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Accenture

Products fail an average of nine out of 10 times; even a small decrease in failure ratescan greatly affect a company’s bottom line. Consumer goods manufacturers should lookclosely at product life cycle management to realize possible profit gains.

Product life cycle management (PLM) has been around for a decade. Yet it remains a tool that many companies consider daunting, mysterious or complex. Part of this difficulty could be PLM’s rapid metamorphosis. It began as product data management, an elaborate toolset for integrating product design and development, and quickly morphed into product information management, which sought to emphasize more of the product development process. Then came collaborative product commerce (CPC), which added an Internet component. Basically, CPC brought external business partners into the product-development loop, mainly in the areas of data exchange and operational collaboration.

And now we have product life cycle management, which is a business process and technology architecture for capturing and maintaining product information across the entire life cycle, thereby helping companies increase development speed, improve customer satisfaction, optimize operations and create new revenue-generation opportunities.

With every name change, the scope and scale of PLM seems to have grown. Hence, there is a sense that PLM encompasses everything; that because it seeks to optimize every aspect of a product’s life cycle, it must be a steroid-enhanced, ERP-like behemoth, whose implementation, duration and complexity are matched only by its cost and aggravation.

This conception is inaccurate. PLM implementations are major undertakings, but they are not necessarily more massive, costly or complex than other supply chain initiatives. What’s more, PLM’s rewards are often far greater. The mission of this paper is to help consumer goods manufacturers get past the hyperbole and focus instead on the real reasons for considering PLM, and the real rewards that often accompany its implementation.

Current Realities

According to recent research, almost nine out of every 10 new products don’t survive.[1] Some fail to meet revenue expectations. Others don’t capture as much share as their developers hoped. Still more meet revenue expectations and capture market share, but their development or handling characteristics render them unprofitable and thus unsustainable.

Identifying all the reasons why products fail is not part of this discussion. However, two key points are extremely relevant:

1. Even a small decrease in the average number of product failures (say eight in 10, rather than nine in 10) has huge potential to affect a company’s bottom line.
2. Any initiative – PLM for example – that can help realize this decrease is worth looking into.

A second reality is the rise of consumers’ expectations. Today’s consumers rarely subscribe to the “faster/cheaper/better (pick two)” theory. They want – and sometimes even get – all three. Simply put, consumers are holding manufacturers to an ever-tighter standard of quality, economy, safety and service.

Shareholder demands are rising similarly. They expect everincreasing revenue growth, profit growth and (perhaps most importantly) organic growth. Stresses like these force companies to spurn productivity improvements, which don’t emphasize revenue or organic growth in favor of the more frequent introduction of new products. Thus far, the frequency side of the equation has been addressed – more and more new products are reaching the marketplace. But few companies have consistently increased the success rate of those new products.

A final reality is global operations and the changes they portend for product development. Global operations often require that domestic successes be replicated overseas and (consequently) that international design, development and manufacturing approaches are brought on line quickly and efficiently. At the core of this effort is accurate, plentiful and readily available product information – the key to rescaling product operations; re-leveraging market knowledge; and operating successfully as a single, integrated entity.

Besting Reality With PLM

To be successful, today’s consumer goods companies must accommodate the ceaselessly escalating demands of consumers and shareholders; grow more quickly than investors expect; expand and learn faster than the competition; and bring a constant supply of viable, sustainable products to market.

Of course, no single improvement initiative can ensure the attainment all of these goals. However, a strong case can be made for product life cycle management, and its ability to create a context for pursuing each goal. In spite of its esoteric tone, “context” is the correct term here. That’s because – by applying a range of innovative business practices, culture and organizational shifts and technology solutions – PLM can help create a business climate in which three critical capabilities are present:

1. The ability to develop and maintain a single version of product and regulatory compliance data;
2. The power to create an integrated and proactive design process that aligns with supply chain operations; and
3. The ability to accurately track the performance of a company’s complete product portfolio across the life cycle of each product.

The following sections describe why each of these capabilities is critical to a growth-focused, PLM-based environment and highlight some of the rewards they provide to those companies that can successfully adopt PLM into their operations.

