Product Lifecycle ManagementWhy Now?

February 13, 2007

DESIGN WRAP UP

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Why is Innovation Important?Innovation is a Major Driver of Top and Bottom Line Results

The four main conclusions from a 2005 global Innovation Excellence study were:• Innovation-based profit growth tops the corporate agenda• Innovation excellence can boost EBIT margins by 4 percentage points• Top innovators have 2.5 times higher sales of new products and get more than 10 times

higher returns from their innovative investments• Top innovators focus on customers, clarity of purpose and great people and get the highest

impact from idea, technology and resource management

Based upon an Arthur D Little global survey of more than 800 companies to obtain their insights on Innovation Excellence. The sample covered most industries from engineering and manufacturing to consumer goods and public and professional services.

Untapped improvement potential of innovation management

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How well do Companies Innovate? Innovation Performance Measure – Product Launch Success

Based on a 2006 AMR Research study involving 216 interviews with IT decision makers in U.S. based companies with more than $250M in revenue. The interviews included discussions of current and future supply chain spending plans, business processes, budget allocations, and application usage.

Vertical segments represented:• Process Manufacturing (n=39) – Chemicals, pharmaceuticals, and consumer package goods• Discrete manufacturing (n=80) – Automotive, aerospace, and high-tech• Services (n=71) – Retail, wholesale distributors, and transportation

Q: What percent of new product introductions were successful?

Total <$1B $1B - $9.9B $10B + Process Discrete0% 2% 1% 3% 2% 0% 1%1% to less than 10% 5% 4% 8% 3% 5% 4%10% to less than 20% 12% 11% 12% 14% 23% 13%20% to less than 30% 16% 20% 12% 16% 13% 15%30% to less than 40% 13% 13% 11% 16% 18% 10%40% to less than 50% 12% 17% 12% 5% 10% 8%50% to less than 60% 19% 15% 22% 21% 13% 18%More than 60% 21% 20% 21% 24% 18% 33%

Total 100% 100% 100% 100% 100% 100%

Revenues Industry

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What are the Supply Chain / PLM Trends? More Integration, Innovation, and Collaboration

PLM – The second wave

Pro

du

cti

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Process Reengineering

Process Reengineering

SCMSCM

ERPERP

1995 2000 2005 2010

• In the past 5 years, companies have invested in basic PDM-functionalities

• The main focus was so far around capturing product information for downstream processes (e.g. for manufacturing or service)

• The next S-curve is starting – new process coverage including

• systems engineering

• open innovation

• product value management

• requirements engineering

• Main focus is to generate real business value from available technologies across the whole product lifecycle and the extended enterprise

Material master data

Bill-of-Material

Document Mgmt.

Classification

CAD-Integration

Eng.-Change-Mgmt.

Requirements driven E.

Open Innovation

Portfolio-Mgmt.

Product Value-Mgmt.

Systems Engineering

Knowledge-based Eng.

Effic

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insi

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irew

all

Cro

ss-C

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Col

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Configuration-Mgmt.

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Price Pressures

The global market is driving increased pressure to reduce costs

Revenue Enhancement

Offering new products and entering new markets is driven by the desire to stabilize revenue streams and increase shareholder value– Gaining a first to market advantage– Avoiding obsolescence

Increased Customer Demands

– A more informed and demanding customer with high product and service performance and quality expectations

– Risk averse, cautious, focused on performance and more willing to switch providers

Emergence of New Channels

– Availability of multiple channels, appropriate to different products, services and environments:

– Off shore manufacturing capabilities will drive new channels for sourcing

Consolidation

Ongoing Merger and Acquisition activity is driving the need for greater coordination and economies of scale

Globalization

New players are continually entering markets as both suppliers and competitors bringing skills and challenges from other parts of the globe

“PLM is the fourth major class of enterprisewide business applications (after ERP, SCM and CRM), given its importance to product strategy and execution

and today’s level of software investment” – Gartner.

Why PLM? It is the Primary Extended Enterprise Strategy to Drive Product & Process Innovation and Cost & Revenue Improvements

PLM Enabled Innovation

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What are the Benefit Drivers of PLM?Motivation to Leverage PLM Varies Significantly by Industry Sector

Characteristic Aerospace & Defense

Auto High Tech Consumer Products

Retail

Pharma Med Equip

Development Time & Complexity

Product Complexity

Value of Innovation

External Collaboration

Level of R&D Investment

Degree of Regulation

Outsourced Manufacturing

# of “SKUs”

Packaging Complexity

Launch Difficulty

Service Management

Instance of New Product Failure

= High or Extensive

= Low or Limited

= Moderate Sectors beginning to focus on PLM related transformation (e.g., CPR, Pharma,

Telecom) are driven by reasons that are different from traditional adopters of PLM.

