There are three things that stand out when talking about PLM with Steve Chalgren. He is the VP of Product Marketing with American software developer Arena.
The first is that he feels that the cost of PLM is far too high. PLM also has a ”reputation of unlimited complexity”, which is the primary reason why so few small and medium-sized businesses are investing in this concept. The second is the how PLM in the Cloud, preferably Arena’s solution, can change this.
Then there’s the ”dirty little secret of PLM”…
According to CIMdata’s definition, Arena is not one of the “PLM Mindshare Leaders”, but definitely a Category 1 PLM supplier. The company’s system provides a full range of cPDM (collaborative Product Data Management) functionality, has demonstrated scalability, and can be distributed across multiple server networks.
However, you won’t find a CAD system in Arena’s PLM arsenal, nor any tools for analysis, simulation or visualization. Arena is simply about PLM; easy to use, functional, connected to the supply chain..and it doesn’t cost a fortune.
It’s PLM for small and medium sized businesses and, like
Autodesk’s 360-solution, runs in the Cloud. The portfolio contains modules for BOM,
Compliance, Change, Quality, Document, Item, and Project Management, as well as
solutions for Demand Analysis, Supplier Collaboration, and Enterprise Integration. There are additional functionalities coming up – after the 26th of October
the “Scribe” and “DataExtract” modules will be generally available.
The original
PLM in the Cloud company
Arena Software is in fact the original “Cloud PLM”
company. They’ve been delivering PLM in the Cloud since 2000, but it
wasn’t until recently that a more widespread acceptance of this concept started
to evolve. Why did it take so long?
”IT related to product development works like
a big oil-tanker”, says Steve Chalgren. ”It’s hard to move and it takes miles
to change direction. We’ve met with this problem, which is typical for
companies that launch new technologies. Much like Salesforce, also founded in
2000, we had to build everything from the ground up.”
The underlying message is that enterprise software of this
magnitude revolves around very long term projects and is rooted in thinking about how
PLM and product development processes should be organized.
There are two sides to this coin: From a marketing
perspective, change can’t be expected to
happen overnight. Sales has to expect a long process before “PLM
resistance” can be overcome. On the flip side, the logical consequence of this
is that it’s easier for PLM suppliers like Arena to reach startup companies, ”They don’t have legacy systems to consider. They can make an easy choice and
are more interested in trying new things”, says Chalgren.
So it’s no surprise to find Arena’s solutions in
target markets like high-tech, electronics and medical devices. However, there
are also large companies, with more traditional systems, who use Arena in certain divisions.
Arena has roughly 700 customers, 30,000 individual users, 100 employees, and generates annual revenues of around $ 20 million. Contrary to analyst CIMdata’s indications that the uptake of Cloud based PLM solutions is poor, Arena’s Chalgren claims that, ”It looks great, and we’re growing four times faster than the general PLM market”, referring to Arena’s 2014 Q2 report.
”CIMdata’s focus is on Aerospace & Defense and Industrial, which are the last segments to pick up new things like the Cloud. If you think about it pragmatically, which industry has the most early adopters? It’s high tech. So we’re not seeing what they are seeing. We’re seeing the other shift, and it’s because we’re addressing other markets.”
Things looked tough: Arena’s shift of strategy
Arena’s focus on early adopter and startup-heavy
industries has resulted in a brisk growth pace the last 3-4 years, according to
Chalgren. A big reason for this was the shift that the company went through during
the years after the 2009 recession. As competitors tightened their operations and reduced the number of employees, Arena did the opposite and
strengthened its PLM competence.
”Yes, things looked pretty tough”, Chalgren admits. ”But
since then we have shifted our strategy and hired some additional talent in the
executive rank.” Steve Chalgren is one those hires, with a background at
Oracle and Agile.
Back then Arena targeted mainly smaller companies but
step-by-step they’ve been moving into the medium and large medium enterprise
sphere.
”A customer with $ 2 million in revenue is our sweet spot.
