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The Blurry Line between ERP and PLM in Engineer-to-order (ETO) Manufacturing

Written By: Yu Chen
Published On: September 18 2009

Enterprise resource planning (ERP) and product lifecycle management (PLM) have different business management perspectives—the first focuses on fulfilling physical orders with the respect of optimizing resource use whereas the second focuses on taking care of innovation processes by facilitating product definition collaboration. However, there is an intersection between the two systems. By empowering the consistent accessibility of one system's users to another system's data and processes, the integration between the two systems delivers benefits such as shorter time-to-market, lower manufacturing costs, and higher customer satisfaction.

The Need for ERP–PLM Integration in ETO Manufacturing

It is important for all manufacturers that have implemented ERP and PLM systems to build connections between the two software applications. For engineer-to-order (ETO) manufacturers (who design and manufacture products to the specific needs of the customer), the connection between ERP and PLM is even more important due to the specificity of the ETO sector.

Facilitating Engineering Changes

For ETO manufacturers, the probability of product and process changes is high. During the time between receiving customer requirements and delivering final products, changes happen (whether the customer modifies their requirements; design modifications are requested by the shop floor; or issues on the supplier's side result in using alternative parts). Quite often, a change initiated in one system (either ERP or PLM) will have a consequence in the other. For ETO manufacturers, the capability of efficiently capturing change requests and implementing change actions throughout the entire value chain (customer, manufacturer, and supplier) in a synchronized manner is one of the key success factors.

Reducing Rework and Scrap

Every manufacturer wants to reduce rework and scrap but ETO manufacturers dislike these costly activities more than the average manufacturer. In the ETO sector, the quantity of each product is usually small—unlike mass production manufacturing. This manufacturing process allows for a certain percentage of rework and scrap and costs are allocated to finished products without significant increase on unit price. For ETO companies to avoid catastrophic wastes in manufacturing processes, they have to make sure that the design department knows what can be made on the shop floor and that the production side always works on the up-to-date design specifications that reflect correct customer requirements.

Meeting Delivery Time

One of the major responsibilities that product/project managers at ETO manufacturers have is to ensure that the product can be delivered on time. Although one delivery delay may result in only one unhappy customer, for some ETO manufacturers, this customer may mean their entire business. The need to oversee both the development and production processes for every product poses a challenge for managers in the ETO sector. . The collaboration between product development and production is even more challenging since the two processes are mainly handled by two different information systems—PLM and ERP, respectively. Unless the two systems can talk to each other consistently, the collaboration won't be effective and efficient.

Providing High-quality After-sales Services

For many ETO manufacturers, after-sales services are not only obligations attached to the product but also an important revenue source. High-quality after-sales services rely on accurate product definition information (usually maintained in PLM systems), traceable service activities (which more likely reside in transactional systems such as ERP), and a convenient reference between the two sides. The entire perception of after-sales services is based on the experience dealing with the product provider as a single entity regardless if customers have access to ETO manufacturers' systems or have to interact using traditional communication means. That being said, ERP and PLM systems have to work as if they are a single system. For more discussion on the integration between PLM and ERP-like systems for service purposes, please read the blog post What Keeps EAM/CMMS Away From PLM?

Alongside other business objectives, the four factors mentioned above make the connectivity between ERP and PLM a necessity for ETO companies. Ideally, it would be great if there was a single system handling everything that an ETO manufacturer needs. However, during the early days of development, the product development application camp (e.g., computer aided design [CAD] and product data management [PDM] vendors) and the transactional enterprise system camp (e.g., ERP and supply chain management [SCM] vendors) were developing solutions in significant ignorance of each other. Also, ERP and PLM systems were not implemented at the same time for many organizations (often ERP was implemented earlier that PLM) and integration between the two systems seemed to be the only realistic option.

The Blurry Line between ERP and PLM

The purpose of integrating ERP and PLM is to ensure that product definition information (which is mainly generated by the product design and development department) is accessible instantly by the following processes (e.g., production and services). Also, data from non-design phases can be a valuable input for the decision-making process during the design and development stages. ERP and PLM vendors and implementers have developed technologies to integrate the two systems and to integrate CAD design information with enterprise software applications as well.

In the past, the boundary between the ERP camp and the PLM camp was quite clear. However, after seeing the market potential of PLM solutions, almost all major ERP players have entered into the PLM market. This doesn't necessarily mean that PLM solutions provided by ERP vendors integrate with ERP systems better than those provided by pure PLM vendors (sometimes it may take very long for an acquired PLM solution to be well integrated with its new owner's ERP system), but it should be somewhat easier to coordinate the efforts of integrating two systems together.

Both ERP and PLM vendors are trying to extend their respective solutions' capabilities to the other side. This effort makes the line between ERP and PLM blurrier—ERP solutions are now more capable of managing product data and PLM vendors are adding more transactional functionality in their offerings.

On one side, ERP solutions are increasing their inward capability of managing product data. This phenomenon can be found more significantly in ERP solutions specifically for the ETO industry. To explain how ETO ERP is advancing in providing PLM functionality, I selected two common sub-modules: product data management and product/item configurator. Both submodules are available in ETO ERP and Discrete ERP (which has more generic coverage on manufacturing industries) categories within the Technology Evaluation Centers' (TEC's) knowledge bases (KBs). The comparison of average rating scores (based on TEC's software selection methodology) of the two types of ERP on the selected submodules clearly shows that ETO ERP provides better PLM capability than Discrete ERP (see figure 1). These average scores are quite representative since they are based on 111 Discrete ERP and 35 ETO ERP solutions recorded in TEC's knowledge base. Although PLM-like functionality within an ETO ERP solution can't match what PLM can do, this extension may reflect that ETO manufacturers are eager to enhance the connectivity between product data and operation data.

Figure 1. Rating scores of two submodules within ETO ERP and Discrete ERP

On the other side, PLM vendors are now working on expanding to the ERP-like functionality. A good example is the increasing availability of sourcing solutions from non-ERP PLM vendors. No matter how a PLM vendor positions its products (i.e., sourcing as a part of the PLM package or as a parallel offering alongside PLM), it makes perfect sense to increase the proximity between product definition information and sourcing. For ETO manufacturers, delivering high-quality products on time requires efficient sourcing, decision-making, and operations which rely on instant access to accurate product definition information and streamlined collaboration around it.

ERP, PLM, or?

For the ETO sector, the demand of connecting order fulfillment processes and data with product definition workflows and information is prominent and probably more urgent than that of many other manufacturing sectors. While ERP–PLM integration remains a major approach to address this requirement, the functionality gap between ERP and PLM is closing in when both systems are trying to expand their capability into each other's "territory." Although we can't predict whether the convergence will lead to an organic and ultimate system covering both sides, for ETO manufacturers that are selecting enterprise software solutions, it should be worthwhile to notice that the line between ERP and PLM has become blurrier than before. If you are confused and cannot decide which system you should pursue (ERP, PLM, or any other three-letter acronym solution), forget how people categorize solutions and focus more on the functionalities that you need.

TEC's Enterprise Resource Planning (ERP) Evaluation Center

 
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