufacturing. PLM’s primary role is not managing innovation, it is helping companies innovate, develop new products, and engineer them more effectively. These are fundamentally different purposes. Yes, there is overlap. But there are more differences than overlaps. See the table below for more of my thoughts on this.

PLM as a Module of ERP (Busted) - Oleg disagreed with my statement that “PLM is not just another module of ERP” and points out SAP as an example. I disagree strongly with this. SAP tried to introduce PLM as just another module. If they were successful there would be no market for PTC Windchill, Siemens Teamcenter, or Dassault Systemes Enovia. What has SAP done over the last couple of years? SAP  developed a multi-year program to introduce PLM as a complete subystem to ERP instead of a module. See my post Does SAP “Do” PLM? for more on that. Can an ERP vendor provide PLM? Sure. Is it part of the ERP system itself? Not in the near future. Need more proof? Oracle bought Agile instead of developing further on their e-business suite. Busted.

Design and Product Data Management (Confirmed) - The core of PLM is data management. PDM should be rock solid, with very robust security. I do believe that extending to other areas (compliance, costing, etc.) that leverage that core data makes absolute sense. It is like building a house on an unstable foundation, it may look nice but in the end it will collapse.

Cross Funtional Processes (Plausible) – I absolutely agree that processes are organizational.  I believe that business processes absolutely come before software and functionality. I also agree that business processes cross enterprise boundaries (click to see the article with that same name). But my point was – and still is – that companies need to choose which processes will be supported by which solution. Yes, the answer can be that some processes are supported by a combination of the two. And I would love to see business process management (BPM) play a role, even to the point of developing composite applications that leverage the functions of each system. But the point is that there are some overlap areas where companies need to choose. There is more to agree with here than disagree, though.

PLM and ERP Integration (Plausible) – I didn’t go into technical integration in my report. Why? Because I believe that it is more important to get the ownership of data and the alignment of business processes right. This includes addressing semantic differences between the systems. The days where we couldn’t get one machine to talk to the other or data was stored in a proprietary format were the dark days of integration. Today, the technical side of integration is “easy.” By “easy” I mean it is a simple matter of time and money, but it is possible. It no longer requires magic. But it does require effort. And there are some good integration stories between ERP and PLM, but currently it is mostly customer or through integration partners. So we are mostly in agreement here (I think).

Where Does PLM Stop and ERP Begin? (Busted) - Oleg says “don’t even try to put this border.” Unfortunately, as a manufacturer you have to. You have to develop a strategy about which system will address which process (again, it can be a combination). From a vendor perspective there are no boundaries, and I am not suggesting some industry standard footprint of each solution. But for an individual implementation? In some processes you have two tools that can do the job, you have to pick.

Summary
So that was a “quick” reply to Oleg’s comments on my recent research. I hope you found it interesting. I hope you found it entertaining. Mostly I hope you (and Oleg) recognize the good spirit in which this is written. Respectful debate is good for all of us. I appreciate Oleg’s perspective even when I disagree. And more often than not, we agree.

Do you see it differently? Let us know what it looks like from your perspective.

Please feel free to review more free research and white papers about PLM and other enterprise software for manufacturers from Tech-Clarity.

I had a chance to talk with… Hardeep Gulati at Oracle about the recent Agile PLM 9.3 product release. Product analytics has been, and still is for the most part, a gap in the PLM market.  So considering Oracle’s acquisitions of Hyperion and Agile in recent years, it’s not a surprise that the Oracle 9.3 PLM release is focused squarely on this area. The challenge is making this product intelligence consumable to each of the different roles along the value chain – engineering and design, manufacturing and supply chain, marketing and sales. Make the information easy to access and relevant, or you’ll have a nice analytics tool that no one uses. Oracle realizes this and has also focused the release on enhancing an already good (based on conversations over the past year with Agile users) user experience by adding “productivity tools” – for example drag and drop, inline editing, and more personalization. The company will focus their next release on leveraging their portal technology for a common user interface – a critical component of their strategy.

