How to calculate the costs of not having a PLM solution
Before investing in a PLM solution, it is important to get acquainted with current processes and the cost of not having a PLM.
Investing in the right solution can help to improve time to market, reduce costs, accelerate productivity and improve overall operational savings by up to 30%.
Therefore, it is important to know the cost generating processes and how to calculate the costs of working with outdated procedures.
First of all, let’s define some typical challenges that companies face when not using a PLM system.
Cost generating processes
- An overwhelming number of excel sheets to manage product data makes it difficult to align teams with the latest information.
- Redundant information processing across departments is time-consuming and results in delays and increased time to market.
- Spending a lot of time chasing information between employees’ local folders is slowing down workflows because teams can’t access the information they need – this results in inefficient knowledge sharing.
- Data errors are a common occurrence and have the potential to cause major problems in the business such as ordering the wrong material for a product or not meeting minimum order quantities.
- External communication with suppliers is a struggle (through email) and is slowing down workflows.
- Teams are less productive and can’t spend as much time as required on their actual tasks. Creativity is limited, as admin is taking up too much time.
- Marketplaces and e-commerce require product and marketing data in more easy importable formats to secure time to market. It’s time-consuming to deliver and format product data the way they require to receive data.
- Inaccurate communication of tech packs resulting in supplier miscommunication, costly errors and extra work.
You may have found it difficult to see the need for a PLM due to the lack of data, to identify the actual cost of not having a PLM solution.
So, let us put some numbers on the table.
Calculating the costs of not having a PLM
Here is a method that will help you calculate the cost of current processes and help determine, whether investing in a PLM solution is a good idea.
1. Figure out how many hours are spent yearly on the following activities, per employee:
- Searching through emails for specific information
- Keeping track of the latest updated Excel sheets
- Cleaning up information errors
- Preparing reports
- Communicating with suppliers through email
- Dealing with paperwork and organizing information
- Passing redundant information across departments
- Fixing mistakes because of inaccurate communication of tech packs
Ask design, sourcing, technicians and back office to quantify this. A simple rough estimate will do.
The total number of hours spent on the above tasks is the annual number of wasted hours.
Two technicians estimate that 6 hours per week are wasted per person, and three designers say around 6-8 hours wasted each week.
A rough estimate is 7 hours per week for e.g. 40 weeks a year. 40 x 7 hours = 280 hours wasted per employee per year.
2. Calculate the value of one hour:
The average salary of employee / annual number of working hours = hourly rate cost.
The monthly salary is e.g. EUR 4.000 and EUR 5.000 i.e. the average monthly salary is EUR 4.500. Monthly work hours are 160 hours i.e. EUR 28 per hour.
3. Quantify the value of wasted hours:
The annual number of wasted hours x hourly rate cost = cost per employee
280 wasted hours x EUR 28 per hour = EUR 7.840 wasted per employee.
4. Calculate the total cost:
Cost per employee x number of applicable employees = total cost
5 employees each waste hours worth of EUR 7.840 i.e. a total waste of EUR 39.200 per year on finding information, ensuring they work with the latest information, etc.
Create operational savings with PLM
Working in a PLM platform will eliminate all of the above cost creating activities, as it provides the tool to manage these elements efficiently.
Of course, there are many other benefits of using a PLM System, but the above cost generating activities give a good indication if a business case for investing in a PLM can be created. In general, companies achieve operational savings by up to 30% of the overall operational costs, just by implementing the right PLM solution.
The above example is based on 5 employees.
With a PLM platform to support their work, their efficiency will be potentially improved by an annual value of EUR 39.200.
A PLM platform for 5 employees can be implemented for i.e. EUR 10.000 a year, which is less than 25% of the value of the improvement.
Numbers don’t lie. Book a demo consultation and let us look at your current processes together, and analyse whether investing in a PLM solution will be a profitable business case for your company.