[From iSource Business, September 2001] "Collaboration" may be the most over-hyped e-business trend since e-business itself, but Jack Maynard has a blunt answer to anyone who would question the utility of online collaborative design: The marketplace is getting very punitive, says Maynard, a research director with Boston, Mass.-based technology consultancy Aberdeen Group. If you put out a bad product, you might not get a chance to put out a second one. Collaborative designing is about getting it right the first time.
A small but growing number of companies are coming to share Maynard's view, and they are beginning to adopt technologies that allow them to involve their customers early in the design process. Driven to get their products to market faster and at a lower cost, early adopters, such as manufacturers Goldman Industrial Group and Square D, are finding that collaboration involves more than simply installing some software. In fact, issues of customer readiness and business culture are overshadowing technical challenges in these dawning days of collaborative product design. Still, the pioneers aver that collaborative design is inevitable, and they are moving to gain an edge on their competition by bringing customers into the design process.
The Tool Set
The movement to involve customers in the design process is a natural outgrowth of the shift from a product-push business model to a demand-pull model, which places a premium on the ability to do mass customization. (See Leap of Faith in the April 2001 issue of iSource Business for more on the sell-source-ship model.) Giving people what they want faster and cheaper has become a mantra for the consumer-driven economy. Unfortunately, the necessary tools were missing until recently.
Collaborative design applications have their roots in computer-aided design (CAD) and product data management (PDM) tools. This partly explains why companies have been slow to involve their customers in the early design process, according to John Fors, senior director for product strategy at Dallas-based i2 Technologies, which provides collaborative functionality in its value chain applications. Most of the tools in this market have been very engineering-centric, so by definition it's been about late-stage design, Fors says. Early customer interactions, meanwhile, typically have fallen into the domain of sales and marketing groups where disciplined engineering took a backseat to the imperative to make the sale. Only once sales had closed the deal did the buy- and sell-side engineers start working together to finalize product specifications.
In addition, the CAD and PDM tools were intended for use behind, rather than across, a firewall, meaning that they were suited for collaboration among engineers within a single enterprise. Design and specification reviews with customers therefore have involved a manual process of trading documents back and forth by fax or mail, or traveling to each other's offices for review meetings. This process could stretch the design cycle to weeks, months or even years. Similarly, changes resulting from negotiations over price or other business terms after the engineers have finalized a design have often caused further delivery delays and adjustments to a product's cost. The economic implications of such lengthy cycles can be significant. Maynard cites an example from the automotive industry when, in 1983, Dodge introduced its Caravan, the first entrant into the minivan market, and sales took off. For the competing automakers, however, it took several years to roll competing products off the assembly line, giving Dodge's parent company, Chrysler, a 100 percent market share in the minivan segment for years on end.
Still an Infant
While time may have been on its side nearly 20 years ago, Chrysler might not find the same good fortune today. First, a host of solution providers have begun introducing applications that allow for greater collaboration between manufacturers and their business customers. Companies competing in this area include Alventive, Centric Software, Framework Technologies, IBM (with its CATIA product), Integrated Development Enterprise (IDe), MatrixOne, PTC and Structural Dynamics Research Corp. (SDRC, recently bought by Electronic Data Systems), as well as supply chain software providers (such as i2) and enterprise resource planning (ERP) companies that are extending their solutions to include collaborative functionality. And second, the Internet has provided an inexpensive, instantaneous and ubiquitous medium for communication that did not exist in the distant, early days of the Dodge Caravan.
Design collaboration is still very much in its infancy, however, and in some ways it is proving a difficult childhood. This is all new, so at a high level there is a business model that is changing, says Dave Tiley, founder, president and CEO of Alventive, one of the solution providers in this arena. For example, companies that want to engage in this type of design collaboration must decide upfront the degree to which they are willing to share sensitive product-related information with trading partners.
Introducing new processes into the way a company designs its products can be another obstacle. When you talk to development companies around the world, they aren't looking for extra things to do, Tiley says. They're so pressed for time that to do anything else differently is hard. Still, Tiley asserts that process changes can provide tangible returns on investment in the long run, particularly when the changes do not require a complete overhaul of a company's information technology infrastructure. If the goal is to shave time off the product development process, the technology needs to be fast and simple so companies can continue to leverage existing IT investments while meeting customer demands, Tiley says.
