Product Value Management

Last week I had a chance to present on use of BPM frameworks at the Shared Insights BPM conference in Ft. Lauderdale. At one of the breakout sessions we had an open discussion about innovation - what is innovation, how can it be helped by BPM? Although majority of attendees were not from manufacturing industry, the issues and concepts discussed apply uniformly across industries. We did not arrive at a consensus definition of “innovation” (although we agreed that having such a uniform definition is less critical anyway), but four key words stayed firmly implanted in any such attempt: continuous, differentiation, change, value. In a free form interpretation, the likely definition would sound something like: innovation is a continuous process of extending competitive differentiation by changing how we define, create and deliver value to customers. There would definitely be better edits, but I hope you get the key message.

In other words, something has to change (either what we do, or how we do it). The change has to lead to increased value to end consumer. The increased value has to reinforce competitive differentiation, and the process never stops. Now you get a full circle of innovation. That means to claim to be innovative, a company needs to keep changing, finding better ways to deliver more value and stay differentiated through those attempts over time. Now, someone can say, that is the role of the product development process in general, at least its strategic reason for existence. I agree, but let’s see what happens to those that fail in one of the four pre-requisites of innovation: change, value, differentiation, continuation.

Let’s start with change. I hope we know better by now not to provide lip service to innovation. How many products or services do we encounter on a daily basis, that we cannot tell apart. At the same time, the providers of those product and services have a strikingly similar business models, even similar financial ratios. To claim innovation something needs to change - I offer four areas of changes that in my mind directly qualify for innovation:

1. Brand - changing the way customers perceive products or services and/or comprehend social value of the corporate metaphor;
2. Market - changing the definition of value that product or service needs to deliver, or changing the product/service positioning;
3. Research - changing the basic underlying concepts of how the product/service delivers value;
4. Develop - changing the way the total product/service is integrated with its native value chain, encompassing changes in value creation through design and engineering, as well as value delivery through sourcing, manufacturing and fulfillment.

Often, companies fail to keep changing in any of these categories and that is a very troublesome sign. I’d say that when an industry fails to innovate collectively, it will be very much tempted to engage into price fixing and “government sanctioned” approaches - lobbying not being considered a form of innovation. So let’s take “political innovation” and other pure fiscal and speculative financial changes out of the picture.

So, if a company is changing in any of these areas, let’s consider what value does the change brings. We know of very many new ways or new things that did not ultimately deliver expected value to the targeted customers. These attempts fail because they are often induced by a great spark of ingenuity, but incomplete consideration of the entire value chain, System thinking ought to help here, so would sound value engineering. Probably, largest number of “innovations” fail for this reason. If innovation fails to deliver new value, last two prerequisites don’t matter (differentiation and continuation).

Let’s examine differentiation as the next prerequisite. Suppose we succeed in adoption of a new process or product, and customers are confirming added value through increased demand and/or willingness to award respectable price premiums. So, for an innovation to succeed it has to gain market credibility in the form of revenue and/or profit margin increases, thus it confirms its differentiation. There are many ways to sustain differentiation of an innovative product/service, notably intellectual property protection and extended know-how gap. However, if the idea is easily replicated by competitors, the innovation fizzles quickly becoming yet another commodity expectation. Thus, differentiation through innovation requires continuation. These two always go together in order to provide a sustainable competitive advantage. Many companies snap their innovative streak too early. Big ideas do arguably come in spurts, however, the process of innovation never really stops, it only changes the originators and the benefactors.

When I think of all four prerequisites in the context of total process of managing innovation, one company immediately comes to mind - Toyota. With cultural underpinnings stemming from value and knowledge engineering, armed with superb methods and techniques of managing change in a continuous fashion, and with utmost focus on differentiation, Toyota provides a great insight into managing innovation. Morgan and Liker offer an easily digestible glimpse into the inner working of Toyota in their recent book The Toyota Product Development System - Integrating People, Process and Technology, Productivity Press - New York, 2006. Somewhat related, there has been a recent posting at CPDA web site on the Toyota approach to managing BOM-s (http://www.cpd-associates.com/doc_viewer.cfm?SUBSID=72404138&ID=194759618&FILEID=262316499)

Overall, lean transformation can facilitate innovation, and in very profound ways. Primarily by sharpening the focus on the total value proposition of any new idea or concept. But also by instilling a disciplined and executable framework for managing change in a continuous fashion, asking constantly how can value be increased, what changes need to executed, and rallying the organization to relentlessly execute on better ways of creating and delivering value. A nice blog to follow on this topic is www.victorhoward.typepad.com

If you want to contribute to this topic, please drop me a note, I am looking for presenters for our annual PLM Roadmap conference in September. The topic of frameworks for lean transformation in product development will be one of my focus topics this coming year.

