The Three Stages of Retail PLM Adoption (Including Five Myth Busters for Better Product Development)

contributed by Jeremy Rubman, Partner, Kurt Salmon Associates ([email protected])

Let's start with the bottom line -- the consumer -- first. Fundamentally, what product lifecycle management (PLM) can mean for the ultimate consumer is a more focused and coordinated assortment. This is achieved in two major ways. The first is that PLM allows for the coordination of various groups (merchants, product designers, technical designers, sourcing and suppliers) on the brand identity, trend interpretation, direction of the assortment and the execution of the product. The second is that PLM systems provide tools such as line plans, color and material palettes, trend boards and standards to give everyone both the strategic "big picture" and a tactical execution plan.

In addition, PLM gives companies the flexibility to better respond to changing consumer wants and needs. As an example, the usage of fit block and specification libraries can allow technical designers to quickly change the fit as their research -- either through focus groups, store feedback or analysis of data such as return rates -- uncovers changes within their customer base. The same holds true throughout the process, as one group can make changes to the seasonal strategy or execution plan and have it quickly disseminated amongst all members of the supply chain.

Retailers who develop their own products have grown to appreciate the power of PLM software. This is especially the case with chains that sell apparel and footwear, which must meet ever-shortening windows of "fashionability" and therefore need PLM systems to speed new products to market. Despite contraction in U.S. apparel sales over the past two years, such retailers dug deep into their pockets for PLM.

PLM Is Improving Retail Product Development

From our consulting experience, we believe the keen interest in PLM is not misguided. In many retailers, PLM has spared product designers and developers from reinventing the wheel every time they design a new dress, shirt, sweater or shoe. PLM systems feature an online library of materials, styles and colors -- a central database that can be shared by designers across product categories. That allows apparel designers to easily find materials, borrow elements from other styles and reuse colors from previous lines, which saves considerable time and cost. This is especially important to designers who want to create lines that incorporate the same styles, materials and colors across the line, or who want to take advantage of what's been developed in prior years. But unless they have a central system to which they can move information stored today on their own computers, it becomes nearly impossible for them to share the components of previous designs.

Scratching the Surface

The gains retailers have made with PLM software in product design and development are to be applauded, of course. But they are just the early victories -- the first of what we see as three stages in PLM adoption. In the first stage, retailers do not use PLM beyond the walls of product design and devel¬opment. By maintaining separate systems for products and sourcing, as well as continuing to operate these functions in silos, retailers cannot hope to make the dramatic reductions in new product cycle times, costs and product defects that are possible with PLM. The activity of product design and development is just one piece of a larger process that begins when a designer comes up with an idea and ends with the delivery of product to a retailer's stores.

Much bigger wins await retailers whose product development and sourcing departments use a PLM system to work in parallel and share the same, up-to-the-minute information. Doing so can cut the time it takes for a new product to be conceived, designed, sourced, manufactured and delivered from months to weeks.

But most retailers have used PLM essentially to automate the work of design and development to move faster from product concept to order placement. A separate group of people in sourcing, with their own computer system, then typically acts on the instructions from product development and submits orders to raw materials and product vendors. It's up to sourcing to ensure those products arrive on schedule at a retailer's distribution centers.

Connecting Product Development and Sourcing: Moving to the Second Stage of PLM

Separating product development and sourcing is now put¬ting the success of retailers who develop their own products (so-called "vertical retailers") at risk. With more and more merchants such as Spain's Zara having reduced a months-long process to weeks, retailers increasingly need to remove every week and day that's possible from the process. Activities in design, development and sourcing must now be managed in parallel, not sequentially.

How can retailers use their PLM systems to do this? By moving to the second stage of PLM adoption: linking product development and sourcing. Retailers who have done so have achieved some or all of the following benefits:

- Reduce product and materials costs through greater clout over suppliers. A centralized library of apparel components can not only help designers reuse existing products and materials; if accessible to the sourcing function it can help a retailer quickly determine how much business its category managers collectively do with the same supplier.

- Improve product quality. A central materials library that is shared by all design and product development groups provides another benefit that has become important as more and more retailers compete not just on time to market but also on product quality: the ability to standardize materials and construction methods.

- Improve coordination between merchants and designers. PLM helps reduce the need for merchandise managers and product designers to keep going back to suppliers every time they need supplier information. By having information on suppliers' capabilities and products and what designers are using in each product, merchants can have answers to questions in minutes rather than weeks, which speeds time to market.

- Get product development and sourcing to work off the same calendar. Retailers who broaden their private-label offerings typically increase the number of external parties with whom they must work. They also increase the number of "moving parts" they must coordinate. This makes managing a central calendar of tasks essential: these calendars increase the chances that all groups focus on the same issues, know the lead times and have the details necessary to meet key deadlines.

- Design products with a price point in mind and pick better vendors. A PLM system gives product developers a much better upfront understanding of the costs of creating a product. With a more accurate price point in mind, these retailers are less likely to have to skimp on product features and materials. In addition, by having one database on vendors and how they performed in product development and production, a retailer can have a better picture of vendors' performance. Furthermore, product developers can benefit from information that sourcing departments typically possess about each supplier's competitive advantages. This way, product devel¬opers and sourcing managers can begin their search for suppliers with a much greater chance of knowing upfront which ones will be able to produce the best-quality products in the least time and at the lowest price.

- Create better, more up-to-date product designs. Linking product development and sourcing through a PLM system greatly reduces the handoffs between product development and sourcing. Changes in materials, increases in supplier costs and other vital information become known to both functions at the same time. Current features of PLM systems such as online markup, discussion "threads" and change control enable developers and sourcing managers to work hand in hand. Future features of PLM systems such as instant messaging and desktop video conferencing will allow product development, sourcing and suppliers across the world to work together as if they were in the same room without having to leave their chairs.

