Comment

01 October 2002

PLM leads collaborative charge

'Trust is in, and adversarial contingencies are out.'

By Jim Strothman

At most all manufacturing industry conferences this year, the message has been the same: The "collaborative era" has dawned, and the manufacturing landscape is certain to forever change.

Product life-cycle management (PLM), a strategic, enterprisewide business approach that spans a product's entire lifetime, has roared onto the collaborative scene as a particularly hot market segment. AMR Research estimated PLM revenues grew 35% in 2001-a year when most of the industrialized world's economies tanked.

Coping with fast-evolving collaborative software technology will be hard enough. Dealing with cultural changes may be even more challenging.

For many manufacturing decision makers, "collaborative manufacturing can be a totally different way of doing business," Michael McClellan, MESA International board member, warned attendees at MESA's 2002 Conference & Exposition.

It's "the era when trust is in, and adversarial contingencies are out," said McClellan, a 30-year manufacturing industry veteran, author of a book on collaborative manufacturing, and president of MES Solutions Inc., a Vancouver, Wash.-based consulting firm specializing in that subject. Doomed are the days of beating down suppliers' prices and caring little whether the suppliers survive, he said.

"It's the era when real facts and shared information are the foundation for business decisions and business relationships," he said. "The era when estimates or assumptions are regarded as guesses. The era when working together with shared and confirmed information is the norm, not the exception. The era when supply chains compete against supply chains, a major change beyond company against company."

ARC Advisory Group in Dedham, Mass., agrees. Historically, "in the manufacturing era the focus was on the plant, and it operated relatively independently," according to an ARC Strategies report, "Collaborative Process Automation Drives Return on Assets."

"In the fast-evolving collaborative manufacturing era, things are considerably different. Collaborative manufacturing management provides the overall structure. Process control is no longer independent or the focal point of manufacturing. The focus is on enterprise performance, and as such, business systems are the focal point and responsible for optimizing planning and scheduling, while the manufacturing systems are responsible for responding optimally."

PLM MARKET HOT

Studies show that today PLM is the fastest-growing enterprise applications market segment, based on percentage growth. Briefly, PLM is a strategic, enterprisewide business approach that spans a product's lifetime, from concept to end of life. It covers everything in between, including product design, collaborative business decision making and manufacturing, customer delivery and service, customer comments, changes, and improvements, for example. PLM integrates people, processes, and information throughout an enterprise and along the supply chain.

Source: AMR Research, Inc.

An outgrowth of product data management (PDM) software, "PLM takes PDM to a new level," McClellan told MESA conference attendees. For many early adopters, PLM's payback has been rapid, he said. "It's so obvious. Why wouldn't you do PLM?" the collaboration expert challenged his listeners.

"PLM is beginning to take shape as a distinct and major market," said a recent AMR study, "The Product Lifecycle Management Applications Report, 2001-2006."

"Progress in 2001 toward clarifying what PLM means relative to its predecessors like PDM and collaborative engineering was substantial. When looking ahead to the prospects for PLM in coming years, several factors converge to suggest strong, sustained growth through 2005 and possibly beyond," according to the report, authored by researchers Kevin O'Marah and Beth Myer.

AMR's report, published last June, said the PLM revenue portion of the overall enterprise applications market totaled $2.023 billion in 2001. AMR predicted PLM revenues will grow at a compound annual growth rate (CAGR) of 30% from 2001 to 2006, becoming the fastest-growing enterprise applications market segment, based on percentage growth.

In dollars, AMR projected PLM revenues will grow to $2.652 billion this year, reaching $3.66 billion in 2003, $4.831 billion in 2004, $6.184 billion in 2005, and $7.544 billion in 2006.

AMR sees the total enterprise applications market nearly doubling, from $38 billion in 2001 to $70 billion in 2006. Besides PLM, other market components include the largest segment-customer management, growing at a five-year CAGR of 19%; business-to-business exchange platforms, 13% CAGR; procurement, 14% CAGR; core enterprise resource planning (ERP), -1% CAGR; and supply chain management, 19% CAGR, AMR predicted.

Many or all of those components can arguably be included under the PLM umbrella because PLM covers all aspects of a product's life cycle, involving the entire enterprise and supply chain.

Source: MES Solutions, Inc.

