“Making the Right Business Case for PLM in Supply Chains” Mark Frohlich Associate Professor of Operations and Supply Chain Management PLM Consortium

2 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 Annual Indiana Manufacturing Study ▪Manufacturers of all sizes ▪9 th Year, State-wide Survey ▪Spring – Summer 2015 Underway

4 PLM Consortium Industry Types (2014 Survey)

5 PLM Consortium 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…

6 PLM Consortium PLM Should be of Interest to Survey Participants: Type of Products

7 PLM Consortium Product Lifecycle Management (PLM): Two Engineering Perspectives Source: Initiative for Product Lifecycle Innovation (IPLI) Cyclical Nature Numerous Processes & IT Systems

8 PLM Consortium Product Lifecycle Management (PLM): Two Business Perspectives Product DefinitionProduct DevelopmentProduct Launch Time Workload Low High Total Project Costs Management’s ability to “kill” or redirect the project Manufacturing R&D/Engineering Marketing

9 PLM Consortium Product Lifecycle Management (PLM): Two Business Perspectives

10 PLM Consortium PLM is Not a New Business Topic! “Exploit the Product Life Cycle” HBR Theodore Levitt

11 PLM Consortium 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

12 PLM Consortium 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

13 PLM Consortium 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.,

14 PLM Consortium The Business Case for PLM: Traditional Approach SupplierManufacturerDistributorRetailer The Problem: PLM’s relevance varies across supply chains Note the “transition” from manufacturing to services

15 PLM Consortium The Business Case for PLM: Scenario Approach Software ▪Novelis Case

16 PLM Consortium 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 m/watch?v =lwoCGAq v5RU

17 PLM Consortium 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 - may-be-cheaper-to-manufacture-at-home ) 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”?

18 PLM Consortium Questions and/or Comments?