Collaborative Supply Webs: Taking PLM to New Heights

Despite the clear benefits of linking product development with sourcing, there are even greater benefits for retailers who take a more expansive approach to PLM. Those who can connect not only their internal product development and sourcing functions but also their suppliers into their PLM systems will generate even bigger reductions in costs and time to market and increases in product quality and innovation. This is the third stage of PLM adoption, one we refer to as building a collaborative supply web. While there are very few retailers at this stage, we believe there soon will be many.

The traditional retail supply chain keeps raw materials and finished goods suppliers outside a retailer's "four walls," thus there is little power to improve upstream decisions in product design and development. The retailer shares very little information with suppliers (other than the information a supplier needs to provide a quote) until it is ready to place orders. Product developers do not deal directly with suppliers; sourcing is their single point of contact.

As a result, a supplier's ideas about, say, how to design the product for better manufacturability are not very likely to find their way back to the designers. Even if they do, they will likely come too late in the process -- after the product has been designed, developed and possibly even tested with consumers, making it too late to be reworked.

Retailers need to bring suppliers into the upfront discussions about product design and development. With the singular goal of developing high-quality products at the lowest cost and optimal speed to market, a retailer's managers (design, development, sourcing, merchandising and distribution) and supplier's managers who can work in a highly open and mutually beneficial manner can run circles around the retailer whose PLM adoption goes no farther than Stage 2. The shift from sequential coordination to simultaneous collaboration is the source of PLM's biggest benefits.

The reason a collaborative supply web may sound like a foreign concept to retailers is that very few possess their own factories. Needing a higher percentage of products they can call their own, they want to enjoy the benefits of vertical integration without having to invest in plants. (We refer to this as "acting vertical" instead of being vertical, a phenomenon we studied in depth in 2008. See KSA's study "The Rise of Act Vertical Retailers.") But like "acting vertical," many retailers don't realize they can work far more collaboratively with suppliers without having to own them. The key is working with suppliers in a way that increases the pie for all because the products the retailer sells are more "fashion right." Merchants who try to create collaborative supply webs with a "winner take all" mentality (i.e., the retailer is the winner) won't get very far. Suppliers must see what's in it for them.

The following are the hallmarks of a collaborative supply web:

- All internal and external parties manage their work around a common calendar of activities and deadlines.

- The retailer has greater leverage over raw materials suppliers.

- The roles and tasks of collaborative supply web parties shift. (One example is Wal-Mart's push for vendor-managed inventory in return for real-time product sales information. The roles and tasks that must shift around a collaborative supply web will be different from retailer to retailer.)

- Performance measures and rewards are revamped to benefit all parties (not just the retailer).

Five Retailing Myths to Bust to Move to a Collaborative Supply Web

The barriers to shifting from the traditional retail supply chain to a collaborative supply web are many. The biggest one is debunking five myths that lock retailers into traditional thinking.

MYTH NO. 1: My agent knows better than I do. This gives agents far too much power over the selection of manufacturers and raw materials suppliers. Most of what agents do is communicate between a retailer on one end and suppliers on the other. An agent who simply throws design specifications over the wall to a handful of suppliers prevents good ideas for altering product design, packaging and manufacturing from getting back to the retailer. Don't assume your manufacturing agent knows better than you.

MYTH NO. 2: Our product development department is more trustworthy than our suppliers. Retailers with private-label offerings typically feel they must own product development and set specifications. These chains don't trust suppliers to set the right product requirements. The truth is, most vendors take the spec from the retailer and recreate it anyway. Rather than keeping vendors away from setting specs, retailers should focus on communicating clearly what needs to be done, then capitalize on the skills of the vendors to do most of the technical work. Where product fit is critical (i.e., in most apparel retailers), the retailer may have to train overseas partners (internal and external) on how to get the fit right.

MYTH NO. 3: Only sourcing can understand what suppliers are talking about. Product development often entrusts its sourcing department with dealing with vendors. The thinking is that manufacturing and distribution people (especially those in Asia) speak a language that designers truly don't understand. But that thinking gets in the way of designers getting into direct dialogs with suppliers about ways to tweak product designs for more efficient manufacturing and distribution.

MYTH NO. 4: We can't make our factories change. They won't want to share their supply chain. Many retailers are afraid to use their power to force their vendors' factories to change. Factories may initially say no to a change. But when pushed, they seldom will refuse because they don't want to lose the business. Retailers who show a factory the rewards of stronger collaboration -- i.e., higher volume -- will be able to create a competitive advantage with vendors and mills.

MYTH NO. 5: We can't change ourselves. The changes we suggest in this article no doubt will be onerous for many retailers, especially those who believe there is only one way to develop, manufacture, source and supply the products that sit on their store shelve -- the way they've always done it. Yet retailers with even the most coveted private-label products no longer have a choice about whether they must substantially improve their products and how fast they come to market. Those who do not use PLM technology to revamp the way they develop products and work with suppliers will suffer higher costs and be late to market. And with private-label products increasingly being what differentiates retailers from price-busting discounters, that's a recipe for shrinking market share.

About Jeremy Rubman & KSA

Jeremy Rubman believes PLM is a strategic opportunity for companies that want to shorten cycle times, increase innovation, and reduce costs throughout the supply chain. Jeremy is a Partner at Kurt Salmon Associates (KSA), the leading consulting firm to retailers and consumer products suppliers, and leads the Product Development and Sourcing group. His team has helped many industry leaders select, design, and implement processes and systems to support the concept through production functions. He frequently speaks at industry forums about the value and best practices of PLM.

Editor's Note: View here for an expanded version of this article.

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