ERP and PLM – competing or complementary solutions?

Is it a question of one or the other, or are the benefits of having both so great that it is an obvious choice? For most product-centric companies that are developing, producing, and selling products, it is obvious that both are needed.

Nevertheless,  some trends can challenge this:

• Many companies are now applying a business model where partners supply parts of the whole product related develop-delivery process
• Many ERP suites now include PLM-like functionalities
• Products today are increasingly bundled along with services such as financing, installation, and after-sales support

Illustration 1 – ERP and PLM combined can unlock the true potential

 

If you go back a few years, the distinction between PLM and ERP is quite evident. PLM was used to develop, create recipes and maintain products throughout their lifecycle. ERP took the recipe developed by PLM and procured, manufactured, sold, and delivered these products, creating orders and transactions.

Even though ERP and PLM have distinct use cases, both have overlapping capabilities as we see emerging trends at the intersection of the two functionalities. ERP and PLM now include capabilities such as managing Manufacturing Bill of Materials (MBOMs), following up on development costs, handling engineering changes, and tracking products. Processes such as sourcing are shifting up in the development process and, thus, moving from the purview of ERP towards PLM. Both systems are highly critical in every large IT landscape; thus, they must complement each other.

From our experience, a product-centric organization will most likely need both systems, and the main point of discussion should be where to draw the line between them and how to integrate them to serve your organization best. We have seen that the benefits of well-integrated systems are immense for any organization, and we have listed some of them below.

Cost reduction

With an increase in data accuracy and improved ownership of data, cost reduction can be achieved in many ways:

• Improved material visibility preventing material shortages or high inventory costs
• Single source of data provides more accurate view of the operations, making it easier to find potential areas for cost savings
• Feedback from operations to R&D about product usage and quality concerns makes it possible to quickly revise and improve products in production, thus reducing future warranty expenses.

Supply Chain Resilience

A Mckinsey Report* stated that companies with end-to-end supply chain visibility are twice as likely to avoid any supply chain disruption. An integrated environment removes information gaps and provides a holistic view of the supply chain, thus building resilience.

Product Provenance

Organizations might soon face regulatory pressure to provide product and manufacturing details such as ingredients, sources, and sub-suppliers and share them with the consumer. Seamless integrations between PLM and ERP thus become a prerequisite to achieving full product traceability as it can help trace and monitor a product throughout its lifecycle – at a model level in PLM and an individual level with ERP.

Increased efficiency

ERP and PLM integration automates some processes, such as updating, transferring, and accessing product-related data. This can help employees improve productivity and focus on more critical tasks. With an integrated product data setup, the organization can easily detect errors or enhancement possibilities and thus make modifications more efficiently.

Improved collaboration

Integration enables clear communication between different departments and create alignment through single source of data. The improved collaboration between interdependent functions will reduce time to deliver new and better products to consumers, at a lower cost.

Role of ERP and PLM in IT Landscape

ERP and PLM are critical parts of a system landscape for manufacturing companies, and to maximize their benefits, it is imperative to understand their respective strengths and use cases.

Companies rely on being competitive through their products, making effective collaboration between design and manufacturing operations essential. ERP and PLM integration enables this collaboration by having complementary functionalities for design and manufacturing processes.

Essential activities for creating competitive products, such as design, development, sampling, approval, etc. are executed and signed off in the PLM system. ERP then takes the finalized products forward by managing the sourcing, operations, finance, and sales.

Illustration 2 – Comparing high-level functionality of ERP and PLM

 

The integration of ERP and PLM systems affects various business areas and processes, enabling synergies. To realize all the synergies, organizations must develop an interactive and effective intersection between the systems. Furthermore, the ownership of the product structure and bill of material (BOM) must be managed.

Success factors for ERP and PLM integration

Transferring data from one application to another is only one side of the coin. It is equally important to recognize that ERP and PLM integration integrates critical organizational processes, raising the need for effective change management.

Based on our experience, the successful integration of ERP and PLM depends on:

• Complete understanding of current product design and manufacturing process as well as requirements moving forward
• Assessing and identifying the current inefficiencies and developing a vision for efficient collaboration of design and manufacturing
• Complete understanding of the data involved, including how and where it is stored and how it can be used (including master data management)
• Understanding the Master Data nature of PLM and the transactional nature of ERP to make relevant decisions of functionalities and data resided in the borderline between these two applications
• It is also relevant to have this understanding while sourcing the two systems as the vendors would compete for a larger part of the IT landscape and thus try to sell components and functionalities that organizations do not need

 

Illustration 3 – The ERP and PLM processes running incorporated, interacting

 

At Opticos, we are open to engage in discussions around the ERP – PLM integration and to assist your organization in various stages of your ERP – PLM integration journey. With expertise in Digital Business Transformation, Sourcing and Procurement, Data and Change management, we can help your organization turn ideas into action.

Want to know more? Please do not hesitate to contact us.

References: * Mckinsey Report: “Taking the pulse of shifting supply chains”