Apr 302012

Michelle Boucher from Aberdeen Research just put out another nice piece of research on Product Cost Management.  (Actually, it’s not about PCM specifically.)  It’s called Product Development Single Source of Truth:  Integrating PLM and ERP.   The report delves into perennial topic of Enterprise Resource Planning (ERP) and (or versus) Product Lifecycle Management (PLM).

I have worked closely around these enterprise categories for the last 10 years, but I admit I may not be an expert of Michelle’s level.  However, from my seat in the ballpark, it feels like the open warfare between PLM and ERP has now morphed into a cold war or maybe cautious Glasnost and the realization of each other’s right to exist.    Michelle’s report doesn’t focus on the war between the software categories but on the end customers.  The end customers know that both ERP and PLM must exist in a corporation, but they have the problem of figuring out how ERP and PLM should best work together.

The general interoperability of ERP and PLM is beyond my interest in this post.  What is interesting is that there is research in the report on Product Cost Management, even if the report does not call it out specifically.   Here’s a few pieces of data that I have surgically excised from much larger tables from a much larger report.

How important is Product Cost Versus Other Pressures?

Top Pressures Driving Improvements to How Products Are Developed Hiller Associates

CLICK to Enlarge: Top Pressures Driving Improvements to How Products Are Developed

Readers of Jim Brown’s blog on PLM may remember that I did a post on this very topic a few months ago.  You can read it here.  Take a look at the figure to the right.  It appears that my intuition was right, at least with the preeminence of time-to-market as the number one priority to product development.  However, I was surprised to see that Product Cost Management came in number two in importance, albeit 25% less important than time-to-market (using time-to-market as a base).  Regardless, that is encouraging.  So, one wonders again why more companies don’t have stronger PCM efforts?

Does PLM and/or ERP Help with Product Cost Management?

One of the tables in Michelle’s report shows the effect of a company having PLM and the effect of PLM’s level of integration with ERP on many different performance metrics.  One of those metrics is whether a company meets its product cost targets or not.   Take a look at the chart to the right.  This is very interesting for two reasons.

ERP and PLM Hiller Associates

CLICK to Enlarge: Performance Benefits of Integrating PLM and ERP

First, we see a range of meeting product cost targets of 65%-72%.  Really?  In my own research on about 40 operational companies in many different industries, the mean percent of time that companies meet product cost targets at launch is 20-30% — HALF of what Aberdeen is seeing.  I wonder what the disconnect is in my data versus theirs?

Second, the report shows mean (average) of the respondents that fell in each category on the chart (having ERP but no PLM system, having PLM and ERP but unintegrated, and having both in some level of integration).  As expected, the companies with some level of integration do better, but is this statistically relevant?  What is the standard deviation on this data?  I ask this because the range of answers I get when I ask companies how often they meet product cost targets is from 0-100% of the time.

Is PLM or ERP is Storing Product Cost Data?

ERP and PLM Hiller Associates

CLICK to Enlarge: Data sent from ERP to PLM

Looking at the graph to the right, notice that none of the couple hundred Aberdeen respondents were pushing any cost data from PLM to ERP.  They were pushing some data from ERP to PLM.  I have shown the pieces that they are storing in ERP and pushing to PLM.  One could argue that the “Sourcing Data” that they pushing to PLM may be quite relevant in Product Cost

Management.  However, I wonder how relevant the “Costs / Actual Costs” are to PCM, given that ‘actual’ costs imply old carryover costs, which are fairly irrelevant to new designs or re-designs.

According to Aberdeen, 77% of companies do store “Item Costs” in ERP.  This left me wondering, where are the other 23% of companies storing cost information?  An excel spreadsheet? (have mercy!)


There’s a lot more in Michelle’s report than this narrow slice of data on PCM.  So, if you don’t subscribe to Aberdeen’s research, you can sign up or just buy the report.  Great data, though, Michelle.  Thanks.


  3 Responses to “PLM, ERP, and the Effect on Product Cost Management”

  1. Moderator Posting a comment that did not post back. Original comment here: http://www.linkedin.com/groupAnswers?viewQuestionAndAnswers=&discussionID=111539804&gid=2263672&commentID=79014294&trk=view_disc&ut=3f-P0tJiDhMlc1

    RON FERRO • Eric, I enjoyed your article. After reviewing one of the leaders in Product lifecycle management software, Siemens PLM, it appears to be that this software is very different from ERP and cost based software. ERP systems have developed to be all inclusive to integrate both supply chain and financial reporting modules that appear to be lacking in PLM. The push of cost data from ERP to PLM support my observation that PLM lacks the Modular integrations the current ERP systems provide like SAP, Oracle and others. With this shortcoming of PLM software, it uses as a standalone all inclusive management tools I find doubtful. However, I was surprised not to find linkage with SAP as far as Siemens has such predominance in SAP usage and support.

  2. Eric Arno Hiller • There is no doubt that PLM is extremely different from ERP. Much of this is due to the genesis of these categories. ERP grew from general ledger (accountants) and MRP (manufacturing/logistics). PLM grew out of the engineering world. I am not intimately familiar with the level of integration of Siemens with SAP. However, interop between ERP and PLM has always been a problem. It is somewhat self inflicted at times in that both ERP and PLM want to control the “master BOM”. ERP has costs, but they are just old historical costs. It has little predictive or analytic ability to generate future costs. PLM is even worse, in that most PLM systems have a very primitive idea of cost, period. However, at least one PLM system (Windchill by PTC) is starting to move in the direction of taking cost in product development seriously. You may want to check out their solution.

    I do have one request. When you post a response to any of my blogs, could you also cut and paste the response to this linkedin group to the actual blog article that is linked? (I feel goofy cutting and pasting as the moderator of my own blog.) Thanks, Eric

  3. There is a make to order ERP software info visual fully integrated with plm8 software. Now this is a fully by-directional link. From were I sit as a product designer I can create p/n’s check previous costed designs. Using workflow I can release the bom to logistics. They can rearange the bom, add process, change p /n & add no cad parts. Then it comes back to design where I can review/update my bom. Because the critical thing its the same database no maintenance between department’s. Brilliant.

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