PDXpert PLM software ROI calculation
The return on investment (ROI) for any PLM software
project can be quite compelling. In fact, it's often surprising just how good the results can be! With the relatively low cost of PDXpert
PLM software, project paybacks are measured in weeks or months, not years. Our
PDXpert PLM software ROI
calculator is simple to use, easy to validate and financially conservative. Your own ROI
calculations can
include many additional aspects to demonstrate PDXpert PLM software's
compelling financial returns.
Why does PLM software offer high ROI for the entire organization?
Simply: productivity leverage complemented by low project cost.
If you've ever scrapped or reworked parts because someone "didn't have
time" to look for the latest revision, you've seen how a few seconds can
cost thousands of dollars. If you've ever recreated a lost document instead
of working on a new product, the benefit of secure data management is
obvious. And if you dread changing a part across multiple BOM
spreadsheets, it's because you know just how time-consuming and error-prone
that can be.
Your product design process determines the bulk of product costs before
the first unit comes off the manufacturing line. Product development
requires specialized and expensive staff whose minute-by-minute decisions profoundly influence tooling, inventory and assembly labor costs
for years or even decades.
Engineering change velocity affects initial revenue timing as well as vendor
returns, scrap
and rework costs. Normal staff turnover can lose previously-developed - and very expensive -
documentation as well as knowledge about what changes were approved, when, by whom,
and why.
While proper data management provides the leverage, PDXpert
software's affordable price and flexible licensing translate into low project
cost and a quick payback on your initial investment.
Through the power of leverage, relatively simple product data management
efficiencies can make a big difference to your bottom line.
5 simple formulas determine your PDXpert PLM software ROI
Although PDXpert PLM software has many potential benefits, we've focused
on 5 areas with simple, easily-estimated inputs that produce clear outcomes.
After reviewing a variety of third-party PLM software studies, we've
extracted the most commonly-identified benefits that require only minimal
data. We've also programmed far more conservative improvement percentages
into our PLM software ROI calculator than were observed in actual
practice.*
If you have 60 seconds, we'll calculate
how much money PDXpert can save you.
1. Employee search & collaboration productivity
Industry experience: PLM increases staff productivity by up to 25%; we use
3%
Employee efficiency = improvement% × empCost$a
× allUsersb
2. Engineering change throughput
Industry experience: PLM reduces an 8-hour manual change process by up to
50%; we use 5%
Change process = improvement% × (changes / year) × (hours / change) × (empCost$ / hour)
3. Reduction in rework and scrap
Industry experience: PLM reduces materials budget by up to 4%; we use
0.4%
Rework/scrap reduction = improvement% × (materials$ / year)
4. Increased part re-use and avoiding the creation of duplicate/equivalent parts
Industry experience: PLM saves up to 56% of the development staff's time;
we use 5%
Part re-use/avoid duplication = improvement% × currentParts
× itemDevCost$c
5. Preventing lost, misplaced or unapproved documentation and records
Industry experience: PLM saves up to 20% of the
development staff's time; we use 2%
File loss reduction = improvement% × currentFiles × itemDevCost$
Notes:
a. empCost$ is the average user's total cost:
gross wages + non-cash benefits
b. allUsers = full-function users + read-only users
c. itemDevCost$ = 40% × full-function users × empCost$ / (newParts + newFiles)
assuming active contributors spend
about 40% of their workweek on item development
Although a PLM software purchase is often sponsored by a single department (say,
Engineering or Quality), the financial benefits are realized across the entire organization.
In fact, some of the most dramatic savings are seen in Purchasing and
Production, through more efficient control of materials.
PDXpert PLM software ROI calculator inputs
Perhaps surprisingly, you can't maximize your return on investment simply
by tweaking the project inputs. The ROI calculator forecasts the results of
implementing a complete system, assuming a balanced set of interdependent inputs.
It's possible to create a theoretical NPV and IRR that's (literally) unbelievable
by overstating inventory values, understating burdened labor costs
or artificially constraining a large user community to just a few licenses.
However, a realistic ROI requires good inputs: determine what product
data you have now, what data you're likely to manage in the future, and who
will benefit from having access to that data.
The ROI model handles typical situations well, but watch for corner
cases. For instance: although it might be possible that a single
user can create, release and effectively use hundreds of new documents,
parts and changes each year, it's not likely. Your team
obtains the predicted value by working with data in the PLM system. The
calculated ROI may be too optimistic unless each data contributor/approver
has been assigned a Full-Function license and each data user has a Read-Only
license.
Similarly, most
companies that manage thousands of existing part/document records will have
a significant materials budget (whether in-house or outsourced). The
calculator looks at the entire system, so if you're simply designing for
someone else, then both inputs and savings will be spread across both
organizations.
Typical product design and manufacturing operations will
usually see per-hour savings of up to 50 times the cost per hour. For example, a
savings of $2.40 / hour divided by a cost of $0.24 / hour is 10. A ratio higher than 50
usually indicates that the planned user accounts will be insufficient for
managing the new & existing product
data, resulting in an unlikely ROI. This condition is indicated as
Users? in
the results table.