Manufacturing Process Management is often a neglected space of PLM automation. With aggressive convergence of design and manufacturing serving the need for compression of development cycles, tool and die cycle times can easily become most critical path item in every new product introduction attempt. Risks abound: did we pick the most economical process, what existing production assets can be reused, is the required capacity and quality integrated in the process design, what new machines and tools (fixtures, dies) are required, are the working procedures compliant with safety requirements, are supplied components validated for quality and packaging, will the flow of materials be properly leveled, are all work procedures defined, … An exhaustive checklist would probably consist of roughly a hundred of unique critical items like this. And another few dozens specific to each industry vertical.

Now, all of this used to be OK to manage using desktop files and documents (assuming many status check meetings of course). Some twenty years ago, most manufacturers operated with a simplified flow - here is the design of the parts and assemblies, drawings, part numbers, material lists, required capacities, product lines to use, and here you go - and by the way - this is the budget you can use for manufacturing. Few engineering changes here and there along the way and manufacturing engineers would be done usually few months later than desired (blame those tools and dies suppliers and their pesky details), but most likely still in a very competitive timeframe.

Today, things are much different. First, it is not like here is your design and part numbers, more like - here are few alternative concepts we are thinking about, what do you have to say? And then, here are all these global sites where we are thinking of manufacturing, what is the best option? And here is the budget for the entire product life cycle, what are we looking for in manufacturing costs? And by the way - we think you can reuse over 80% of current assets, right, our competitors can, so why could not you? One thing we forgot to tell you, but you understand that we want you to be ready for production three months after the final design change that may hold longest lead time die (hate to say after the design is frozen) - your longest die lead time is fifteen weeks, right? You do the math.

And even the above is an understatement, because all of it can be repeated several times, ones for the prototype, ones for the customer samples, ones for the trial production, volume production, …. So much information changing so often and so fast, and coming from so many different sources in so many different formats does require an information management solution. But, if you are a manufacturing engineer, what should that information management solution do for you at minimum?

First of all, it should put you on the same page with designers, particularly concerning any design feature or part/assembly design change that can impact the longest lead time items. And you want this link to start from the first moment you can imagine the conceptual alternatives being considered. Did somebody say eBOM? Yes, manufacturing engineers should be able to coordinate eBOM changes with their peers in design in a closed loop solution. At the same time, they have to be able to link selected eBOM items to a series of alternative mBOM structures to consider all other factors of the production process in their native form (process steps, material routing, tools, procedures, costs, flow levels, ergonomic factors, etc). Did someone say set-based design? Precisely, because schedules are “pulled in” based on the final possible decision postponement of the design of the longest tooling lead time item. No time for second and third iteration chasing the costs that cannot be reduced anymore.

That means that manufacturing engineers need to work in a solution that will let them at minimum consolidate all manufacturing process data around their alternative mBOM-s, and connect selected items to the eBOM items that will change during design, so adequate assessments can be done more precisely and more readily whenever required, while working in both native environments. Furthermore, selected items can be put on a special schedule for final design changes early enough, because they are long lead time items and will require design scrutiny as early as possible.

Although it may sound trivial, this minimalistic requirement has been recently addressed by PTC - commented by Ken Versprille and myself (Download file). In our discussions with PTC, we heard that they have not pretended to address all advanced features of the MPM that other vendor offerings have already targeted (capabilities like process optimization and simulation that UGS and Dassault have already developed solutions for). Instead, they focused on providing a well organized information repository for manufacturing engineers to be able to connect their work upstream to the work of design engineers and to be able to readily release accurate production information downstream to the production execution systems, production planners and procurement. That much they did well with their MPMLink solution.

Few factors are very interesting to observe in the near future of the MPM solutions market:

1. Vendors focusing on industry specific checklist templates and process flows will probably get more attention and more mileage from their efforts then those vying to automate very complex optimization routines, while potentially leaving critical information dependencies unattended. Simply because more growth in this space will come from underserved small and medium size manufacturers who do not have large manufacturing engineering headcount, but by all means can justify investing relatively significantly in making sure they are out of their customers’ critical paths.

