“Making the Right Business Case for PLM in Supply Chains” Mark Frohlich Associate Professor of Operations and Supply Chain Management [email protected]

“Making the Right Business Case for PLM in Supply Chains”

Mark Frohlich

Associate Professor of Operations and Supply Chain Management

[email protected]

PLM Consortium - 2015

2 PLM Consortium - 2015

Presentation Agenda

▪ Quick Overview of Annual Manufacturing Study▪ PLM in the Engineering and Business Schools▪ Business Case Models for PLM▪ Q & A


Annual Indiana Manufacturing Study

▪ Manufacturers of all sizes

▪ 9th Year, State-wide Survey

▪ Spring – Summer 2015 Underway


Industry Types (2014 Survey)


Next Year’s 2016 Study

▪ No PLM questions ever in our survey

▪ I honestly don’t think any major business school is currently surveying managers regarding PLM

▪ For 2016 we’ll include a PLM section

▪ ~10 Months (April 2016) to figure out what questions to ask

▪ I’ll be asking for your help with those questions…


PLM Should be of Interest to Survey Participants: Type of Products


Product Lifecycle Management (PLM):Two Engineering Perspectives

Source: Initiative for Product Lifecycle Innovation (IPLI)

Cyclical Nature Numerous Processes & IT Systems


Product Lifecycle Management (PLM):Two Business Perspectives

Product Definition Product Development Product Launch

Time

Wor

kloa

d

Low

HighTotal Project

Costs

Management’sability to “kill” or

redirect theproject

Manufacturing

R&D/Engineering

Marketing


Product Lifecycle Management (PLM): Two Business Perspectives


PLM is Not a New Business Topic!

“Exploit the Product Life Cycle” HBR 1965 - Theodore Levitt


The Business Case (or “Analytics”) for PLM

As with most business case models there are 3 PLM options:

1) Traditional Approach: Building the most accurate model possible

2) Scenario Approach: Forecasting “Worse”, “Expected”, and “Best” cases

3) Using a New Analytic: Hopefully (!) building an even more accurate model using a different technique


The Business Case for PLM:Traditional Approach▪ PLM business case typically built around Return on

Investment (ROI) model

▪ Goal is making these as accurate as possible


The Business Case for PLM: Traditional Approach

Costs

Initial planning▪ Scope the program /align stakeholders▪ Justify the investment

Implementation▪ Software licenses▪ Hardware infrastructure▪ Configure / customize applications▪ Format and migrate legacy data▪ Integrate to downstream applications (e.g., ERP,

SCM, etc.)

Ongoing expenses▪ Software maintenance▪ Hardware maintenance▪ User training▪ Change management costs

Gains

Improved time-to-market▪ First-mover advantage▪ capture more revenue early

Operational efficiencies▪ Less duplicated data & checking for inconsistencies▪ Less searching for information & fewer processing

errors▪ Less rework (from out-of-date information)

Lower material and production costs▪ Reduced prototype costs▪ Reduced scrap costs▪ Increased procurement leverage▪ Reduced tooling expenses

Lower compliance risks▪ Expedited product recalls▪ Minimized civil penalties, legal fees, etc.,


The Business Case for PLM:Traditional Approach

Supplier Manufacturer Distributor Retailer

The Problem: PLM’s relevance varies across supply chains

Note the “transition” from manufacturing to services


The Business Case for PLM:Scenario Approach▪ Palisade’s @Risk Software

▪ Novelis Case http://www.palisade.com/cases/Novelis.asp


The Business Case for PLM:A New Analytic?

▪ Black and Scholes (1973)▪ An “option” is the act of choosing or “the freedom of

alternatives”▪ A “real option” exist when managers can influence

the size and riskiness of a project’s cash flow by taking different actions during the project’s life

▪ Managers always look for “real options” in projects▪ Value of a “real option” increases with uncertainty

Conventional View

“Real Option” View

https://www.youtube.com/watch?v=lwoCGAqv5RU


The Business Case for PLM:A New Analytic?

▪ Real options theory is starting to be used to make better on- vs. off-shoring decisions (e.g., Suzanne de Treville at HEC - University de Lausanne - https://hbr.org/2010/10/it-may-be-cheaper-to-manufacture-at-home)

▪ Cost-based models (e.g., ROI) always “advise” off-shore▪ Real Options modeling the value of “flexibility” and “short lead-times” often “advise” keep

manufacturing on-shore▪ Can we use real options to model PLM in supply chains regarding the value of things such as “speed

to market”, “painless recalls”, or “closer partner coordination”?


Questions and/or

Comments?

Documents

“Making the Right Business Case for PLM in Supply Chains” Mark Frohlich Associate Professor of Operations and Supply Chain Management [email protected]