DEFINITIONS DIFFER

Another consulting firm, Ann Arbor, Mich.- based CIMData, which specializes in PLM, has a broader PLM market definition. It defines PLM as "a strategic business approach that applies a consistent set of business solutions in support of the collaborative creation, management, dissemination, and use of product definition information across the enterprise, from concept to end of life."

By that definition, CIMData estimates in 2001 the overall PLM market exceeded $11 billion. "We expect growth over the next three to five years to be in the mid- to upper teens (16% to 18%), with the possibility that it could exceed 20% post-2002 as the economy recovers and the cPDm [collaborative produce definition management] segment expands," said Ken Amann, CIMData director of research.

Generally speaking, PLM suppliers have evolved from two directions. Some are ERP suppliers led by SAP. The predominant group, however, comprises mechanical computer-aided design suppliers, including the one CIMData ranks as the revenue leader: IBM PLM/Dassault. Other leaders include EDS PLM; PTC; MatrixOne; and Agile Software, which partners with Sun Microsystems.

During MESA's 2002 conference, Invensys's Baan boosted its PLM muscle, extending its iBaan for PLM suite with significant new functions that Baan said enables users to track, manage, and monitor products.

PLM vendors tend to specialize by industry. Traditionally, PLM's market base has been in discrete manufacturing segments-aerospace and defense, where Dassault is a major player; electronics; and automotive industries, for example. Research firm AMR, however, reported "strong growth" in consumer products, led by Procter & Gamble and Nestlé; pharmaceuticals; and chemicals.

Despite the IBM/Dassault team's high revenue numbers, "I've only run across them twice [in a competitive situation] in the past four years," said Michael Baker, director of high-tech business practices for MatrixOne. About 40% of MatrixOne's revenues come from high-technology firms such as semiconductor manufacturers; 25% from the automotive industry; and about 10% from pharmaceutical and life sciences.

Baker and others attribute PLM's rapid growth, despite the economic meltdown, to rapid payback, measured in part by return on investment but also by other business matrixes. They include return on assets, return on utilization, and decreased component costs.

CHANGE NOT DISRUPTIVE

When a manufacturing firm commits to PLM as a business strategy, "it's a change in the way they do business but not that disruptive," Baker said. Basically, PLM is a glue that provides "deep, bidirectional, and seamless integration" of islands of software ranging from Microsoft Word servers to ERP and an enterprise's entire supply chain. Using that integrated data, PLM systems overlay their applications layer.

PLM goes beyond ERP because it also encompasses plant floor systems and "extends beyond the four walls" to suppliers.

The economic meltdown spurred the "collaborative age." During the past 18 months, "manufacturers moved away from the OEM model of 'Who can build my product the cheapest?' " Baker observed.

"Now they're saying: 'How can I become strategically integrated with my contractor? If I can move the risk for purchase downstream [to the outsourcer], that's a win. I don't have the risk of holding inventory.' Meanwhile, the contract manufacturer doesn't mind getting that [inventory] risk because it gets better leverage with a global procurement contract."

Baker cited two MatrixOne customers, electronics contract manufacturing giant Solectron and Europe-based Pace Micro Technology, as a classic collaboration example.

"Pace sold off 90% of its manufacturing business to Solectron." After that deal was agreed on, however, whenever Pace gave Solectron a new product to build, engineering change orders from Solectron cost Pace two to three weeks in time to market, he said.

Pace told Solectron, "If you'll give us your component information so we can use it up front, we can take out 60% of that two to three week delay time." Solectron agreed. "It's true collaboration in the highest sense," he said.

A Sun/Agile customer, Kimball Electronics Group, which is also a large electronics manufacturing services provider, was having difficulties rapidly receiving and aggregating bids from all its component suppliers. This resulted in Kimball not having the best pricing data available when it in turn needed to rapidly respond to requests for proposals from Kimball's own large customers.

Agile's PLM software, coupled with Sun ONE infrastructure software, fixed the problem, said Richard Walker, Agile vice president of alliances.

"2001 was a breakout year for PLM," said O'Marah and Myer in their AMR report. "PLM started 2001 dogged by ambiguity among vendors and users in terms of what it meant, who really had it, and even what to call it."

Today, "PLM has finally emerged as the de facto category title of choice, and by delivering 35% growth overall [in 2001], it appears ready to develop into a major market." IC

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