What do they offer?
More specifically, the product lifecycle analytics solution Oracle is offering is focused on risk management - i.e. product quality, obsolete parts, supplier’s financial liability, new sourcing options, design process, demand volatility, and where exposure is in a product portfolio. Future focus will be on deeper customer analytics during the front end of innovation, and manufacturing intelligence.

In addition to analytics, Oracle has focused on integration. We’ve heard about AIA (Application Integration Architecture) as the platform for weaving together the numerous assets Oracle has acquired, including Agile. This “backbone” (or, FUSION middleware) is an open platform that can integrate the heterogeneous environments (other PDMs, best of breeds) that are so prevalent in product development. Oracle even offers a “PIP” (process integration pack) for integrating Agile to SAP. With the 9.3 backbone you can create product development-specific services (e.g. product cost management), and have scripting available to support integration to components and segments of the product lifecycle.

How Does it Fit into the Ecosystem?
With the lack of rich product analytics in the PLM world, this is a welcome announcement. If you are looking for better product performance intelligence at all stages of the product lifecycle, Oracle’s new release warrants a look. This announcement should accelerate competitive efforts in this arena – IBM with Cognos (and it’s recently announced closer partnership with Siemens PLM), Siemens PLM, PTC, and SAP (who is working to integrate the acquired Business Objects capabilities into its product intelligence platform). I expect the next 12 months to bring rapid improvement from these and other PLM vendors, from better product portfolio analysis to product, manufacturing and supply chain analytics.

So that’s what I hear from Oracle. What do you think? What else should I have asked them?

Updated Post:

PLM evolution gets a fourth formal dimension – process. I am updating this post about a year after I wrote it. I just re-read it, and thought it was worth making at least one minor adjustment. Since that time, I realized that the “three dimensions” of expansion did not give enough emphasis on the importance of business processes. I have changed the way I present this to the “Four Dimensions of PLM Expansion.”

I thought it was worth updating this past post with (at a minimum) the graphic as I present it now. Looking back, it clearly should have been this way in the first place!

What I learned this week … came from reflecting on three major PLM product announcements this week. In one week, Dassault is announcing the new release of their “PLM 2.0″ suite, Oracle is announcing the next release of Agile PLM, and Siemens PLM is announcing the new releases of Teamcenter and Tecnomatix. Jeff Hojlo and I will be covering each of the releases in our blog, but I thought it made sense to start with some context-setting across all three. I am impressed with the amount of investment that PLM vendors have made in their products in what has been a difficult year for enterprise software in general, kudos to all three (and the others that have continued to invest in this solution set that continues to grow in importance).

Note: A special thanks to all of my friends in the vendor community for picking my vacation week at the beach to come out with some of the most exciting PLM news in some time! They couldn’t have just checked with me first (sarcasm intended).

Context from Past Discussions and Perspective

I have talked in the past about PLM expanding in three directions:

• People – Product development and product innovation are expanding across the enterprise to more people inside and outside of the business
• Product – A “product” consists of much more than R&D or engineering specifications, and needs to include a richer view that includes commercial considerations so we are looking at the “whole product.” In addition, the technical view needs to grow to include mechanics, electronics, and embedded software
• Lifecycle – Product-related processes are being integrated across previously disparate functions

As I talk about these three, I have to give an honorable mention to:

• Process – PLM processes are being expanded and integrated across all three of these directions, and it this extension and integration of processes and information that really puts the value into PLM. Without process, the other three are not possible.

Giant Leaps in Functional Scope

First, I want to start with the functional enhancements that the vendors have focused on. In the releases, I see significant investment in all three areas above. But it’s easy to talk about where your predictions come true. Instead of focusing on what I got right (not my style), let’s focus on what I missed. I missed:

• SOA – From a technical perspective, the adoption of service-oriented architecture (SOA) promises to make PLM more web-friendly, but also to allow it to be more easily pulled apart so individual elements can be incorporated into composite “mash up” processes and applications.
• Analytics -I am not going to be big enough to admit that I didn’t see this one coming. I have lived through ERP and Supply Chain and seen the transition from gathering information to leveraging it to make decisions. This is happening in PLM in a number of different areas, including designing for compliance, cost, etc. It is exceeding my expectations in terms of adoption by the vendors.
• Web 2.0 – The impact of Web 2.0 technologies and concepts are having a very big impact on PLM. The further expansion of collaboration and social computing in product development is starting to be seen. PTC also focused on this during their recent PROuser event and their earlier release of ProductPoint.