That said we can still do the smaller companies for low cost, but there’s no margin
cost for us. We don’t have to create a virtual machine or anything like our competition does; we can just add another copy at the user’s end.
We’re talking about companies with a couple of thousand employees or a division
of the same size.”
The advantages
of a PLM-system in the Cloud
A Cloud based PLM solution may sound dramatic to
some, but there are advantages and Arena is not hesitant to point them out.
Firstly, the actual user experience is pretty similar to locally installed
“on-premise” solutions, as most systems are browser based these days. There is
also little difference in terms of functionality.
”However, a Cloud Solution probably is going to be more
modern and have a better UI (User Interface)”, Chalgren explains, adding that,
“the evolution in this case is about things like automated software updates.”
“Software updates don’t have to be a huge IT-project. You
don’t have to spend a year of man hours to have the system run smoothly again.
You simply upgrade on Sunday and on Monday you’re up and running again with new
cool features.”
But there’s an even more ”revolutionary” effect with PLM in the Cloud, which is one of the reasons for the competitive price Arena offers: ”We have the ability to include lots of partners and data sets instantly to your UI. We can do this because we provide a comprehensive engineering architectural design.” Chalgren also claims that Arena doesn’t spend a lot of money on integration code written for the entire customer base because “it’s a lot of work and the integration quality probably wouldn’t be that good anyway. That’s why we have a fundamentally low cost of delivery compared to our competitors and then of course all the social collaboration opportunity where we now enable deep supply chain collaboration, which is a key to PLM”, he says making a point that Arena is not only addressing the first tier of the supply chain, ”But also multiple tiers, like the design and industrial partners. All those people can instantly collaborate, because the barriers to do so have been removed compared to on-premise.”
Arena’s primary mission: manage BOMs
One of Arena’s main missions is the management of
the Bill of Materials (BOM). You could even say that it’s a part of the
company’s DNA, as the original name of the company was “bom.com.” In a
world where products are getting more and more complex this is an increasingly
crucial issue; the BOM really represent the most critical part of the product
realization process. It’s the recipe and ingredients of how to build a product.
Ultimately it’s about getting the eBOM (engineering BOM) into Arena converting
it to a mBOM (manufacturing BOM) and communicating that to the supply chain and the
ERP system. It’s one of today’s required core capabilities of a PLM system.
”We started as a "BOM only" solution and we still focus
around that”, Arena’s VP of Product Marketing declares, “But we also have very
comprehensive file versioning capabilities, so once you have the BOM, the AML
(Approved Manufacturer List), and the AVL (Approved Vendor List), you have the
core to wrap up the change order process and the supply chain operation.”
In the high tech, medical device and other segments,–where
multi-level, rapidly changing BOMs are the norm, this is a key capability. The
product cycles are short, the competition is aggressive, and there are a lot of
components that change going on the way to release, not to mention the loads of design
changes and optimization done per costing or regional manufacturing. The basic
demand is a system that can manage all those changes and
make sure that you keep running in sync.
”You know, it’s really about the changes”, Steve says. ”I
did a little research and found out that in the six weeks after July 1st our customers had almost 15,000 change orders. You can do those
changes on anything, on spreadsheet for instance. But if you can’t ensure that
the 2,000 people who are working on your product anywhere in the world, know
about this change, well, you’re going to have a lot of trouble due to people
making the wrong parts. That’s the key to PLM for us.”
Getting the BOM together is an area where Arena’s
competitors from the traditional PLM arena are having problems. "We can get
the job done”, claims Steve Chalgren, pointing at a number of cases.
The ARENA
CASEBOOK: NVT went from spreedsheet to managed BOMs”
NVT is such a typical Arena case story. The
company develops video transmitters, receivers and power supply systems
primarily for the security industry’s video surveillance system market.
Before implementing Arena, the company used generalized
tools like Excel spreadsheets to manage the BOM. NVT’s paper-based engineering
change order (ECO) procedures resulted in time-consuming complications with managing unwieldy change order packages.
