In previous articles, we have tried to understand why we must measure the impact of PLM and what types of things we can and should measure. In this article, we focus on the most effective and easily quantified PLM result: new product introduction (NPI). If you can tie your value proposition to the revenue generated by additional products you can now produce because of your increased efficiency, your return on investment (ROI) numbers will be compelling and you will be setting your company up for success. This article discusses the merits of this approach and looks at some potential pitfalls as well.
One area that a lot of companies tout is an increase in the number of new products they introduce. If your company is driven by new product development (NPD), this can be a pretty powerful justification. As previously discussed, when attempting to use a broad standard like this, there are a number of things that effect this that are not directly related to PLM. However, PLM does play a big role in optimizing the new product development process, so it's not a huge reach to try and claim this benefit.
Obviously, you need to select a time period to establish the baseline and then track a period after the PLM system is in place. The nice thing about this measurement is that the return is very high. If you can truly document an increase in new products, then there is significant revenue impact associated with this. The trickier proposition is how to project the increase in NPI prior to implementing a PLM system. The proper way to do this would be to analyze your current process for new product development and identify the bottlenecks. Once you have quantified the time impact from resolving these bottlenecks, you should be able to project how many additional projects your company can take on. Be conservative with your projections. It doesn't take much from a new product introduction to fund PLM. Once you have PLM in place, it will be much easier to accurately measure the throughput increase. It is very easy to be too ambitious and to set the bar too high. This also can inflate potential payback to numbers so high they lack credibility. The key is to have a documented methodology for how you plan on increasing the throughput that is reasonable and attainable.
The real value in this approach is that it sets the stage for success for an organization. If you commit to a goal of increasing the number of products you introduce into the market, there is a high likelihood that this will be extremely beneficial for the company across the board. New product introduction is the lifeblood of companies. Certainly there are profitable companies that are in mature markets with decent market share that are doing pretty well, but without new products, it is just a matter of time before they find themselves cutting cost to maintain margins…or worse. This is not a place you want to be in as an employee, or for that matter, an owner. If you use new product introduction as the onus for your adoption of PLM, it becomes somewhat of a self-fulfilling prophecy. Expectations are set at the management level and the deployment approach of the application will be tailored to accomplish this goal. By using new product introduction as the goal, you ensure the PLM will have ultimate impact and set up very measurable criteria for success. Based on the overall objectives for PLM, this approach is the strongest when it comes to justifying and validating PLM.
To summarize, PLM has a strong effect on increasing product development throughput, which drives the most value for a company in comparison to cost savings measures like increasing productivity or reducing the cost of change management. These types of benefits can really be considered enablers that allow a company to increase the number of products they develop. If you approach PLM with the purpose of increasing the number of products you produce, then your value proposition will be far more compelling and you will be architecting your PLM to play a far more crucial role in your company's future success.
In our final installment of "Measure This", we will review the methods we can use to capture the bottlenecks and set the baselines for justification and validation. There are a number of techniques we can leverage to attempt to project and quantify value. Which ones we leverage can determine success or failure.
[Edit: repost from 2015]