2. Capturing and re-purposing manufacturing knowledge in a form of constraints, rules and guidelines for optimally selecting and sequencing design features in a native design environment has arguably the largest impact to the cycle time and reuse. For example, set-based design requires consideration of multiple alternatives using a common sets of constraints and criteria defined significantly ahead of the hand-off to manufacturing. Vendors pioneering and addressing this need will excel in the MPM space.

For last two days I have been visiting clients in Detroit area. On a brief break between meetings I have decided to comment on a common misconception we encounter very often in automotive manufacturing companies. And it is related to determining how PLM adds value to the company.

First of all, PLM is a set of processes, rules/guidelines, methods and tools required to navigate value proposition of the entire company’s product and service offering (portfolio) through market turbulence. It is a closed loop of monitoring, adjusting, and executing the targeted value propositions linking ideas for increasing product value all the way to successful launch and on to the end of life of each product/service. As such PLM is one of the basic or meta-processes, e.g. the success of PLM is linked to the overall success of the company in terms of attaining sustainable product differentiation, measured by market share and product margins.

OK, this much is easy to agree with. let’s go back to the PLM definition above (one of many, and as much arguable, I am not trying to make that contribution here, just bring the point). Key words are value, product/service, market and - TURBULENCE. Markets are indeed turbulent, both by the amount of changes and speed of changes they are going through. Now, if we accept these basic definitions, any company that is loosing market share (for example local Detroit OEM-s) and/or loosing product margins is failing in PLM. That means that their PLM practices are not good enough or at par with the market turbulence.

Yet, every time we get to discuss these issues, we cannot discern from these companies a comprehensive PLM transformation strategy, nor completely understand why is it that their executives have so much emphasis on all other meta-processes (cost oriented mostly, rarely value oriented), but not to have a comprehensive corporate strategy to improve PLM processes, methods and tools. Is it that they are not committed to the long term prospects, or is it that they believe that by some miracle value proposition of their portfolio ends up just OK through the turbulence they are facing. And then the world goes back to normal (e.g. our PLM is just fine, it is the turbulence that has to go away). Yet, we all know that global markets turbulence is here to stay, and likely increase.

If your company is loosing market share and product margins, you have to be right away on top of your PLM processes, methods and tools. Why is it that we are not able define winning products (and how can we), why is it that we are late to market (and how can we be on time), why is it that we miss cost targets, why is it that our products are not of required quality and longevity. These questions cannot be answered with sporadic six sigma, lean and other isolated efforts within engineering departments. These are systematic issues, that require a well integrated framework linking strategy to metrics to process to people and tools (look up blog entry on PLM frameworks). But first of all, developing corporate strategy for PLM requires top level commitment and much more than a lip service to the engineering and IT departments.

It requires foremost a recognition of the key competitive advantages that the company has in its DNA, whether it is innovation or operational excellence, or whatever has been already deeply instilled in the way people of the company operate (look for example Apple). You just cannot become over night what you are not. And then it requires embedding these DNA advantages in the way decisions are made, processes are managed, measured and continuously adjusted to bring the most of these advantages into the product value proposition. Yet, all this time, search for target value propositions needs to be based understanding of the market turbulence (turning it into an opportunity).

I ask often our partners how many times they had a chance to discuss with top executives the key initiatives they are working on in PLM, and they say relatively often. But, then when asked how well have these initiatives been directly tied to the market share and product margins as only relevant criteria for PLM success, they are almost every time not sure if their initiatives target those measures, and that there is much more to be included if that is what they need to deliver. Then INCLUDE it, provide comprehensive and precise bill of changes required to increase market share and profit margin improvements. If it requires multiple departments to coordinate changes, so be it, if it requires multiple systems to be integrated, so be it, if it requires top executive to drive the effort (because no-one feels ownership - sic!) - then get the right person to drive it - the CEO. But, above all, if your initiative is not clearly demonstrating and aligning with how will it improve market share and margin, do not do it, or do not call it a PLM initiative (maybe engineering automation would be more precise), particularly not a strategic initiative. Pretending to have in place a strategic PLM initiative without being able to tie it directly to how will it improve market share and/or product margins may only obscure the real issues. After admitting/proving a lack of it, you can seek a mandate to put together a comprehensive PLM strategy - top down. Because your company needs one.