In our previous blog post Does PLM Pay? Part 1, we set the stage for calculating PLM return on investment and defined the hierarchy of Strategic Objectives, Business Targets and Business Costs.

Lets look at an example of this hierarchy:

The strategic objective is reducing time to market. The example shows two ways this can be done:

1. Improving your bid response process will allow you to get back to potential customers quicker and speed up the overall time of enquiry to delivered product. PLM can certainly help with the bid response process by automating approval workflows, having all documents in one place and producing accurate BOM’s.
2. Once a customer order is received, the delivery of product will have to be managed by some sort of project management team. PLM can help here by providing a inclusive project management environment that coordinates a large team. Poor project management will result in overruns and increase time to market.

Given these business targets, we need to put actual costs against them. The example gives four savings to which we can attach costs:

1. Effort to process bids – it takes a time to respond to a bid request or query. In organizations that are dealing with complex products, this effort can be spread across multiple people (engineering, finance, manufacturing etc.) and can take a large amount of cumulative time. A cost can be attached to this. Any reduction in this cost as a result of implementing a PLM system will be a saving. Note this is an example of a efficiency gain (see Part 1).
2. Profit from additional bids – Assuming that a PLM system allows bids to be turned around more quickly and with greater accuracy, the organization can expect to be more successful with winning business. More bids can translate into additional revenue and profits. Profits can be viewed as negative costs and would contribute to an ROI as a subtraction from costs. Note that this is an example of cost savings (see Part 1).
3. Effort to manage programs – Often a product producing organization will have a separate function which focuses on managing programs and projects. (office of program management, Director of Programs etc.). If the process of managing programs could be improved by a PLM system, then the potential exists to have less program managers and save personnel costs. Note this is an example of a efficiency gain (see Part 1).
4. Late Penalties – Product delivered late to a customer can result in contractual late penalties, which are a direct expense to an organization. If we can improve project management by implementing PLM, this can prevent project overruns and late penalties. Note this is an example of a cost savings (see Part 1).

These four examples represent the 43 total business costs that can be impacted by a successful PLM implementation.

In Part 3 we will look at some examples of calculating actual costs.

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