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“Making the Right Business Case for PLM in Supply Chains”
Mark Frohlich
Associate Professor of Operations and Supply Chain Management
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
3 PLM Consortium - 2015
Annual Indiana Manufacturing Study
▪ Manufacturers of all sizes
▪ 9th Year, State-wide Survey
▪ Spring – Summer 2015 Underway
4 PLM Consortium - 2015
Industry Types (2014 Survey)
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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…
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PLM Should be of Interest to Survey Participants: Type of Products
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Product Lifecycle Management (PLM):Two Engineering Perspectives
Source: Initiative for Product Lifecycle Innovation (IPLI)
Cyclical Nature Numerous Processes & IT Systems
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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
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Product Lifecycle Management (PLM): Two Business Perspectives
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PLM is Not a New Business Topic!
“Exploit the Product Life Cycle” HBR 1965 - Theodore Levitt
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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
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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
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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.,
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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
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The Business Case for PLM:Scenario Approach▪ Palisade’s @Risk Software
▪ Novelis Case http://www.palisade.com/cases/Novelis.asp
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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
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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”?
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Questions and/or
Comments?