1) A Single Version of Product and Regulatory Compliance Data

Bringing new products to market faster and keeping them there longer requires many types of knowledge about the product itself:

• Knowledge of the product’s components – what they are and where they were;
• Knowledge of the product’s manufacturing requirements – costs, critical issues and customizability;
• Knowledge of the product’s market(s) – where and how the product sells and what changes or modifications are needed to make it attractive to new customers and regions;
• Knowledge of customers – why they buy the product and how they use it; and
• Knowledge of the product’s peripheral information – its label, packaging, process, regulatory, compliance and service data.

In a growth-focused, PLM-based environment, all of this information lives with the product. It is product knowledge that is logically captured, highly organized, properly stored, easily applied and completely mobile. Moreover, it is information from an integrated, singular source that enables users to access product information in the appropriate context, such as marketing, R&D or supply chain. Seeing all aspects through one lens helps companies understand what factors affect a product’s success; how that product can best be customized, serviced or enhanced; and what technologies and processes might be needed to create new versions, capture new economies or expand into new markets.

A single, PLM-based source even adds value at a product’s trial stage – which is often shorter because companies know more about failure probabilities and regulatory/compliance requirements. This increased predictability can shorten time to market, reduce development costs and increase the chances of a sustained marketplace success.

Lastly, deeper insights about a product’s components and market position correlate directly to better decisions about its pricing, promotion, procurement and postponement approaches. In short, PLM also improves management-level decision making.

2) An Integrated and Proactive Design Process That Aligns With Multiple Supply Chain Operations

Comprehensive, readily available product information is essential to supply chain innovations that help companies efficiently source components for new products; manufacture more cost-effectively; reach and serve new markets; and accommodate local-market nuances in design, regulatory compliance, labeling and packaging. Thus, a second PLM-based contribution is linking new product development processes with supply chain operations.

Consider the linkage between product design/development and supply chain management. Even today, many new products or new-product designs are simply handed over to supply chain decision-makers, along with a vague expectation that the latter will “make do” to the best of their ability. The results of this disconnect include frequent product recalls, excessive scrap and more rework. Alternatively, effective integration between product development and supply chain processes can produce nearimmediate payback. A 1 percent decrease in cost of goods sold and a 1 percent decrease in product development costs can increase a product’s ROI by up to 20 percent. Also sacrificed are opportunities to collaboratively address customers’ service needs with greater timeliness, economy and flexibility.

Most supply chain operations – procurement, manufacturing and service management – share these laments, which means that most are well positioned to benefit from PLM applications. In effect, PLM takes integrated design and development to the next level, i.e., to “design for manufacturing,” “design for delivery,” “design for marketing” and “design for sales.” You could say that PLM is the key to “design for the supply chain.”

3) Accurate Tracking of ‘Product-Portfolio Performance’

Accenture research reveals that consumer goods companies often achieve high performance by re-emphasizing highgrowth, high-margin portfolios of brands and products – while aggressively managing their R&D investments, supply chain resources and marketing resources. The reason for this is that consumer tastes and buying habits are changing more rapidly than ever. To keep up, companies are working feverishly to bring new products and services to market more frequently. Because of this urgency, they often have too little time, funds or energy to cull inefficiencies from their new-product development processes. In effect, they fail to develop portfolio management approaches to rationalizing investments, recognizing life-cycle-wide issues with relevance to areas such as R&D and resources, and responding more effectively to regulatory pressures.

In addition, new product development efforts often pose tracking/ monitoring problems because their development teams are composed of representatives from different parts of the organization, such as marketing, R&D, manufacturing and so forth. The diverse makeup of these teams also hampers their ability to effectively track resources; document design issues, characteristics and organization-wide costs; or quickly assign the right people to the right projects.

Such portfolio and execution challenges have several consequences. For one, the information repository needed to evaluate a new product’s performance is almost sure to be incomplete, inaccurate or even unavailable. Second, compliance-related information, such as Sarbanes-Oxley or FDA, becomes harder to assemble, document and communicate. Third, late life cycle issues – returns, repairs, warranties, disposal and so on – become trickier to predict and address. Information relating to downstream problems also is unlikely to find its way into the product’s “permanent file.” As a result, a product’s total cost may never be clear, which means that companies may hold on to poor-performing products too long or give up on potentially high-performing products too soon. To make sound, far-reaching business decisions, executives need a more accurate picture of the performance of their complete product portfolio – for example, by having maximum visibility into the performance of the products and the development pipeline that make up the portfolio.

