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.
- Has historic costs
- Understands multi-currency, locations, volumes, other sourcing factors
- Generally handles cost for the execution of procurement and manufacturing
- 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.
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!