PLM Strategies-Pick What You Want, Pay As You Go31 Aug, 2005 By: Kenneth Wong
Some thoughts on on-demand PLM
I think I'm paying too much for my gym membership. I visit the facility about twice a week for some unambitious exercises. My hodgepodge routine might be best described as "low impact." My purpose is to prevent my girth from further expansion, not to become an athletic specimen, so I see no reason to punish myself on the MegaTuff rack or the Powertec bench. The way I see it, I use only 30% of the services and equipment, but I'm paying full price. But if I ever try to cancel, the salesperson reminds me of my two-year contract. My gym can learn a thing or two from on-demand enterprise applications vendors.
Figure 1. With Agile OnDemand, customers can add users at any time, anywhere, for any product modules in the Agile Advantage suite.
Is On-Demand In Demand?
With 28,200 customers in more than 120 countries, 96,400 installations and 1,500 partners, the Walldorf, Germany-based SAP (www.sap.com) is the grandmaster of consolidated enterprise applications. During its 2002 SAPPHIRE conference, the company, whose clients include industry giants like J.P. Morgan Chase and Home Depot, announced SAP Business One, which is designed to woo small to midsize businesses. The courtship is still going strong. Recently, Leo Apotheker, SAP's executive board member and chief of sales and marketing, told Red Herring magazine that the company is revamping itself to "develop an operational model that scales all the way from Fortune 500 to Fortune 500,000" ("SAP Gets a Face Lift," July 25, 2005). SAP defines midsize businesses as those with less than $1 billion in annual revenues, and small businesses as those with less than $250 million. According to Bill Wohl, the company's vice-president of product public relations, 65% of SAP's current U.S. customers are small to midsize businesses.
Moving downmarket, SAP is confronted by the fledging pay-as-you-go business model, popularized in part by Oracle, Siebel and Salesforce.com in some sectors of the enterprise applications market. Earlier this year, rumors surfaced to suggest SAP was planning to launch an on-demand CRM (customer relationship management) solution. The company squelched this rumor at its 2005 SAPPHIRE conference in Boston. According to SAP's Wohl, his company sees the on-demand model as one of the service-delivery options available, but something that needs to be approached with caution, especially in the PLM (product lifecycle management) sector.
On-demand PLM choices
"Frankly, we don't see this as the right model for the supply-chain space," he says. "PLM requires lots of deep functionalities, such as interactivity, collaboration and so on, involving many different parties." Conducting these transactions on a platform hosted by someone else, he points out, could pose a threat to sensitive data.
Nevertheless, if clients simply want certain functionalities, but don't want to deal with system maintenance and don't consider the hosted platform a compromise, Wohl says "SAP would like to be in a position to offer its products to them." To that end, SAP and HP jointly offer an ERP (enterprise resource planning) bundle for small businesses, available for $325 a month by subscription. SAP's PLM offering is called mySAP PLM. Whether SAP will change its current stance on on-demand PLM solutions may depend on how well other PLM vendors do with their on-demand solutions.
Marc Halpern, PLM research director at market analysis firm Gartner, weighs the pros and cons of on-demand solutions. "For one, you don't have to deploy the software in the usual sense. Second, you don't need internal resources to maintain the system. Third, you pay only for what you are actually using. On the downside, you are less the master of your own destiny. Some companies just aren't comfortable with [PLM] data being outside their four walls, either for security or performance reasons" ("Flexibility May Trump Security Fears," Manufacturing Business Technology, Sept. 2004).
"Global 2000 companies have a different IT infrastructure and business architecture," observes Bryan Stolle, Agile's CEO, chair and director. "Their systems tend to be heavy, expensive—not the type suitable for midsize companies. Large enterprises' needs are significantly different from those of small to midsize ones. There's a bifurcation of markets." This realization gave birth to Agile OnDemand. The system requirements are as minimal as a desktop computer and a browser. The installation to go-live process can take as little as 24 hours, as it did in the case of Colubris Networks (www.colubris.com).
Colubris, a wireless LAN provider, was in search of a business application to help manage communication with its electronic manufacturing service providers scattered around the world. Ken MacLure, Colubris vice-president of operations, outlines his expectations during the PLM quest: "We wanted complete control of the whole system—part and parcel. Then, if we choose to migrate elsewhere in the future, we want to be able to move the data to virtually any ERP system we desire."
Agile's Stolle lists some important factors to consider when choosing an on-demand PLM solution. "You have to be careful who you're dealing with. Look at their financial strength, their stability, then ask some tough questions. The IP (intellectual property) is yours. What if you need to get that out tomorrow? What about retrieving it during the middle of the night? What if you want to switch to another provider? What does the contract say about that? Any penalty?"
He also discusses what it means to make Agile OnDemand scalable. "We have to make sure the same capabilities can be scaled down appropriately to what a customer needs. Lucent, with hundreds of thousands of customers, suppliers, partners and transactions, is very different from a networking company in Dallas with 70 employees. They have different sourcing needs and business requirements."
Joe Hage, senior vice-president and general manager of Agile's SME (small and medium enterprise) business solutions division, explains the on-demand concept: "Depending on what you prefer, you can look at [Agile OnDemand] either as a pick-what-you-want sushi menu or a pay-as-you-go dim sum lunch." (Fortunately, I had lunch before I called him, so I was able to remain unmoved by his culinary metaphor.) "For example," says Hage, "they can have 25 people using collaboration and engineering functionalities, five using program management tools and one person using the quality management module. No customer is paying for what they are not using. Upstream, they can integrate Agile OnDemand with their CAD tools; downstream, they can pick up their data from Agile and use it in other ERP or other enterprise systems."
Subscribers have the option to access the system using a Windows desktop client (preferred by power users) or a Web client (preferred by remote users). The fee is based on the number of seats and modules a customer wants. The subscriber can also add users or modify the module lineups at any time, making it possible to respond to changing market demands on the fly. Included in the monthly fee are IT services, secure data hosting, backup services, disaster recovery services, maintenance and support.
Part of the cost savings that an on-demand PLM provider is able to pass on to its customers comes from the shared infrastructure—the hardware, the servers and the data warehouses. The idea of shared data storage rightfully raises warning flags for some manufacturers—the same concerns Gartner's Halpern pointed out.
Agile's Hage addresses this: "What distinguishes Agile OnDemand from the rest is the innovative architecture it uses to keep client data segregated. Small to midsize companies are highly protective of their product data. They are operating in make-or-break mode, and they are sensitive about their data being exposed or coexisting with other data that could be their competitors'. We've come up with a secure way to keep everyone's data and vaults isolated. We don't know of any other OnDemand PLM vendor who provides this type of deployment architecture."
According to Hage, small to midsize companies, those with annual revenues of $250 million or less, make up nearly 70% of Agile's customers.
Agile's client Colubris is realizing the benefits of the implementation not only from the system's flexibility but also from enterprise transparency. Colubris's MacLure says, "Before, whenever a costly mistake occurred, someone would say, 'I didn't know about this product change.' Now we don't hear this anymore. People are now part of the process, which makes for much better products."
Agile has a starter Agile OnDemand PLM pack configured for eight users. It comes with product record management, file management, product sourcing, change management, workflow management and BOM management functionalities, among others. The company offers this pack free of charge. Hage is convinced that once a company tries the starter pack, it will eventually see its benefits and add more users. I'm hoping he can convince my gym to adopt the on-demand business model.
Kenneth Wong is a former editor of Cadence magazine. He explores innovative use of technology as a freelance writer. E-mail him at email@example.com.