Value Analysis in PLM

White Paper on Analyzing Product Value through Cost Function Matrix in PLM

 Introduction
Delivering higher value at lower cost is the key business driver for all enterprises globally.  Products have to be designed and manufactured keeping in mind,  increasing customer value with lowest price, and this needs to be taken care from the inception stage of the product. Paradigms like ‘Design to Cost’, ‘Value Engineering’, ‘Value Analysis’ are popular in enterprises today to take care of the value cost equation. This paper addresses the mechanism to measure the value of the product with respects to its cost, and manage this information in PLM to leverage the function/cost relationship.

Value Analysis

Value of a product or its feature is defined as its function against its cost. Function is the intended capability of the product / feature to meet the needs. Products function can be further classified as basic function and support (additional) functions. To increase the value of a product or its features, either the function can be enhanced or the cost can be reduced.
            Value = Function / Cost
 For example the basic function of the car could be to transport people and the additional functions could be to provide safety, comfort, entertainment, protection against weather, etc.  Then the cost for each of the function provided needs to be captured and analyzed to do value engineering on the Product. Many times the cost incurred on the basic function could be very less compared to the supporting function – this could be the driving factor or differentiator of the product in the market; nevertheless the function analysis provides the perspective to measure and analyze the cost of the components/ sub systems against the function. Hence this paradigm focuses on cost of the function of a product and its components against just the cost of components of the product.  To conduct value analysis of a product or its sub system, first the function of the product needs to be defined in terms of basic and supporting functions.  For certain products / Systems arriving basic and secondary functions could be difficult – for this techniques like Brain storming, mind mapping , FAST (Function Analysis System Technique) can be employed.

Value engineering technique involves that the functions be described in just two words verb and noun  like transport people, provide protection.  In Value analysis, first the basic function and the supporting functions of the product are listed; then the components/ subsystems providing the functions are listed; then the cost of the components against each function is listed. We have got the function cost matrix.  To do the value analysis the importance of each function is noted as function index as a percentage number.  Now we have function index, which is the percentage of importance of the function against the total function.(say the total function value of the product is 100, the basic function of the product could be 30 based on its importance). Similarly the cost index of a component is its percentage of actual cost against the product cost.  So if the cost index of the component is 40 and its function index is 30, then it could be looked upon to increase the value/ cost index. Thus Value Analysis can be used as a tool to establish target cost of the product and components by throwing up the value / cost index for systems of the product for enabling value engineering exercise.  Further the function index could be weighted based upon the customer needs, which we will discuss in the QFD (Quality Function Deployment) section.

Value Analysis in PLM

PLM (Product Lifecycle Management) serves as a collaborative platform for managing and storing the design content of the product. Since the Product / Sub System / Part (Component) information is registered in PLM as attributes using technical parameters, cost parameters, supplier details, etc. Value analysis parameters can also be registered wherein designers/authors can be mandated to register the functions of the part / sub system / product. Value Analysis can be employed initially at the product level and system level and then taken further at the lower levels of sub system.  Since PLM provides the platform for registering product
information and its evolution lifecycle, it could just be the right platform for enabling and managing Value Analysis and managing Value Engineering Projects. PLM can capture the idea evolution, value definition of the products and its systems, which resides in the designer’s mindset; and this could pave way for parts reuse, value engineering and cost reduction programs in the collaborative space which organizations strive for.  As products undergo changes using Engineering Change Process, so does its cost and so does its value; PLM could manage the value change and its impact as it tries to manage cost.

Deploying VA through QFD

As we saw in the previous section how function cost matrix can help to analyze value of the product. Further the function of the product can be weighted further by the customer needs or requirements and its importance. To manage this matrix, QFD can be very handy. QFD (Quality Function Deployment) is typically used to prioritize your system characteristics or understand the characteristic influences of the system based on the requirements. Here we have used QFD to analyze the cost function matrix of the product. As an illustration, the QFD for the cost function matrix for the product pencil is shown below.

(Source: Value Analysis and Function Analysis System Technique by Kenneth Crow, DRM Associates)
As you see in the above example, functions are listed on the left side of the matrix and the components/ sub systems are listed on the top horizontal side. Then the importance of the function is rated (total importance summing to 100); and the weight factor is decided for each sub system. Weight factor denotes how great or small is the component influences the function. The column values are arrived by multiplying the importance to the weight factor. Then the function value is calculated and target cost is established, which can be compared with the actual component/sub system cost. This will drive the value engineering processes enabling the cost optimization and delivering higher value of the product.