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Who is Leveraging PLM? The Fastest Growth is in Industries That Have Not Traditionally Employed PLM

IndustryRevenue, 2004 ($M)

Revenue, 2005 ($M)

Revenue Share, 2004

Revenue Share, 2005

Growth Rate,

2004–2005Manufacturing 1456 1590 96% 96% 9%

Wood Products, Paper, Printing 2 3 <0.5% <0.5% 31%

Textiles 47 58 3% 4% 23%

Primary/Fabricated Metal 2 3 <0.5% <0.5% 16%

Pharmaceuticals/Biotechnology 74 85 5% 5% 15%

Apparel 68 76 4% 5% 11%

Food, Beverages, Consumer Packaged Goods 144 160 9% 10% 11%

Machinery (Farm, Construction, Factory) 185 201 12% 12% 9%Computers and Electronics (Peripherals, Communication Equipment, Semiconductors) 242 263 16% 16% 8%

Aerospace and Defense 189 205 12% 12% 8%

Petro Products, Chemicals, Plastics 95 103 6% 6% 8%

Automotive and Auto Parts 335 359 22% 22% 7%

Other Manufacturing 71 75 5% 5% 6%All Other Industries 66 72 4% 4% 9%Total 1522 1662 100% 100% 9%

Source: AMR Research, 2006

Product Lifecycle Management

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How is PLM Involved?Product Lifecycle Management Involvement Across the Demand Chain

8. Maintain

5. Make4. Buy2. Design 3. Plan

7. Sell

1. Decide

6. Move

• Design product offerings

• Collaborate with Sales & Marketing to optimize products

• Collaborate with sourcing and manufacturing

• Provide product information to support sales

• Manage complex product configuration

• Capture future requirements

• Manage quality control

• Monitor manufacturing performance

• Aggregate purchasing spend

• Manage sourcing• Improve quality

and service

• Maintain product information Service & repair information

• Manage part to part relationships

• Asset management

• Monitor market conditions

• Identify potential offerings

• Select product and service offering categories

• Determine timing of product launch

• Schedule production capacity

• Plan phase out of products

• Transport product from manufacturing / sourcing through distribution to retail

• Manage transportation capacity

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How Does PLM Assist?PLM Contributes to Increased Revenue or Reduced Cost Across the Entire Demand Chain

Supplier Collaboration

Channel Collaboration

Design and Engineering:• Specifications and

structures• BOMs• Engineering Change• Development & testing

Configuration and Sales Support:

• Configuration Mgmt• Integration to CRM• Future requirements capture

Manufacturing Execution:• Product change phase in &

out including review, approval and notification

• Batch control & lot traceability

• Quality control & assurance• Document control

Design & Sourcing Management:

• Integration with product definition & changes

• eRFI,,RFQ,,RFP• Promote use and reuse of

preferred parts and optimal part selection

As Built Lifecycle Information:

• Service & repair information• Part to part relationships &

configuration management• Asset management

Product Portfolio Management: • Regular review of internal and external

performance and trends • Review of internal portfolio performance• Portfolio balancing and rebalancing to

align with strategic goals and objectives

8. Maintain

5. Make4. Buy2. Design 3. Plan

7. Sell

1. Decide

6. Move

Lifecycle Program Management:

• Manage innovation funnel

• New product launch

• Transition planning• End of life planning

Product Inventory Management:

• Obsolescence & stock write-off

• Product recall• Asset tracking

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PLM – Why Now?

Support for innovation translates to a standardized process for multiple pathways leading to commercially scalable product.

ConceptTechnical

DesignFinal Selection and Approval

• Internal Development

Commercially Available Product

• Shared Development

• Strategic Partnerships

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PLM – Why Now?

Current growth strategies include forming partnerships between prior competitors, overtaking the same customer mind- and pocket-share

Golf Equipment“PLM interested us because we needed to gain efficiency in our computer-aided design, both to increase the number of new products we were bringing to market each year and to cut the time it took to do it.”

Dan Shoenhair, Director of Engineering, Ping Inc.CIO Insight, July 2006

Outdoor Equipment“The linkages between groups and their various processes supported by PLM add much more value than product data-management tools alone ever could.” Kevin Myette, REI Director of R&DCIO Insight, July 2006

Consumer Package Goods“By consolidating their specifications for purchasing across all of its global units, P&G has reduced its direct materials costs on common materials such as corrugated box materials, pigments, and chemicals totaling hundreds of millions of dollars”Source: MatrixOne/P&G Press Release 6/27/02

Apparel“If you look at the cycle times from design to retail shelf, about two-thirds is spent in product development. The new system has the potential to remove months from the production cycle…”

Boyd Rogers, VP of supply chain and technology, VF Corp.Information Week.com February 2005

Innovation“Aberdeen’s Product Development in Consumer Industries Benchmark reports the following benefits from companies utilizing product development automation:

• 17.5% reduction in product costs• 25% to 35% reduction in design cycle times• 10% to 15% reduction in time-to-volume cycles• 75% reduction in Engineering Change Order cycle times• …”

Aberdeen Group 2005 survey of 65 manufacturing companies

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Challenges to introducing PLM

Organization

New Skill sets

Readiness for change

Process discipline

New Data Requirements

Discipline

Understanding how to leverage

Storage

Executive Sponsorship