PDXpert PLM software return on investment (ROI)
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.
How does PDXpert PLM software offer great ROI?
It's simply high-leverage productivity with low project cost.
If you've ever scrapped or reworked parts because someone "didn't have time" to look for the latest design revision, you've seen how just 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 updating a part across multiple BOM spreadsheets, it's because you know just how time-consuming and error-prone that can be.
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 PLM software return on investment
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.
1. Employee search & collaboration productivity
Industry experience: PLM increases staff productivity by up to 25%; we use 3%
Employee efficiency = improvement% x empCost$a x allUsersb
2. Engineering change throughput
Industry experience: PLM reduces an 8-hour manual change process by up to 50%; we use 5%
Change process = improvement% x (changes / year) × (hours / change) x (empCost$ / 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% x (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% x currentParts x itemDevCost$c
5. Preventing lost, misplaced or unapproved documentation and records
Industry experience: PLM saves up to 20% of the development staff's time; we use 2%
File loss reduction = improvement% x currentFiles x itemDevCost$
- empCost$ is the average user's total cost: gross wages + non-cash benefits
- allUsers = full-function users + read-only users
- itemDevCost$ = 40% x full-function users x 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
To obtain an accurate ROI, assign a Full-Function account to each data creator or reviewer. You can assign a low-cost Read-Only account to each user who just needs to view (not add or change) data.
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.
The ROI calculator requires a balanced set of interdependent inputs to forecast the results of implementing a complete system. A realistic ROI requires that you determine what product data you have now, what data you're likely to manage in the future, and who uses that data to add value to your product or process.
Typical product design and manufacturing operations will usually see per-hour savings of up to 50 times the software's 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 indicates that the planned user accounts may be insufficient for managing the new & existing product data, resulting in an unlikely ROI. This condition is indicated asin the results table.
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 when they all work with data in the PLM system.
Obviously, you must include at least one full-function user for any ROI calculation.
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.
Finally, verify the analysis period and cost of capital. The analysis period should reflect your expected use of, say, 3-10 years (only rarely will PLM software be acquired, used and retired in less than 3 years). Your company's cost of capital over the analysis period is usually somewhat higher, perhaps 2%-10%, than the forecasted inflation rate.
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.
PLM software return on investment model: Financial results
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.
PDXpert benefit is the project's 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"). 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 third-party studies 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 regardless of its size.
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
Creating a BOM & Processing an ECN