Benefits

The key benefits of the Value Analysis deployed through PLM are
·    Ability to set target costing based on function cost matrix using Value Analysis technique.
·    Ability to capture the function parameters and register the idea generation processes paving way to value engineering exercise.
·    Enables to optimize the cost and increase the value by focusing on function cost of the system rather than just the cost of the system.
·    PLM with its product content in terms of design and Bill of Materials can greatly help in capturing function value matrix, thereby establishing framework for idea collaboration, value engineering and parts reuse.

Conclusion

Because these benefits of the Value Analysis technique and the capabilities of PLM being the collaborative platform for idea conception and management, VA in PLM provides the formidable framework which most enterprises are looking for in dealing their challenge to provide higher value products at lower cost.

REFERENCES

www.npd-solutions.com

PLM – Business Transformation Vehicle for EMS Industry

White Paper on how PLM can help EMS Industry sustain profitability by adopting better product management processes

Introduction

Electronic Manufacturing Services (EMS) Industry took off in later part of twentieth century by providing value added services to electronics product companies. Their boom started with that outsourcing model, where EMS companies provide services in the entire spectrum of supply chain of electronic products.   The business model of EMS companies ranges across product development collaboration, sourcing, procurement, inventory management, manufacturing, assembly, packaging and shipment.  EMS companies provide value to the customers by taking care of the overheads of inventory, plants, resources that are needed to procure, store and manufacture and distribute. As the prices are falling down for the electronics products, lifecycle of the products becoming shorter, industry being more commoditized, market being volatile, new players emerging from growing economies survival and sustaining profitability is the key challenge that EMS companies face today. This paper addresses the key challenges around the business process of EMS industries and how Product Lifecycle Management (PLM) can help enable business transformation for the EMS Company.

Business Model

The various business model that EMS companies operate are consignment delivery, NPI (New Product Introduction) services, sourcing, manufacture and build and after market services. Based on the product and customers, EMS companies operate on one of the business model or take care of entire lifecycle from NPI to AMS (After Market Services). The bulk of the business though lies in the source, build and ship model.

Consignment Delivery: In this business model, the customer will provide the components and parts for the EMS Company. EMS Company just needs to assemble the product and ship it across. The customer will take care of the procurement, component pricing, and supply chain.

Key Challenge and Solution: The values add of the EMS Company in this model is they take care of assembly, inventory and packaging. The key challenge is to provide an effective and lean process to fulfill order in this consignment model. PLM can enable leaner process for product management. Also since the component and part information can be registered faster as we don’t need technical or sourcing details for this model.

NPI Services: In this business, the EMS companies collaborate with the customer and use their manufacturing lines to develop prototypes. The customer can leverage the product development and manufacturing expertise of the EMS companies in delivery the feasible product with optimal cost.

Key Challenge and Solution:  Since the iterations of the new product development phase are frequent and many, EMS Company should have better build management process to manage product variants. PLM can enable build management through revision control and Lifecycle process for managing NPI releases. Also once the product matures and moves to production, the lifecycle process can be used to identify the product as production version. The key take away of PLM solution here is ensuring traceability of the product across its lifecycle.

Using PLM framework EMS companies have reduced product release cycle time by 10% and the able to reduce the cost by 15%.

Sourcing

 Sourcing is not usually a separate service offered by EMS Company, but it is coupled with the other business model. But there are various operating models in sourcing as explained below.

EMS Sourced: In this model, the customer provides the specification for the components and parts, the EMS companies can identify the manufactures and the suppliers for the components. Here the demand and pricing needs to be managed by the EMS Company.

EMS Priced: In this model, the customer provides the approved manufacturers for the components. The EMS Company can source it from any supplier and fix the price. Here also the demand and the pricing information need to be worked and stored by the EMS Company.

Customer Authorized Quoting: Here the customer specifies the demand and the reference prize. Also the manufacturer and the supplier are fixed by the customer. The EMS Company can negotiate with the supplier and fix the price of the components.

