PLM ensures BOMs don't bomb
Product Lifecycle Management software and services aim to aid supplier management, product development
By Paul E. Teague -- Purchasing, 9/15/2005 2:00:00 AM
In the acronym-laden world of manufacturing, where "ERP", "JIT", and "MRP" echo throughout the plane, the three letters BOM are king.
Like the recipes used by the finest chefs, the BOM or bill of materials, is the detailed list of ingredients—materials and components that manufacturers use to make their products. Every product has a different BOM. In the most progressive companies, procurement staffs help product development teams build the BOM. In virtually all companies, procurement sends the BOMs to suppliers who provide the components or subassemblies for the product—or who may actually build the product for the manufacturer.
Sounds pretty simple. But what if the BOM bombs? What if the BOM that the procurement staff sends contains outdated part numbers or doesn't reflect changes made in the design? The answer: Suppliers provide the wrong parts or build the wrong systems, schedules get shot and the company loses money.
Enter a new acronym: PLM.
PLM—or product lifecycle management—refers to software and processes that help companies track a product from concept and design intent to manufacturing, upgrading, recycling and obsolescence. "It helps you know your product record," says Brian Stolle, president of San Jose-based Agile, a PLM product and services provider.
While PLM software traditionally covers the needs of engineers, it holds benefits for all members of product-development teams, including procurement staff. "It ensures that procurement staffs get accurate information on BOMs that they can send to their suppliers, and eliminates the 'gotchas'"—the extra charges suppliers can levy when they find the BOMs they were working on were wrong.
Adds Jim Dickerson, director of integrated product development at IBM: "PLM can help companies select better suppliers, document their performance and compliance and gage whether their suppliers are helping their own vendors improve their quality."
And, says Gareth Evans, global product development solutions practice leader at Hewlett-Packard, "it puts all information on a product in one place, a single BOM, so there are fewer errors and faster decisions."
The expectation of benefits like that have boosted sales of PLM products and services. Consulting and research firm CIMdata says the overall PLM market in 2004 grew 8% over 2003 to approximately $16.7 billion. Most of that growth—68%—was in sales of tools such as computer-aided software engineering and electronic and mechanical computer-aided design software. The remainder of the growth was in what CIMdata calls collaborative product-definition management, including the sharing of product-related information. That's where procurement comes in. CIMdata researcher John MacKrell says procurement staffs can use PLM as a sourcing tool and to share detailed product information with suppliers. In other words, they can send better BOMs to suppliers through PLM.
The trigger: outsourcing
Telecommunications giant Lucent Technologies knows all about BOMs—and PLM. The company has been using PLM and its predecessor technology—PDM (product data management)—from Agile since 2001. In combination with other business-practice changes, PLM has helped the company dramatically improve the gross margin on its products—from 16% in the first quarter of 2001 to 45% in the third quarter of 2005, says Marc Benowitz, Lucent's director of reliability and engineering infrastructure.
Lucent's adoption of PLM coincided with the company's move to outsourcing. In April 2000, Lucent CEO Richard McGinn announced that the company would outsource much of its manufacturing so it could concentrate its efforts on what it did best, namely R&D, systems integration, customer support, network design and high-end process manufacturing. Lucent's move was a bow to reality. Competition had become savage, so much so that the telecom industry eventually faced near collapse. At the same time, outsourcing as a concept was coming on strong and being adopted by a growing number of companies.
Of course, turning over so much of manufacturing to contractors would require a great deal of coordination and collaboration. Under its former vertically integrated business model, Lucent designed, manufactured and serviced its own products through 11 different business units, each of which operated independently. But, says Benowitz, the design and manufacturing staffs collaborated regularly. Still, there were times, he says, when the same parts were used in different products and assigned different part numbers, an inefficiency that, at the least, caused confusion and, worse, added to product cost. Outsourcing could have made things worse still.
Benowitz says a critical element in the effort to outsource became the integrity of the BOMs. To avoid using wrong part numbers or outdated parts, Lucent used its PLM system to centralize all part numbers in one place—the Agile software—and gave access rights to the site to procurement, engineering and suppliers. "The centralization meant everyone could easily find the parts and identify common parts used in other Lucent products," Benowitz says.