If You Build It, Will They Come?
Meanwhile, getting customers to use collaborative design has been an issue for Goldman Industrial Group, a Boston-based, privately held manufacturer of machine tools for the automotive, aerospace and other industries. In April the company began offering collaborative design with its customers, but it subsequently found that the road to collaboration was paved with a great deal of education.
The shift toward collaborative design was a notable break with the past for the company, which previously had been viewed as very old school, according to Jack Lowry, vice president of information technology at Goldman. Originally known for its engineering solutions, after World War II Goldman came to be viewed as a machine producer. Now, as the company seeks to return to its heritage, as an engineering solutions provider, it is exploring ways to work more closely with its customers on design processes, including through online collaborative design and other Web-based processes. To that end, when the company went shopping for a CAD application last year, it looked for a product lifecycle management platform that could serve as the foundation for collaborative engineering and e-commerce. Goldman announced in March its selection of a solution from IBM that included the CATIA CAD software, as well as other applications from Lotus, Dassault Systemes and Baan/Invensys. The platform, implemented by IBM Global Services, provided a framework for online design and requirements reviews.
Lowry says several customers expressed interest in the collaborative possibilities until, that is, it came time to actually give it a try. Then it turned out that the customers' enthusiasm for collaboration was not matched by their preparedness to design online. For example, an automotive-industry customer that had said it was ready to work with Goldman discovered its internal processes would need reworking before it could begin design collaboration. Another trading partner, at first eager to collaborate, found it could not meet the software requirements and did not have the necessary high-speed Internet access. A lot of the suppliers and customers aren't quite there, Lowry says. They're not ready to do what we're looking to do.
Consequently, Goldman has spent more time to date talking with its customers and suppliers about the technology than actually using it. Lowry says that typically one constituency or another within their customer's organization, such as manufacturing, will want to do the collaboration and will want to integrate their processes and machines with Goldman. But, for example, the customer's information technology (IT) department may not be ready to move ahead with that, their business plan may not be able to support it or they may not have management support to try collaboration. You need to go in and touch the four or five major pieces of an organization that would need to be there to support it, Lowry advises. He adds that Goldman has begun targeting the vice president and president level within the company's customers to win support for design collaboration.
Goldman's projected ROI for the product lifecycle management platform, a conservative 18 months, focused on increasing inventory turns from two to six months and did not include any calculation of the possible benefits from collaborative engineering. However, Goldman's continued efforts to bring its customers into its online design environment reflect the company's strong belief in the potential benefits of collaboration, according to Lowry. Beyond the reduced design cycle time from improvements in the design process and the gains that flow out of that, the company plans to begin collaborating with its own supplier network to outsource the design of components that fall outside Goldman's core competencies. That will move the company further toward its goal of positioning itself as an engineering-solution provider rather than just a machine maker.
In the meantime, Goldman is continuing to educate both customers and suppliers about the benefits and requirements of collaboration. All parties increasingly view collaboration as inevitable and desirable, Lowry says, and some customers have begun to rethink their processes, seeking a better understanding of what they must do to collaborate. It used to be that everyone would say, We'd like to do it, but the technology isn't there,' Lowry notes. We've proven that the technology is there. It's the business side that is not really there yet.
To Collaboration and Beyond
David Guidette is another true believer in the potential of design collaboration with customers. As vice president of engineering at manufacturer Square D, Guidette is overseeing the implementation of a three-phase program intended to get the company collaborating with its customers and, ultimately, to increase its market share without adding to its engineering staff.
Square D, with sales of about $3 billion, is the North American flagship brand for Paris-based Schneider Electric, a global electrical industry manufacturer with total sales last year of about $9.7 billion. Square D manufactures electrical distribution, industrial control and automation products using a highly customized, one-off engineering process.
