The Incremental Investment Quandary: PLM vs. ERP
By James Horne, Centric Software, Inc.
Companies in today’s fast-moving retail, apparel, footwear, luxury and consumer goods companies must get trend-right products to market faster and more efficiently than ever. And with more product cycles squeezing into every season, these companies know that building and sustaining brand equity with high-quality, innovative products is an urgent priority.
Searching for the competitive edge, executives often look to technology. In fact, in Apparel Magazine-AMR Research’s joint study, "Top Technology Trends in the Apparel Market," 92 percent of respondents stated that they regard technology as a critical and strategic investment for future operational success.
Specifically, two key technologies, Enterprise Resource Planning (ERP) and Product Lifecycle Management (PLM), have become critical success factors for fast-moving consumer goods manufacturers. While each technology brings unique value to an organization, deciding which system is the better choice for a next, incremental IT investment — and when — can have dramatic impact on return on investment (ROI).
Inventory, warehouse and fulfillment managers, and financial teams work directly with ERP systems. With an upgraded ERP system, they argue, they could provide more timely reporting or more accurate informational updates, thereby enhancing the executive decision-making process.
At the same time, the product development, sourcing, quality, line planning, collection management and marketing teams of many organizations function with a cobbled-together system of spreadsheets and emails, or with a Product Data Management (PDM) system the company purchased years ago to vault product data. Those teams may argue that they can't continue using incumbent systems, and need to upgrade to a PLM system. But is that true?
Examining the impact of ERP and PLM system investments on an organization requires two basic assumptions. One is the “ERP reality.” It is highly improbable that a company can form, staff up, develop and sell product lines into a market, and attain an initial level of success, without already having acquired and implemented at least a rudimentary ERP system. The other is the assumption that no organization has unlimited budget.
ERP: managing transactional data
ERP captures information through the manufacturing process and on into sales. Once a sale takes place, ERP is the system that contains relevant information such as inventory levels, warehousing data, shipping and transportation.
ERP systems are transactional systems, capturing and reporting data related to a specific event, or related to some point in time. The data that reports this information is fixed. The “event” has happened. The data is not subject to speculative or creative processes. A committee will not review the transaction and then rework or change the data if it doesn’t meet requirements.
Despite the far-reaching operational scope and capabilities of most ERP systems, they cannot accommodate the iterative and collaborative information flows and business processes that are at the heart of product development. Nor can ERP systems typically provide the capability to enable external partners to directly participate in product development.
PLM: managing the brand
Whereas ERP looks at historical data, PLM touches the iterative, collaborative and creative processes that are ahead of the sale: creating and changing styles, adjusting product costs, improving margins and marketing collections. PLM works before the sale, supporting processes that define the brand, engage the consumer and differentiate the company’s products in the marketplace. In fact, some experts argue that without appropriate management of product development processes, there is really no reason to have an ERP system in the first place.
A new generation of PLM systems specifically manages product lifecycles that are very short — often only months or even weeks long — and very fast-paced. In particular, PLM systems that meet the specific needs of consumer products companies in the apparel, sports and recreation equipment, footwear, household goods and luxury goods markets have appeared. In fact, these industries now accept PLM systems as best practice.
PLM’s essential value is that it delivers a “single version of the truth” about a product to everyone working in any aspect of product development. People around the office, country and world can all work together in real time on the same design. They can seamlessly exchange information with everyone in the supply chain, including partners, outsourcers and compliance experts. Ultimately, PLM can even involve consumers by providing collection books and catalogs, all highly personalized to the needs of the individual.
The ERP-PLM continuum
ERP systems are vital tools for fast-moving consumer goods businesses. They have proven essential for growing companies and have served a positive and crucial role in helping companies survive and thrive.
Today, though, brand differentiation and competitive advantage are at the heart of a company’s lifeline. How does a company conceive products and empower its creative teams? How does it construct a product? How does it increase gross margin through better design and development processes, or through better sourcing practices? These are the questions PLM can answer, and this is why PLM technology investment makes sense as the investment of choice on a fixed-dollar investment pool.
In short, if companies do not have everything in order on the front end — where PLM comes in — then improving downstream visibility is after the fact. Directly working to more cost-effectively deliver a greater number of competitive products to market, PLM provides one of the best rates of return on investment a consumer goods company will realize.
Examples of ROI with PLM
And while PLM advocates rightly may claim that the technology is a sound choice, it’s important to understand where, and how, it generates ROI. Consider these examples.
When vs. if
- A single version of the truth about products improves efficiencies and reduces costs.
- An enhanced environment for innovation leads to increased revenue opportunities.
- More effective supply chain negotiations improve gross margin ROI.
- Improved product quality equals improved customer satisfaction and retention.
- Better visibility improves risk management.
- Improvement in supplier performance and shipping enhances inventory and cash flow performance.
CFOs, CEOs and other senior executives of retail, apparel, footwear, luxury and consumer goods companies continually face the question, “Where does our next investment go?” If the underlying impetus is a need and desire to engage consumers through on-trend, highly successful products, to build brand, and to effectively manage a global supply chain, the answer is PLM. The question is not if PLM is in a company’s future, but when.
James Horne is vice president of marketing for Centric Software, Inc.