PDXpert PLM software ROI input adjustments
As described above, the improvements we apply are significantly more
conservative than typical industry
experience, while the key costs are all based on your own company's actual
experience. Even when used with very rough estimates, the formulas can provide
valuable insights into potential savings.
Of course, if you already have better-than-average processes and think
the model is too optimistic, you can simply cut the calculation results
further. Or, modify our formulas and consider other companies'
documented experiences
(below) to create your own
model.
Financial results produced by the PDXpert PLM software ROI model
User license / hour is the total cost of full-function
and read-only licenses, divided by the total quantity of full-function and
read-only licenses. MSU is multiplied by the number of analysis years. If this number is notably lower than the average employee's
hourly wage, then investment risk is low.
Net benefit / user-hour is the project savings less
total project cost (license, MSU, import), divided by the total quantity of
user-hours during the analysis period. This represents
the additional net
benefit that each user contributes during the project period.
Total net savings is the project savings for the
analysis period, multiplied by the years in the analysis; the result is
reduced by the project investment over the same period. Although simpler than NPV, total net savings is useful only for
relatively short analysis periods with low-cost capital.
Payback period is the time
required for the accumulated cash flows to offset the initial project
investment. Indicates how quickly the project's original investment is recovered,
after which the project returns positive cash flow.
Net present value
(NPV) is the expected cash benefit reduced by the project investment during
the analysis period, taking into account the time value of money ("cost of
capital"). For most companies, capital cost is 2%-12% more than the
inflation rate. NPV
measures the project's impact on shareholder
value, and is considered the best financial metric.
Internal rate of return (IRR) is the discount rate that
makes project NPV equal to $0. An investment is
warranted when its IRR is greater than the cost of capital.
Observed benefits from major PLM software studies
Independent studies by Aberdeen, Accenture, AMR, CIMdata, IBM, Oracle and
others have consistently shown that PLM software has a profound effect on increasing
productivity and reducing costs. The largest corporations often spend
millions for their PLM software, and therefore can afford the detailed
studies that confirm a compelling ROI.
We understand that most small and mid-size companies can't afford
expensive analysts. Your PLM decision has to rely on your own experience and
thoughtful application of similar data. We offer this list of documented results to
calibrate your own PLM software ROI
model:
- 7% to 14% improvement in engineering non-value-added time
- 55% reduction in number of designed parts
- Design cycle time reduced 25%
- 10% reduction in ECO cycle time
- ECO cycle
time improved 40%
- ECO cycle time reduced by 50%; ECO administration expense reduced by
60%
- 90% faster FDA document generation cycle time
- Reduced engineering changes and administration resulted in 20%
savings in engineering costs
- Overall engineering administrative activity improved 80% (ECO,
search, vault, etc.)
- Engineering productivity increased 10% per year over 5 year period
- Engineering change cycle reduced from 45 days to 4 days
- TTM reduced by 5%; design errors and development costs reduced by 5%
- 2% reduction in direct materials costs
- 50% increase in component reuse: 5% to 15% cost decrease for
higher-volume parts
- Supplier access to CAD files reduces tooling lead time by 80%
- 2% savings on direct materials purchase
- 60% reduction in rework production costs
- Material cost reductions approximately 2% to 3%
- Reuse improved from less than 2% to 59%
- Customer RFQ to prototype cycle time reduced 50% - 75%
- Eliminated almost 100% of customer order errors
- Reduced purchasing order time by 30 minutes per transaction
- 100% elimination of sending clients out-of-date product data
- Order errors reduced by 50%
- Order volume increase 40%—order errors decreased 75%
- RFQ response reduction from 2 weeks to 24 hours
- Significant savings on allowances for warranty and returns
- Engineering meeting reduction, per week, of 2 hours
- Engineering change process reduced by 5 to 20 hours per change
- Elimination of duplicate part numbers by 56%
- ECO time reduction of 50%
- Time for document search reduced by 80%
- Employee productivity improved by 10-15%
By assessing expected per-employee and percentage-based improvements, you can estimate the
advantages of PLM software for your own company.
PDXpert PLM: Is there any better investment you can make?
A PDXpert PLM software project delivers these benefits:
- More efficient product development activities through faster part & document searches,
better collaboration
- Avoiding development costs typically associated with manual control
processes, such as reproducing missing drawings and re-specifying parts
that already exist or can be easily modified
- Product unit cost reductions through part re-use and reduction of
duplication, which reduces purchasing & warehousing activities while
increasing volume purchases
- Reducing administrative overhead ("doing more with less")
for
supporting activities like manual change management and document
control
- Reduction in scrap & rework by ensuring consistent
bills of materials, accurate document revisions, and fast turn-around of required changes
- Capturing the history of why changes were made to avoid
reintroducing previous problems
These benefits are achieved using
an extremely affordable PLM software
license that offers a quick
payback
and high net present value
under most investment scenarios.