Posted by Selerant on Jul 10, 2019

Selerant-PLM-justification-budget-allocation

Recently, we spoke with senior management among Selerant users about how they convinced their company leadership to greenlight an enterprise PLM project and software system.

A major part of the stakeholder buy-in process involved setting the appropriate budget and scope for PLM implementation. A PLM system can encompass specific process improvements in innovation, product formulation and development, product portfolio management and more. Choosing the area in which to invest and demonstrate ROI first requires controlling how the system will be rolled out relative to these areas, and subsequently, the level of process and data changes that need to occur.

We asked Selerant users how they determined the financial scope, justified the cost, and tracked the ROI of system implementation throughout the Devex planning implementation process. Their advice includes attention to the following areas:

Create a Minimally Viable Product

Because there are so many different areas in which PLM can create new efficiencies, determining the scope of an initial PLM project is critical to implementing a system design that can satisfy most stakeholders while remaining on budget.

When a new cosmetics brand was setting the scope of its Devex PLM implementation, setting clear parameters and control around data classification helped the project management team determine how much to spend on system configuration and any customization.

Because product classification affects every single department, the company set up a “war room” with key stakeholders from each business group. The group was tasked with agreeing on a set of four common product names to be used between systems and departments. If a group couldn’t define how their process would operate within these parameters, it was not included in the initial PLM project budget.

This approach enabled the company to create a minimally viable PLM structure that would support formulation, regulatory compliance, and new product development processes in a single launch and avoid costly customizations for siloed processes.

By setting rigid data parameters that requires very little customization, the company was able to create a staging database that connected Devex to downstream systems. Using a staging database made it possible for the company to conduct data migration and harmonization across its legacy systems and reduce downtime during migration.  For this particular customer, 90 percent of the out-of-box Devex features were utilized, which generated significant savings costs at the IT level.   

“Our budget dictated how our users would change the system. We were like a surgeon on what we would customize,” said the company’s Director of Program Management. “I think that was a key piece for allowing us to stay on track.”

Demonstrate Process-Specific Time Costs Across the Enterprise

Justifying the cost of a PLM system can also be achieved with a straightforward cost calculation in ROI for one business process extended across the entire company.

Such was the strategy an international confectionery company employed to determine the degree of financial impact that using PLM as a common system for manufacturing collaboration would have on enterprise operations.

This company, which encompasses 30 different operating units, didn’t have a standard nomenclature for describing products between systems and products. This lack of a standardized language make it difficult for product teams to transfer raw material, formulation, and packaging data between the many manufacturing facilities used by its subsidiaries.

To understand just how much the PLM system would drive cost savings specifically around manufacturing, the company first crunched the numbers on the time and headcount costs for its existing data management processes. This company determined its entire workforce spent:   

  • 850 hours on collecting flavor consumption data
  • 200 hours on assessing whether recipes could be transferred
  • 500 hours on preparing summary overview reports

By automating these processes through PLM Instead of having full-time employees conduct manual data searches, transfers and reports, the company realized some powerful justifications drivers, including:

  • A 6X improvement on speed of data collection and reporting
  • Financial payback on the complete cost of the Devex system in 1.5 years.
  • Immediate determination of the ability to transfer a recipe from one factory to another.  

“All of our specs and recipes are standardized in one place, and in a format that benefits the whole company. We needed to make sure that our client’s R&D processes weren’t just for R&D purposes, but would benefit the entire company,” said Lucio Pieroni, Selerant European and Asia-Pacific Professional Services Director, who oversaw the company’s Devex implementation.

Reallocate Costs to More Productive Areas

ROI for PLM isn’t just about reducing the costs around one process. Often when budgeting for a PLM system, savings can derive from reallocating budget for investments in new or more productive operations.

When a major chocolatier implemented Devex as its main tool for standardizing data structures, the company found that the time and cost savings not only impacted its margin and innovation timelines, but ultimately allowed the company to more wisely reinvest in related areas. 

In the past, the company relied on its Marketing team to not only manage the ideation of new innovation projects, but also facilitate all of the follow-up and project management tasks for those projects throughout each product development phase.

The costs this company has saved by using one system as the single point of truth of product data enabled the company to create and mobilize a new project management team with four project managers tasked to follow and manage project timelines from ideation to manufacturing. Other savings can be reinvested in new formulation and R&D projects.

“Devex has driven a substantial organization change. Because of Devex, we’ve created an actual project management department,” said the company’s Director of Industrial Performance and Project Management. “This has freed up marketers to actually do marketing that focuses on increasing sales and giving consumers what they want.”

As we can see from these implementations, there are many ways to organize and budget for a PLM implementation. Setting the right budget depends on the intended goals of the project, the businesses processes selected that serve to gain the most efficiencies through the system, and how employees’ time and resources can be better allocated across the enterprise.

When planning the budget for a PLM system, it is highly recommended to consider what the baseline data structure of an effective system looks like for your business units and then put controls in place to avoid scope creep beyond those initial parameters. With this approach, you are therefore able to calculate specific areas where you believe cost savings from PLM automation can be most immediately effective, and also determine how such savings can be best reinvested back in the business for better innovation, R&D, or supply chain improvements. 

Topics: PLM, Product Portfolio Management, regulatory compliance, Product Formulation & Recipe Management, Blog

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