Implications for Manufacturers?
So what does this mean for manufacturers today? If you are a customer of one of the three vendors, you have some very nice functionality (and technology) to look forward to. It is time to start looking at the potential to improve your business and plan your migration. Vendors have spaced out releases in recent years, so hopefully you are due. It is time to start learning about the capabilities available, deciding how to take business advantage of them, and planning for their adoption.

If you are not a customer of one of these three vendors, take a look at your vendor to see how they are doing against the criteria above. I have seen some nice progress from PTC and SAP this year as well.

If you are not using PLM, it is time to consider why not. I believe there are very few manufacturers that will remain competitive without these capabilities. Further, this is just more proof that PLM is continuing on the path to become one of the most important – if not the most important – enterprise applications for manufacturers. The continued evolution of the solutions is just further evidence of the additional value that customers are demanding from their vendor partners.

So that is what I learned this week, I hope you found it interesting. Let me know what you think. Look for more on each relevant release shortly. After all, the sun is bad for your skin and PLM is good for everybody!

A quick peek into some research on … the respective roles that ERP and PLM play in product innovation. This is not brand new research, but I believe it is just as relevant today as when I initially wrote this almost 5 years ago. Why? Not much has changed – with a couple of notable exceptions (SAP and Oracle). I find myself coming back to this topic on a regular basis, and I am starting to do some research in this area again so I thought I would bring this one back to the surface. It also offers some insight that might be helpful for a recent discussion on PLMTwine that touches on the importance of integrating PLM with ERP.

The Research
The research identified two clear and distinct sets of business processes that companies use to drive product
profitability. These two sets of processes include:

• The Innovation Cycle – characterized by rapid iteration
• The Execution Cycle – characterize by a more linear, repeatable process

These cycles are different, and require different solutions. PLM and ERP were developed – and have since evolved – to meet the needs of each of these cycles. Is there overlap? You bet. Processes like engineering change are consistent challenges to coordinate between these two meta-processes. But for most companies, there is
a clear hand-off point where a design is released to manufacturing (and external suppliers, for that matter)
where ERP takes over.

Below is a table extracted from the research that helps to show the differences between ERP and PLM. These differences are what make each the best solution for their respective set of processes – execution or innovation.

Updating the Viewpoint
So what would I change now that five years have passed? Not much. One other interesting fact from the research (and confirmed by a later benchmark I conducted at Aberdeen Group) is that most companies would really rather have one enterprise solution that covers all of their innovation and execution needs. Unfortunately, at the time none existed. I would love to say that five years later that had changed drastically, but it has not. What has changed? The desire for an integrated solution clearly has not changed, but:

• PLM vendors such as Dassault Systemes, PTC and in particular Siemens PLM have progressed their integration to ERP, focusing mainly on SAP due to it’s market prominence in ERP
• Oracle acquired Agile, giving them a PLM solution (two actually, including Prodika) that will be further integrated with Oracle ERP over time, but is also being sold into other ERP environments (again, including SAP)
• SAP has announced and is progressing on their own SAP PLM roadmap (Update: Look for a One to One on SAP PLM in the near future, we have just had a good conversation with the SAP PLM team about their progress)

Having said that, none of the above are clearly differentiated enough to serve as the “one integrated
answer” that many companies are looking for. So for now, the best solution is likely a hybrid of ERP, potentially some PLM from you ERP vendor, some best of breed PLM suite solutions, and some best of breed point PLM solutions. Sorry, I wish there were a cleaner answer than this.

So that was a quick peek into some recent research on the roles of ERP and PLM. I hope you found it interesting. Does the research reflect reality? Do you see it differently? Let us know what it looks like from your perspective.