Recently, we sat down with Sunil Thomas, Trace One COO, to discuss the major challenges food manufacturers face in managing product costing. In our previous post, he discussed how brands can use a global formulation strategy to achieve economies of scale and quickly and costly-effectively implement product changes in response to commodity prices and market demand.
He also outlined how brands can take advantage of the features in PLM software to manage and automate this global pricing strategy. Read his insights into how PLM enables each business unit to make more informed, real-time pricing decisions.
How does PLM software specifically help translate pricing decisions into product development?
Thomas: Within a PLM system, you have one view of the entire product lifecycle. When it comes to pricing, I always emphasize to brands that are thinking about implementing PLM that the true advantage of Trace One Devex PLM is that it allows many different audiences to visual price and cost in different ways while understanding how decisions made within all areas of the business impact downstream costs.
For example, Brand Managers can use Trace One Devex PLM to model or create forecast for new product introductions. When launching a new product, you can use PLM to create a 5-year forecast that accounts for all of cost factors and model how to achieve the lowest cost entry to market. Not only does Trace One Devex PLM simplify these calculations, but it also makes the results of these cost targets available to product developers in the same system they’re using to develop formulations.
At the R&D phase, Product Scientists can use these visual tools to see the impact of the cost of ingredients they are planning to use. These costs can be modeled by different cost center and markets to understand the wide-reaching impact of product choices. The system calculates the total cost of the formula based on raw material costs, as well as costs variations between selecting different manufacturing plants, different curries. By using calculations built directly on a formula template, product developers can easily determine which ingredients meet cost and compliance standards in the majority of markets while still being purchased at volume.
Procurement can also use Trace One Devex PLM to forecast the volume potential based on finished or prototype products and use this data to negotiate price with suppliers. Likewise, Packaging engineers can use R&D data to forecast and plan for many pieces of this or that they’ll be using. It calculates a cost for that. Finally, manufacturing has visibility into calculations of cost of labels, as well as the difference between cost centers and ensure that downstream processes align directly with formulation instructions.
"With PLM, any employee at every stage, no matter their role or department, can calculate, forecast and determine how different choices will impact product costs and how to control for the target margin set during Innovation stages. Employees can make effective and complete costing decisions prior to launch, not as a reactionary response to disconnect upstream choices in the middle of the product life cycle."
-Sunil Thomas, Trace One COO
How does PLM associated cost factors, like compliance?
Thomas: Using a global system like this for product costing not only reduces product development costs, but it also greatly reduces the possibility of costs associated with recalls and non-compliance issues. When you’re sourcing the same raw materials on a global level and have downstream systems synced, you’re not only optimizing your procurement costs, but you’re making it easy to course-correct if something goes wrong or ingredients need to be changed or substituted around new regulations. If you’re using a supplier that meets the regulatory and claim requirements for multiple markets, you can manage multiple formulations and product lines as one entity instead of trying to manage oversight over many disconnected areas of the business.
Plus, there’s the overall risk of product recalls. The costs of non-compliance can be huge if you don’t have all your downstream systems aligned around global goods procurement and formulation. By using a PLM system, brands can leverage traceability down to the raw material level. It takes less time--and less money--to pinpoint issues, find where materials live across formulations, and make the necessary changes to respond to a recall issue.
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Brands don’t often absorb those kind of costs until it’s too late or they’re in the thick of resolving a quality issue. Trace One Devex PLM can act as a safeguard against those costs by providing one global view into product data.
What ROI can companies that adopt a global recipe strategy expect to see with PLM?
Thomas: Well first, let’s be honest: PLM is not an inexpensive technology. There is a cost of entry to use a system like this, and it’s a multi-functional system that must be viewed as an enterprise-level IT investment.
Once companies start working on product pricing and SKUs as one collaborative workstream; however, they will start to see major savings when it comes to purchasing and procuring materials and significant process changes when harmonizing raw materials. Many companies see paybacks sometimes in six months. Sometimes it’s closer to a year, depending on the company’s budget and business process needs. Although it’s an enterprise tool, budgeting for a PLM implementation can be a lot easier than many brands think.
Overall, what we see is that brands may initially bring Trace One Devex PLM on to facilitate one area of the business or sub-process, like ingredient management, and see significant time and cost savings in that area. Once those savings are realized, other departments start asking to use the system. The benefits and level of data visibility across the enterprise then begin to snowball, making it even easier to start using PLM to power a global pricing strategy.