Square D has been increasing its sales at a rate of about 10 percent per year, averaging 10 to 14 percent return on sales. The problem with that growth rate is that about 60 percent of the new business must be touched by an applications engineer or an order engineer, due to the customized nature of the products it manufactures. In other words, higher growth would mean hiring additional engineering staff, adding to the company's base cost for its design talent. To continue expanding while holding the line on its base costs, Square D had to find a way to increase the volume of new business that did not require hands-on engineering work. If we can take that 60 percent and reduce it by half, we can reduce our lead times for standard gear' significantly, which spells market share in this particular business, Guidette explains.
To meet this goal, Square D has begun working with Centric Software to implement a three-phase collaboration project in its modified panels business. In phase one, which was due to be implemented by August, Centric provided a Web portal through which Square D can collaborate with its customers on designs in real-time. The customer submits a design through the portal, and Square D's engineers can assess the feasibility of the design and engineer the product from a mechanical and electrical standpoint. Square D's manufacturing staff can view the product through the portal and enter the manufacturing constraints. This concurrent process replaced the previous iterative process that had the engineers going back and forth with each other and with the customer over a period of weeks.
Guidette views such basic collaboration as just the beginning. In phase two, due for completion in the fourth quarter of 2001, Square D will add an intelligent configurator to the portal. The configurator will drive the customer toward as standard a configuration as possible, based on the tooled processes that Square D already has in its plant. The configurator would be able to tell whether a customized product that a customer is ordering is similar to a product that another customer has ordered. If it is, the system brings up the existing product, providing a basis from which to start, eliminating duplicated design review work and speeding the time to market. Plans call for the configurator to remember new designs, building an archive of product configurations upon which Square D's engineers can draw.
Under phase three, due for completion by the end of 2002, as a customer selects componentry for a design, the system will bring into the portal information on the attributes of the componentry. With these attributes in hand, Square D's applications engineers should be able to make more rapid decisions regarding the viability of the end product that the customer wants. For example, if a customer specifies a certain type of breaker, the system will pull up information not only on the geometry of the breaker but also on its heat dissipation, based on thermal software that can be hooked into the Centric portal. The engineer can therefore instantly evaluate the ability of the product to withstand the appropriate thermal limitations and immediately provide feedback to the customer. We are trying to digitally mock up the design and open up a window, within some constraints, on the engineer's ability to make almost instantaneous decisions on what he can and cannot do, again to improve time-to-market and throughput, Guidette says.
Square D is running this three-phase pilot program in its modified panels unit, a $12 million to $15 million business, with the goal of eventually expanding the use of the collaborative design portal, beginning in 2003, to the remainder of the company's equipment business, which represents about one-third of its North American sales. The initial investment is in the six figures, Guidette says, and involves 15 to 20 engineers and 20 to 30 of the company's highest-volume customers. The follow-up to the pilot would involve between 200 and 300 engineers and would cost in the seven figures, according to Guidette.
The manufacturer is measuring its ROI both in terms of the increased volume of business achieved, while maintaining a constant base cost for the engineering talent necessary to handle that business; and in terms of the reduction in the cycle time from the placement of an order to fulfillment. For the former, Square D is targeting a 20 to 30 percent growth in volume while holding its base cost constant. The company also is working to reduce its design cycle from as much as eight weeks to just a few days.
Of course, all of this lies ahead for Square D, as well as several challenges. In particular, Guidette says he expects technical issues to arise as the implementation proceeds, as with any IT project. But more than that, he points to the possibility of cultural issues arising once the implementation expands beyond the initial pilot to encompass the entire equipment organization. We're an old-line business with a lot of engineers that have been working on a face-to-face basis, he says. Working virtually through portals and understanding that you have everyone at your fingertips will prove to be interesting cultural challenges for us. And not to mention the threat of job loss, which, Guidette admits, could be on the minds of the company's engineering staff. However, he hastens to note, The idea is to hit this in the growth mode that we're in and be able to absorb capacity without needing to shed any base cost.
Guidette optimistically says he doesn't expect any problems getting customers to use the collaborative design portal, although serious discussions with customers were only set to begin in August, once the company completed phase one.