Few mobile phone users will have heard of a company called Cellon, but approximately 14 million of them worldwide rely on its technology. As one of the world’s leading suppliers of product design and development services to mobile phone companies, Cellon does not seek brand recognition in its own right – but its big-name customers certainly do.
These companies – which include Siemens and Philips – know that their future competitiveness depends on an ability to bring compelling new mobile phones to market as rapidly as they can and at the lowest cost possible. Increasingly, that means outsourcing many design, development and manufacturing functions to specialist partners such as Cellon.
That presents clear advantages for the large brands, enabling them to focus on core competencies such as marketing and distribution. However, it also requires them to establish an information and collaboration network with their contractors that allows for the sharing of accurate and up-to-date data on product design specifications, component sourcing, branding and other key areas.
In practice, both parties need the means of collaboratively managing multiple and contemporaneous product development cycles. At each phase of a product lifecycle, management of a single product record, including highly detailed information about all the components involved, is critical to providing the process visibility that enables cost-effective decisions and accelerated cycle times.
In turn, the outsourcer must be able to share product design data with its own components suppliers in order to ensure that it has the right parts to create a product at the right time and price in order to fulfill its client’s requirements. In this way, the manufacturing industry is beginning to create extensive networks of original equipment manufacturers (OEMs), outsourcers and component makers that must all triangulate their activities if a product is to be successful.
All too often, however, that collaboration is a “clumsy, manual process”, according to Kevin O’Marah, an analyst with IT market research company AMR Research. “Mistakes are being made on a regular basis, showing up either as scrap [redundant products or inventory] or hidden in suppliers’ prices,” he says. “This is increasingly common not only in electronics, where contract product design and manufacturing is highly evolved, but also in the food and beverage, apparel, automotive and aerospace industries.”
The symptoms of that flawed approach, he says, are clear: “Lots of faxes, people waiting for files to download, and frantic phone calls as production volumes begin to ramp up and problems are uncovered.” The answer, he says, is collaborative engineering change management [software] and visualisation tools for better pre-production collaboration. Both, he adds, are core capabilities of a particular class of enterprise software: Product lifecycle management (PLM). Suppliers of PLM tools include specialists such as Agile Software, MatrixOne and UGS, as well as larger vendors of enterprise software including IBM, Oracle and SAP.
Cellon, for example, has recently bought PLM software from specialist provider Agile. “Agile PLM acts as a central management console which can help facilitate best practices across the product lifecycle,” says Yannick Le Nue, vice president of engineering at Cellon. “Faster time-to-market is the most important element of our value proposition to clients. As such, it’s crucial for us to take advantage of every opportunity to streamline product design and process management,” he says. Using the Agile system, Cellon aims to shrink the product design cycle from 18 months to less than six.
Slow to grow
Effective product lifecycle management (PLM) is an established discipline, but despite its benefits, the market for specialist PLM applications – which emerged in 2001 – has been slow to grow.
“PLM software was introduced as a new three-letter acronym to a hyper-skeptical market fresh out of the Internet bubble and just entering an information technology spending depression,” says O’Marah.
But after a rocky start, he predicts that PLM is poised for massive growth in the coming years. The reason is clear, he says: “obvious and increasingly measurable business value”. Around 80% of supply chain costs are determined in the design phase of product definition, he points out. Better execution in that area, it follows, should have huge business impact.
Moreover, for many outsourced product design and manufacturing companies, PLM deployment is no longer an option – the major OEMs demand it. Take, for example, Menard Engineering, a UK-based supplier of design and engineering services to the automotive industry (see case study, ‘Motoring ahead’). The company works with 42 of the world’s largest automotive OEMs, including General Motors, Ford and DaimlerChrysler. Many of these companies prefer that its major outsourcers use a particular PLM product – TeamCenter from UGS (until March 2004, a division of IT services giant EDS).
“We need to be highly competitive in order to get business from the leading automotive OEMs and part of that is faster time-to-market. That, in turn, depends on our ability to integrate our systems with theirs, so that we are sharing high quality, accurate information and data. If one of our employees is working on out-of-date data from an OEM, that could cost us hundreds of thousands of pounds,” says Paul Burton, head of new business at Menard.
Building the case
For many companies, assessing the value that PLM software may bring is a complex calculation. In part, the business case can be made by looking at the efficiencies gained in using a single suite for managing products across their lifecycles rather than the historical approach of using a poorly integrated network of disparate systems.
“Today, much of the interaction between these systems is manual. In cases where information is shared electronically, this is achieved through disparate spreadsheets and email. So what you end up with is a very disjointed end-to-end process,” says Alec Cassells, executive consultant for PLM solutions at IBM.
“What companies really need is a bi-directional, collaborative approach working from a single, up-to-date version of data that is available to employees as and when they need it,” he says.
PLM supplies that, says O’Marah of AMR Research “Where a single new application replaces multiple legacy systems, savings can quickly offset up-front software licence fees and project expenses. Other infrastructure costs associated with PLM include network charges, drawing re-mastering, courier services and travel,” he adds.
In addition, there are significant gains to be made in improving operational metrics. For contract design and manufacturing companies, these stem from two areas: supplier-facing activities and customer-facing activities.
Supplier-facing activities centre on procurement issues. “Design engineers or formulating chemists are supposed to get design work done, not purchase parts. If choosing a part from the preferred parts or supplier list is difficult, the likelihood is high that they will create a new part or specification in order to finish the design work,” explains O’Marah. This, he points out, often leads to a proliferation of purchased items and higher direct materials costs – bad for the outsourcer and bad for the OEM. If a company working on the design of a new product can efficiently manage the release of engineering documents to suppliers and communicate changes to orders, it will be able to design and create new products more rapidly.
Customer-facing activities, meanwhile, centre on the ability of the outsourcer to share product specifications, CAD/CAM engineering documents, and possible changes with its OEM.
“For a contract manufacturer, it is crucial to keep an eye on what the original requirements were for a product and have an accurate audit trail of what changes have been made,” says Chris Glover, technical director at UGS. “Limiting the number of design queries flowing backwards and forwards between an OEM and a contract manufacturer can be crucial not only in terms of time-to-market but for the success of a business relationship as a whole,” he says.
That is certainly the case at Cellon. “Depending on our customer’s requirements, we make changes to hardware or software on a regular basis,” says Le Nue of Cellon. “For that reason, we have to have a tool that can track and manage changes at all times so that we can be sure of the reliability of current information. It must be up-to-date, central and usable by all our centres worldwide,” he says.
The good news for many contract design and manufacturing companies is that the cost barrier to entry for PLM has dropped considerably in recent years. Not only that, but also most PLM suppliers offer their software packages on a modular basis, so that implementations can be carried out on an incremental basis.
These modules cover a number of PLM disciplines: market assessment; conceptual design; engineering detail design; change management; sourcing and supplier collaboration; production process planning; market rollout/brand management; after-market support; and portfolio management.
“Sorting through which ‘point’ applications to deploy is a good starting point to identify the minimum price of entry to begin an initiative,” says O’Marah. What is clear, he adds, is that, for many companies, PLM will benefit those that implement it effectively ‘now, next year and well into the future”.