Benefits Across the Life Cycle and Across the Supply Chain

Each of the above three categories tracks to a unique set of PLM issues, concerns and rewards. However, it also is true that the benefits of product life cycle management transcend classification. Simply put, PLM offers something of benefit for most consumer goods companies, including the ability to:

• Improve companies’ understanding of each individual product’s profitability and market viability, thus improving product portfolio decision making;
• Build a more cost-efficient design and development process that addresses the requirements of each customer and the needs and capabilities of associated supply chain processes;
• Reduce the cost of developing new products by creating a more efficient process; culling poor-performing products earlier in the cycle; and making go/no-go decisions based on better, more comprehensive information;
• Design and make better products by bringing the informed input of every relevant constituent into a product’s planning, definition, design, development, manufacture, sale, movement, support and retirement;
• Maximize consistency, repeatability and predictability by leveraging intellectual property assets and enforcing standardized, repeatable and dependable work methods; and
• Scale product development operations quickly and effectively. Companies that are in control of their product information are better positioned to launch operations in new global markets or alter various operations as conditions require.

PLM in Action

Netherlands-based Campina, a large dairy company with production sites across Europe, is consistently ranked among the top global dairy companies. In recent years, however, Campina recognized a growing need to improve its product life cycle management capabilities. Key motivators were the need for significantly more efficient and faster innovation processes; more expedient accommodation of evolving food legislation; and more effective tracking and tracing capabilities.

Campina thus set out to develop a product specification system to help improve product version control; communicate and collaborate more effectively with business partners; and increase transparency (visibility) across the company’s Europe-wide business units. Campina also rationalized its new product development, product clearance and product change management processes.

Following the effort, cost reductions of around 5 percent were achieved in research and development, purchasing, production and marketing. Campina also decreased its overall time to market by about 10 percent. Equally important, the company is better able to sustain its leadership because fast and easy exchange of critical information is a hallmark of its product development operations. Campina and select business partners enjoy immediate, unimpeded access to information about the company’s product portfolio (finished products, ingredients and packaging materials). Other benefits include better clearance and change-control procedures, as well as tighter product definitions, terms and specifications among groups. According to a Campina executive, “The new system helps us keep an innovative edge, which is critical in our business. [The PLM implementation] also is improving our performance in product safety and overall efficiency.”

After A.G. Lafley became CEO in 2000, Procter & Gamble sought to improve its business performance by developing best-in-class, product-portfolio management processes – a key element of PLM business process architecture. P&G leaders saw this as an important antidote to the company’s previous approach to funding new products and expanding existing brands, which many in the organization believed was too aggressive.

In addition to globalizing those processes deemed essential to innovation at the corporate level (e.g., R&D), P&G’s new portfolio management processes helped to dramatically reduce the number of businesses, brands and products. This strengthened the company’s ability to:

• Divest businesses that were less relevant to P&G’s turnaround strategy;
• Curtail new product development programs that weren’t moving apace or that related poorly to the company’s core brands; and
• Focus more resources on initiatives with the greatest potential to spawn commercial success and promote organic business growth.

As a result of this program, P&G not only turned around its corporate performance and the direction of its stock price, but also became a best-in-class example for key consumer goods industry practices – such as packaging and label management, retailer collaboration and design/development partnering. Such core competencies are helping P&G develop and commercialize new products and services much faster than its competitors, while making it possible to capture more revenue and profits throughout each product’s life cycle.

Once companies recognize the key capabilities and real rewards that accompany PLM, the adoption of product life cycle management seems to be an inevitable step along their path to becoming a high-performance business.

Endnote

1. Adams, Marjorie, PDMA Comparative Performance Assessment Study. Copyright PDMA Foundation 2004, www.pdma.org (September 2004).