Customer Sourced: Here the customer specifies the supplier and manufacturer. The EMS Company procures from the supplier based on customer contract. There is no overhead of demand management, sourcing or pricing management for the EMS Company.



Key Challenges and Solution: One of the key challenges in the product management for an EMS company in the component identification and its management in the ware house.

i)    The reason is for the same component the approved manufacturer by the customers could be different. So the EMS Company provides different code for same components for different customer. The reason is at any point of time one of the customer can modify the AML (Approved Manufacturer List) of the component and this calls for component recoding at later point.
ii)    Another reason is the potential violation of demand forecast of one customer may affect the inventory of other customer. To eat away inventory of one customer by another, components are recoded for different customers and stored at different locations in warehouse.
iii)    The third aspect that components are recoded is the sourcing model of the customers will wary and hence the price of the components will vary. Though PLM can identify and manage the price information with respect to the customers and suppliers, its comes complex in the downstream process like ERP and other systems.

PLM can also provide mechanism to identify components based on functional and technical characteristics, though they are tagged under different codes for sourcing and other reasons. So when there are changes in the products and components, the related components can be identified and integrated change management is possible, which is an important aspect in product management.

Product Structure Management: 

Since there is a huge pressure to deliver new products faster, the cycle time to register and release products has to be very low for EMS business. Product structure management becomes crucial as they have to relate and track, customer parts, manufacturer parts with the internal parts. The customer provides the product structure (BOM – Bill of Material) with the approved manufacturer list for each of the components. The EMS Company then has to identify the manufacturer and customer parts and relate them with their part in the product structure.

The component data dictionary for the manufacturer part number and the manufacturer needs to be maintained for each customer, since the manufacturer part number (MPN) notation can vary between customers for the same component. Based on the sourcing model and for each customer a unique IPN (Internal part number) will be registered. So in the EMS company the IPNs serve as stock unit of the part, where it holds the right AMLs(Approved Manufacturer List) specific to each customer.

Managing Product Changes:

The product changes, improvements and enhancements are quite frequent and common in electronics industry. Ability to quickly absorb, adapt and fulfill the change is a key differentiator for a successful EMS company. To carry out any change, the impact of the change should be evaluated well before executing it. The change management process of the EMS Company should have the rigorous evaluation phase; will carries out the impact due to stock at various levels, the stock dispositions details, the manufacturing alterations, and the cost impact due to all. Based on the information, the EMS Company can help the customer to evaluate, prioritize and carry out the change.

Product Ramp Down: 

Reuse of parts is one of key drivers, which will optimize the components use and could prove very important when products are ramp down or technology becomes obsolete.                                   

EMS companies should have a better process for product ramp down and ability to track component ramp down based on the product ramp down. Whenever product is ramp down completely or partially in particular site, the exclusive components specific to the product should be tracked. PLM system can be used to report the site specific and enterprise wide components that need to be ramped down when product is closed or ramped down.

Stock disposition plays a important aspect in the ramp down or product change process where the cost impact of the change needs to identified well in advance; the disposition could be of customer buy back, supplier buy back or external party buy back, if not scrapped.

Environmental compliance on products and disposition is a key factor and PLM solutions can be leveraged to manage compliance process and data. It is estimated that using better change management and better reuse of components by using PLM, some of the EMS companies have reduced change impact cost / scrap cost by 15%.

Confidential Data Management:

EMS companies will do manufacturing and assemblies for customers who are competitors. Hence the data and documents need to be maintained confidential across the product lines of the company. PLM based on this organization data structure and security layer, provides granular security across the data layer.

 The data can be restricted within a site (plant), within a product line (Manufacturing Unit) specific to a customer and specific to NPI Line. A typical data security filter that is needed in EMS Company is shown below.

After Market Services

The After Market Services (AMS) of product is one of the offerings of EMS Company. The ability to manage the service kit Bill of Materials, ability to trace Repair BOM and components are the key elements of this process. Here traceability of the components as production or repair and traceability towards a particular product are the key characteristics that PLM system should manage. Being managed products and components as lifecycle stages and enabling process will ensure right traceability and better product governance.

