BUSINESS APPRAISAL FOR PRODUCT LIFECYCLE MANAGEMENT IMPLEMENTED INDUSTRIES

BUSINESS APPRAISAL FOR PRODUCT LIFECYCLE

MANAGEMENT IMPLEMENTED INDUSTRIES

By
KRISHNAN T.S.

A PROJECT REPORT

Submitted to the
FACULTY OF MECHANICAL ENGINEERING
In partial fulfillment of the requirements
for the award of degree
of

MASTER OF ENGINEERING
IN
MANUFACTURING SYSTEMS AND MANAGEMENT

COLLEGE OF ENGINEERING GUINDY CAMPUS
ANNA UNIVERSITY CHENNAI
CHENNAI 600 025

MAY 2008

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ANNA UNIVERSITY: CHENNAI 600 025

BONAFIDE CERTIFICATE

Certified that this project report titled “BUSINESS APPRAISAL
FOR PRODUCT LIFECYCLE MANAGEMENT IMPLEMENTED
INDUSTRIES” is the bonafide work of Mr. KRISHNAN T.S., who carried
out the work under my supervision. Certified further that to the best of my
knowledge the work reported herein does not form part of any other project
report or dissertation on the basis of which a degree or award was conferred
on an earlier occasion on this or any other candidate.

Dr. G. THANIGAIYARASU
Professor and Head,
Department of Mechanical
Engineering,
College of Engineering
Guindy Campus,
Anna University Chennai,
Chennai 600025.

K. THIRUMAVALAVAN
SUPERVISOR,
Lecturer,
Central Workshop Division,
Department of Mechanical
Engineering,
College of Engineering
Guindy Campus,
Anna University Chennai,
Chennai 600 025.

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ABSTRACT OF THE PROJECT WORK

Degree and branch : M.E. MANUFACTURING SYSTEMS
AND MANAGEMENT

Month and Year of Submission : MAY 2008

Title of the Project : BUSINESS APPRAISAL FOR
PRODUCT LIFECYCLE
MANAGEMENT IMPLEMENTED
INDUSTRIES

Name of the Student : KRISHNAN T.S.

Registration number : 200626113

Name and Designation : K. THIRUMAVALAVAN
of the Guide LECTURER
CENTRAL WORKSHOP DIVISION
DEPARTMENT OF MECHANICAL
ENGINEERING
COLLEGE OF ENGINEERING
GUINDY CAMPUS
ANNA UNIVERSITY CHENNAI
CHENNAI – 600 025

The Indian manufacturing sector is witnessing an unprecedented
growth. Everyone, from white goods manufacturers, defense production,
industrial equipment manufacturers, automotive and auto-component

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manufacturers are trying to cash in quick. But market requirements and
buying patterns are changing and customers are continuously calling for
‘more variety, more often’. In such a market scenario, a manufacturer’s
Achilles heel is his cost, quality and time-to-market. If he cannot introduce
new products and new brands quickly and continuously, at lower costs and of
improved quality, his chances of staying ahead of his competitors are
jeopardized. Manufacturing industries in India have been increasingly
adopting Product Lifecycle Management solution (PLMs) to address these
challenges.

The need for top management support is vital for successful
implementation of PLMs. There is a lack of awareness of PLMs capabilities
by senior management. Management asks financial questions because the
functions and features of the PLMs alone do not justify themselves. There
have been proven business benefits of PLMs in empirical and case studies.
The benefits that PLMs has bought, has to be evaluated and explained to top
management in monetary terms for product/hardware upgrades or to improve
the efficiency of PLMs itself. Organisations can find sufficient decrease in
costs by using PLMs and justify the Return On Investment (ROI) on cost
savings alone. Attempts have been made to evaluate the various business
benefits of PLMs including decreased product development costs, improved
change management and reduced time-to-market. Impact of PLMs on total
quality costs has not been addressed. It is widely quoted in the quality costing
literature that the total quality costs of an organization lies in the range of 10-
20% of their sales turnover. This study highlights a methodology, based on
the Prevention-Appraisal-Failure (PAF) categorization of quality costs, for
evaluating the impact of PLMs on total quality costs.

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Data from two manufacturing industries that had implemented
PLMs is inputted into a methodology embodied in a multiple spreadsheet
model to evaluate the costs and benefits. Reduction in product development
costs, value of longer production or sales due to reduced time-to-market and
total quality cost reduction are quantified. The model also reports Net Present
Value (NPV) of Investment, Payback Period, Internal Rate of Return (IRR),
Total and Discounted Cash Flows. It has been identified that PLMs has a
significant impact on the total quality costs by more than 80 percent cost
reduction in both industries. The NPV is positive and high, the payback
period is less than six months and the IRR is greater than the cost of capital
and very high. The results justify the implementation and use of PLMs in both
the industries. The spreadsheet based methodology provides a rational
approach to evaluate the benefits and justify the use of PLMs. Because of
improved revenues and higher profits, investing in PLMs has become a
strategic business initiative, comparable with the other enterprise initiatives
like Enterprise Resource Planning (ERP), Customer Relationship
Management (CRM), Supply Chain Management (SCM) etc.