Producing better BOMs with PLM can prevent a lot of ulcers, implies Agile's Stolle. "If you're doing the manufacturing in house and there's a problem with the product information in the BOM, you get a lot of screaming between design and manufacturing," he says. "When you are working with contract manufacturers, you get an invoice, so you better know what's going on."
Benowitz says that PLM has helped Lucent dramatically cut BOM errors that were adding cost. "Also," he asserts, "we now know who in the company is using the same parts." And that helps better leverage Lucent's spend.
Window of performance
Stephen Segal, of Canadian firm Loewen Windows, expects to receive the same benefit from his use of IBM's PLM software and services. The company uses CATIA for its 3D engineering modeling software and SMARTEAM for data management. Segal is in the beginning stages of implementing the PLM features of the software, but plans to use it to share information on design digitally with its suppliers and keep them abreast of engineering change orders.
He says that the biggest benefits he expects to receive from PLM will be better communication with suppliers and the ability to better track supplier performance. PLM will help Loewen ensure that BOMs are accurate and up to date, and will help the company monitor suppliers and encourage them to upgrade their own technology, he says. "We'll favor the suppliers who interface well with our processes and that will help us reduce the number of suppliers."
Already in the last 18 months, Loewen, which has a total direct spend of approximately $10-50 million, has cut out about 100 suppliers from its roster. And they haven't even begun full implementation of PLM yet.
The PLM products and services IBM supplies to Loewen Windows actually sprang from IBM's own experiences in retooling itself. In the mid 1990s, faced, like Lucent was, with an increasingly competitive market, IBM instituted an integrated product development (IPD) system to determine which products and services would hold the greatest market potential. The IPD process involves all relevant departments in product decisions, including sales, marketing, manufacturing, logistics, fulfillment and procurement. PLM was and is part of that process.
Recalls IPD Director Jim Dickerson, IBM development teams traditionally didn't communicate well and subsequently would design the same or similar components for different products. "Procurement staff working on different products would sometimes go to different suppliers to get the same part, increasing cost and complexity," he says.
At the same time, he says, some IBM factories might have too many units of, say, a particular memory chip, while others wouldn't have had enough. "Procurement was ordering more parts for the factory that didn't have enough instead of transferring the parts from the factory that had the parts in stock," says Dickerson.
With IPD and its PLM offshoot, procurement would have the information it needed. And, says Dickerson, PLM helped procurement select better, more qualified suppliers and build better BOMs.
All of those capabilities found their way into IBM's commercial PLM products and services.
Early involvement
Hewlett-Packard, too, built its PLM offerings based on its own experiences. "Internally at HP, we focus on getting procurement involved early in product design so we can design for the supply chain," says David Pieper, HP's global practice principal for supply chain/procurement and sourcing.
He and his HP colleague Gareth Evans believe in the value PLM brings to the creation of BOMs. "Put the wrong components in a BOM and you can ruin the product," Evans says. PLM helps create a single BOM, which can shrink the number of new parts created, he claims. "Engineers have to use the single BOM whether they want to or not," he says. "It helps procurement consolidate spend while it cuts down the number of suppliers."
PLM also can simplify communications between procurement and suppliers. Mike Adami-Sampson, vice president of product strategy for PLM provider MatrixOne, says that his company's products enable procurement to send RFQs without packaging all the technical data. "You can just refer to part numbers," he says, "and forget about making copies of drawings." Suppliers then access a link to the parts they are being asked to quote on. Later, they can download the technical data.
Adami-Sampson adds that Matrix-One's software also assures that the right terms and conditions go to suppliers. "All of that eliminates errors in the handoffs," he says.
A big part of the elimination of errors comes from the fact that PLM keeps BOMs up to date, says Daniel Bourgeois, vice president of product development for Montreal-based toy-manufacturer Megablocks. He uses PLM from Aras and finds that it has sped up the quote process. "We can track engineering change orders to make sure everything is current," he claims. He says he will use Aras PLM in development of all products and expects it to streamline the BOM process.
Part of that streamlining, concludes Agile's Stolle, is the integration of procurement staff on product-development teams and a spreading of the responsibility for cost control. "Now everyone has to think about cost control in the concept stage," Stolle says. "And cost becomes everyone's problem, not just procurement's problem."
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