Conclusion

As the product data management becomes complex, right product management process using PLM solution can be a key differentiator for the EMS Companies in delivering products and services faster using leaner processes and better governance. PLM system with its tight process compliance framework has a distinct advantage in addressing the above challenges over the other enterprise applications. Its core features of layered data security support towards IP data management and product lifecycle governance enables EMS companies in reducing the product release cycle time and save cost.

Implementing PLM as a Business Solution instead as a Technology Platform

Introduction

Even though more and more PLM product vendors are coming with standard solutions for managing product information and processes, still PLM solutions are customized heavily during implementation. As a result of this, the cost of ownership for maintaining PLM Solution goes up significantly, due to development of customization, maintenance, upgrade. Along with this also comes in inefficiency due to the non standard process deployment. This article tries to addresses some of the key reasons behind this and looks towards approach to realize the potential of PLM.

Business Driven Vs IT Driven

One of the reasons that PLM is still viewed as a IT solution in organization, is that PLM is headed and driven under IT Organization instead by business functions.  This results focus shift from deploying a business solution into developing an IT solution.  Companies that extract the best out of PLM, tend to spend more time in deploying the business process through PLM within the company rather than trying to develop IT solution that tries to match their process variance.  Business Driven PLM deployments can focus on measuring and improving efficiency, lead time, profits etc through PLM.  IT driven implementation tend to focus more on IT targets like development milestones, new feature addition, usability improvements etc. Not to say that these IT measures are not important, but the key question here is where should be focus ?. And the focus should be towards realizing the business benefits, for which millions of dollars are spent in buying PLM solutions.

Standard Deployment Vs Custom Development

Even though PLM Products available in the market comes with built in processes, still many companies continue to implement PLM solution in the standard software development cycle like requirements, design, built and roll-out. Instead business solutions like PLM should be implemented as As –Is Process Study, To Be Process , solution design, Conference Room Pilot 1 (CRP 1),  configuration, CRP2, Training and Rollout. This solution deployment process is followed as a standard process in ERP systems. The above said approach could lead a major shift towards standard solution deployment.

The other major reason that leads to custom development is due to focus towards ‘Exception Management’.  The standard feature of most of the PLM products can satisfy 80% of most the business measures, which PLM for any company is set to achieve. Companies tend to shift their focus towards satisfying the remaining 20% by developing and customizing solutions instead of having focus on deploying on standard features.  This approach of deploying standard solution achieving 80% of business benefits, without incurring additional cost of ownership will greatly help companies towards channeling resources and energies.

‘We are different’ Syndrome

Many times companies implementing PLM, customizes and develops PLM solution on its own instead of adopting the standard package solution available. But the primary pitfall here is the approach of having a mindset that ‘We are different’.  This mindset relies in this premise that each company processes is non standard and is unique.  Though there could be some truth in this, but still the standard product development process, change management process and other product management processes are well addressed in the standard PLM solutions available in the market. Understanding and adopting them will not only reduce the overall cost of ownership of the PLM solution, but also bring towards the best practice followed in the industry.

Enabler Vs Controller

Another common mistake in implementing PLM solutions is companies tend to build PLM solution as a Process Controller system. Many checks, mandatory fields, enforcements are built trying to ensure the data entry is proper in ensuring control. This goes to an extent where PLM becomes a policing system rather than an enabling system. This policing results in poor user experience, delay in process cycles, bureaucracy and defeating the basic purpose. Instead PLM should be implemented as a enabling system where people participate in authoring, reviewing, approving contents because they see value towards it.  Built in mechanisms like reviews, reports, audit trials can always capture process or data violations, which can help rectify deviations. So the better approach is start deploying PLM system as a enabling system with loose checks and tighten it up based on audits at later point. 

Role of PLM Product Vendors

If we look into Enterprise Resource Planning (ERP) solutions, they have standard implementation framework and approaches. ERP  implementations framework is matured and Functional consultants and technical consultants for each module are recognized and products vendors invest in developing capability around these consultants. With Respect to this, PLM vendors have not invested enough towards developing  functional consulting and this result in non standard process deployment. Also the PLM solutions developed are not articulated well as business solutions and process fulfillment to the audience. The User manuals of PLM solutions dwells more on IT system usage rather than business processes/ problems which the solution addresses. More focus from the product vendors towards articulating PLM as a business solution and developing standard functional capability / consultants towards it will help the customers in a big way.