“We did not have a readily accessible record of product
history,” says Ben Hsu Director of Operations at NVT. “Without the capability
to formalize our engineering change request it resulted in frustrating
miscommunications, conflicting revisions, product errors and launch delays.”
“BOMControl provided a single centralized repository for information where we can obtain product information without digging through boxes of paperwork,” said Hsu. “Additionally, Arena provided a comprehensive and flexible database for our BOMs and approved vendor list. This solution has helped us streamline our engineering considerably.”
The biggest challenge
for PLM software providers
The NVT case highlights one of
the biggest obstacles when it comes to SMB companies’ (small and medium sized)
slow transition to PLM: many product developers and engineers are still using
spreadsheets and home grown systems. According to Steve Chalgren this is the
biggest challenge for PLM software providers today. ”There are still many small and medium sized
organizations out there who don’t understand the value of PLM and how this
concept can help them”.
”I’ve been in PLM since 1998, and I still hear the same
comments from prospects that I heard back then. They have spreadsheets or some
homegrown tools and the data is all messed up. And then, when we show them the
PLM solution they so often say: ’I had no idea that life could be made so much
easier’”.
Back in 1998 it was normally understood what PLM – or
rather PDM – could do because it was focused on a smaller set of challenges.
”But today the massive messaging about PLM has made the concept to appear
gigantic in scope.” It all becomes so large that it is hard to get a grip on
it. What mainly was PDM has expanded and, claims Chalgren, ”today even analysis
tools are considered to be part of PLM, innovation tools as well, and I think
that people have the basic problem that they are afraid of PLM, because it
seems like a computer science project. And they feel like they have neither
time nor the money to take that on. Back then they just said ‘no’, now they
don’t understand PLM because there’s so much talk, that it is confusing.”
The dirty little
secret of PLM
Besides BOM management, one of Arenas core
marketing messages is about supply chain collaboration. The capability to
perform in this area “is claimed by lots of PLM vendors but not delivered”.
Chalgren’s “dirty little secret” is that there is really isn’t much supply
chain collaboration happening with PLM. Why? Here’s how Chalgren reasons:
”Even though people talk about supply chain collaboration
quite a bit, they seldom act on it to its full potential. Yes, there are
examples of companies that deployed it across their supply chain, but those are
rare. At best they deploy it to a couple of people and a handful of
manufacturers that they work with.”
”Let’s say that we’re talking about a contract
manufacturer building a product. Normally there are probably no less than 15
people involved, people that you actually communicate with. But there are far more people who would want to talk to you about various things around that
product: Everyone that actually builds it, the supervisors that run the
assembly line, the in-circuit cast, the pick and place machine, and then there
are the people who do the re-work, the shipping department, the overall program
managers - altogether a bunch of people, not to mention that the contract
supplier also can outsource (things like plastics and cables among others).
Yet, how many of the by now probably plus 200 people that are working on your
products are collaborating via PLM?”
Chalgren’s point is that this ”lack of deeper supply chain
connectivity” is due to the fact that enterprise PLM companies generally charge
a lot for each supplier active. Not everyone, but a lot of them do. This means
that many companies simply cannot afford to include their entire supply chain.
”If I have a need for 200 licenses (like in the example
above) it’s a lot of money. Accordingly, companies don’t do it. Even those who
have a budget for it don’t because there’s a IT burden for the OEM to provision
200 people.”
Provisioning in this case is about creating individual
usernames, passwords, managing their roles and the data they can have access
to in the PLM system. Then there’s the firewall which also is a major burden. It simply takes a lot more resources to manage this than the
initial licensing cost implies.
”It’s hard for any IT department, not only because of
budgetary reasons, to manage for instance a thousand users outside of the
company”, Steve says, adding an even more serious deal killer:
”Even if you had all the money in the world to provide a
supplier with this in your PLM system; what would you say when your IT security
team shows up and ask you about what would happen if someone who quits their job
and that person is someone who HR wants to cut off from any access to the enterprise system? How do
you know when any of those, say thousand people, in your supply chain quit? And
how do we know that we turned them off from access to our PLM system? There’s
no process on the planet for the HR department to let us know when those people
quit. The security team would probably say that this is unacceptable.”