PLACE: CHENNAI
DATE: 19/5/2008 KRISHNAN T.S.

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ACKNOWLEDGEMENT

I thank Dr. G. Thanigaiyarasu, Professor and Head, Department of
Mechanical Engineering, for his kind support and amenities provided to
complete the project work. I thank Dr. L. Karunamoorthy, Professor and
Head, Central Workshop Division, for granting me permission to take up this
project. I take this opportunity to express my deep sense of gratitude to
K. Thirumavalavan, Lecturer, Central Workshop Division, for his constant
guidance and encouragement. I express my sincere thanks to Jayanth Jacob,
Lecturer, Department of Management Studies, Anna University Chennai, for
sparing his valuable time in discussing the work and providing constructive
suggestions. I thank Dr. G. Balakrishnan, Sr. Associate Engineer, Caterpillar
Engineering Design Centre, Chennai, for his immense help, cooperation and
informative discussions. I thank Mr. T.M. Mohammed Ibrahim, Design
Manager, LTM Business Unit, Chennai, and Mr. Rakesh Ramanath,
Analyst, FCI Technology Services Ltd., Kochi, for their cooperation in
carrying out this work. I express sincere gratitude to Mr. Varghese Daniel,
Chief Executive Officer, Wrench Solutions Pvt. Ltd, Bangalore, for his
constant support throughout this project.

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TABLE OF CONTENTS

CHAPTER
NUMBER
TITLE

ABSTRACT
LIST OF TABLES
LIST OF FIGURES

PAGE
NUMBER

iii
x
xiii
1 _INTRODUCTION 1
1.1 GENERAL 1
1.2 OUTLINING THE PROBLEM 3
2 _{LITERATURE REVIEW} 6
2.1 IDENTIFYING THE FRAMEWORK 6
2.2 IDENTIFYING THE PARAMETERS 7
3 _METHODOLOGY 13
3.1 FITTING PARAMETERS INTO THE

FRAMEWORK
13

3.2 DESCRIPTION OF THE MODEL 14
4 _{POST-IMPLEMENTATION}
EVALUATION: INDUSTRY TYPE A
16

4.1 ABOUT THE INDUSTRY TYPE A 16

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4.2 IMPACT OF PLMs ON TOTAL
QUALITY COSTS
17

4.2.1 Appraisal costs 17
4.2.2 Prevention costs 22
4.2.3 Failure costs 26
4.2.4 Quality reporting costs 29
4.2.5 Total quality costs 32
4.3 REDUCTION IN PRODUCT

DEVELOPMENT COSTS
4.4 REDUCTION IN TIME-TO-

MARKET

34

38

4.5 TOTAL COST SAVINGS 40
4.6 PLMs ACQUISITION AND

OPERATION COSTS
43

4.7 RETURN ON INVESTMENT 45
5 _{POST-IMPLEMENTATION}
EVALUATION: INDUSTRY TYPE B
49

5.1 ABOUT THE INDUSTRY TYPE B 49
5.2 EPD PROJECTS 49
5.3 NPD PROJECTS 51
5.4 TOTAL COST SAVINGS 53
5.5 PLMs ACQUISITION AND

OPERATION COSTS
57

5.6 RETURN ON INVESTMENT 59

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⁶ RESULTS AND DISCUSSION ⁶¹
7 _CONCLUSION 63
APPENDIX 1 ⁶⁵
APPENDIX 2 ⁷⁰
APPENDIX 3 ⁸⁰
REFERENCES ⁹⁰

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LIST OF TABLES

TABLE
NUMBER
TITLE

PAGE
NUMBER
2.1 Quality data at every stage of the product
lifecycle
11

2.2 Summary of identified parameters 12
3.1 Parameters fitted into the framework 13
3.2 Quantifying benefits of PLMs 15
4.1 Appraisal costs before and after PLMs 18
4.2 Appraisal cost forecasts using linear regression 21
4.3 Appraisal costs with and without PLMs 21
4.4 Labour cost details 23
4.5 Time spent for searching data before and after
PLMs
23

4.6 Prevention costs per year 24
4.7 Prevention cost forecasts 25
4.8 Prevention costs with and without PLMs 25
4.9 Internal failure costs before and after PLMs 27
4.10 External failure costs before and after PLMs 27
4.11 Failure cost forecasts 28