By Ivan Choi

For companies seeking greater product development productivity, product lifecycle management (PLM) is a growing frontier. Recently, organizations have begun increasing their investment in PLM solutions to improve R&D execution. However, many of these investments have yielded mixed results. A recent study conducted by a benchmarking subsidiary of the management consulting firm PRTM found that effective implementation of PLM can significantly impact revenue and profitability. The link between PLM process maturity and business performance highlights the importance of process in successful PLM implementations.

PLM is an integrated approach to decision-making that applies to an offering from concept through end of life. It spans both product development and supply chain, and it is cross-functional, involving multiple core processes and extending to key external partners. Since PLM is central to an organization’s value-creation engine, many companies are starting to improve underlying processes and invest in appropriate enterprise systems. But implementing appropriate PLM solutions raises major challenges.

Those challenges include choosing the right implementation approach. Some organizations believe that deployment of a solution that emphasizes systems, as opposed to process, is the way to achieving rapid growth, but is this the right method for all companies? Companies must also adopt best practices. Executives recognize the long-term potential benefits from employing the right PLM solutions, but which practices drive real results? Companies must also address cross-enterprise complexity. External partners are often key to profitability and growth, but how do you integrate these partners' disparate processes and systems?

The challenges are significant, but so is the promise. As more companies focus on PLM, they can benefit from definitive and fact-based benchmarks to understand best practices and set improvement targets.

PRTM recently launched a pioneering PLM study that quantifies benefits and identifies best practices within PLM operations. The study targets operations-related processes, including requirements management, design excellence, product data and engineering change management, supplier and component management and collaboration execution. The first phase of the PLM study focused on companies in the industrial, automotive, and aerospace sectors. During the second phase, the scope was expanded to include electronics companies. Based on the combined data from all participants, analysis showed surprisingly consistent findings across the multiple segments.

There is a correlation of process maturity to business performance.
Participants assessed their practices and performance within each process area. Practices were organized by stage, ranging from "Stage 0-ad hoc" to "Stage 3-extended enterprise collaboration." Preliminary study results are compelling. In addition to detailed process metrics and best practices within each process area, the study reveals a vital link between PLM process maturity and business performance. When comparing Stage 0/1 companies to Stage 2/3 companies, significant differences were found in time to profitability, profitability growth, and revenue growth. Stage 2/3 companies have 2.2 times greater profitability growth, 33 percent higher revenue growth, and 22 percent faster time to profitability.

There are keys to recapturing lost profitability.
Participants highlighted causes of lost profitability and estimated a percentage of "lost profitability" associated with each. The top three causes were time to market, product requirements/quality, and product cost problems. All three of these areas are PLM-related. Time-to-market, identified by survey participants as the most significant cause, has three key components: late changes to product requirements, poor program management, and collaboration/partner performance issues.

Poor requirements management can have a significant impact on overall product quality.
Approximately 37 percent of study participants identified the most significant requirements management problem as "incorrectly defined requirements." This includes both the incorrect definition of initial product requirements as well as incorrect translation of top-level requirements into lower level subsystem requirements. Missing requirements are also an important issue, according to 29 percent of the participants.

Unplanned requirements also can affect product quality. Participants indicated that 40 percent of unplanned requirements surface after the core design and development phases are completed. These unplanned requirements result in time-to-market slippage, decreased productivity, and costly design changes.

The PLM study revealed some interesting trends in product costs.
Survey participants reported that product cost performance was generally poor, with 50 percent of products launched above original target costs and cost overruns averaging 14 percent higher than plan. Multiple factors were responsible. Participants on average were only able to reuse 47 percent of product content across products, while 46 percent reported that multiple configurations had a negative impact on their product costs.

Companies that effectively implement PLM solutions are realizing top- and bottom-line performance improvements. However, the majority of companies have been unable to realize PLM's full potential because of factors including misaligned process and system maturity, overlooked drivers of PLM effectiveness, and not leveraging best practices.

Ivan Choi is a principal in management consultancy at PRTM. His experience includes product lifecycle management, program management, and supply chain management. To access the PLM benchmark results webcast, go to https://www.livemeeting.com/cc/pmg/ view?id=PLMwebcast-1&pw=PLM1