”The notion of
deeper supply chain collaboration is an illusion”
The notion of deeper supply chain collaboration is
an illusion, the Arena representative asserts, claiming that they’ve done
something about it, and developed a product called Arena Exchange. Chalgren
describes it as “disruptive”:
”When we discovered that ’dirty little secret’ and until
we came up with Arena Exchange basically we saw all those problems, but we
also saw the ability to get people in because it’s Cloud based. We leveraged
the licensing and the use provisioning like you would on Twitter, so it’s very
social: you just invite someone into a collaboration exchange and they can see
what you’re sharing with them. And by the way, they can invite you in too.
Additionally there’s a security control in this where I can say, ’I’ll invite
you and you can invite a third person, but I have to approve that third person
before he can come in’”.
What about product data? ”We take a snapshot of data,
which is based on the product data exchange, multi-level BOM files, red lines,
everything you’ll see in a PLM system, but it’s a snapshot of data so it’s much
more secure. Think of it as a manufacturing bill package, discretely placed out
there, so the IP risk is very low. You can invite people very quickly into the
collaboration and our licensing is only to charge the originator, so everyone
that’s invited is free.”
My take: it’s a ” David and Goliath” market situation
Despite the rapid growth, Arena is still a small company
in a David and Goliath market situation. On one hand they are facing
competition from PLM giants like Dassault Systemes, Siemens PLM, and PTC. On
the other hand there’s the ERP vendors like SAP, Oracle, Infor and IFS. As if
that was not enough, they also have to keep an eye on smaller SMB competitors
like Aras, Contact Software, Lascom, and Omnify, to mention a few. All of them
address PLM mainly from Arena’s specialty angle: cPDM, collaborative PDM. It’s a challenge of almost “epic” proportions, which highlights a potential weak spot. Arena’s current revenue base is small
compared to the top earners, and as such they are more susceptible to the
impact of economic variations. This could affect the company’s
ability to keep up with the development speed of the larger vendors’
significantly larger R&D departments.
The major solution providers’ PLM suites are well
established and growing, and their dominance is difficult to break. However,
there are a couple of aces up Arena’s sleeve.
CIMdata writes in its latest August report: “As new
technologies are developed and incorporated into cPDm solutions, and/or mergers
and acquisitions occur, opportunities still exist for new providers to move up
in the rankings.”
But success is not only about new groundbreaking
technologies, it’s also about applying those new technologies (and old
technologies too) and platforms like the Cloud, in smart ways. What from an
R&D resource perspective can appear as an “overwhelmingly” strong advantage
can turn out to be the opposite. We’ve seen many examples of how sheer size is
not necessarily the only proof of success and capacity for great solutions.
There are others and Arena points to them; ease of
implementation, upgrade and use; the advantage of the Cloud; a focus on
specific hard to solve problems like BOM complexity; smart supplier
collaboration solutions, and last, but certainly not least: a competitive price
and TCO (Total Cost of Ownership).
Can Arena
benefit from Autodesk’s ”all in” bet on PLM in the Cloud?
There are opportunities for companies like Arena
to effectively penetrate “new” market segments; high tech startups is only one
example of an area where the users have a “tabula rasa” PLM perspective. Generally the “electronification” of
everything is a sweet spot. As more and more industries that until recently
dealt with “uncomplicated things” enter this new paradigm and join the trend of
electronification, Arena could very well be their choice.
Many of these companies are likely to base their products
and product functionalities on Cloud solutions. Why wouldn’t they want to have
their primary product development collaboration tool on that same platform?
Finally: Autodesk’s all in bet on the Cloud was the best
”gift” that Arenas's marketing department could get. Suddenly the PLM spotlight
moved away from the Cloud skeptical IP security related product development
discussion.
So, while Autodesk grows in the Cloud, creating lower
barriers for PLM on this platform the question is: What can Arena benefit from
it? A lot, in my opinion.