PLM and ERP
Some questions often arise around the introduction of a PLM system when an ERP (Enterprise Resource Planning) system is already in place. Both of these systems handle product information. What is the difference between PLM and ERP, where are the boundaries and how do they interact? This article, no. 3 in the PLM School, attempts to provide a response to these questions.
Everyone has an ERP system
ERP is something that all companies make use of today. The processes handled by these systems vary, for example, salaries and HR, logistics, orders, production planning, time registration. In this article, we will focus on the most product related areas: primarily what is normally encompassed by MRP (Material Resource Planning) and logistics (orders, inventories, purchasing).
ERP shows the cost of the product and how it is produced
An ERP system mainly handles financial and logistics-related information as well as information about the physical product. Examples of the former are production expenses, purchasing expenses, prices and margins. Examples of the latter are stock and logistics. Processes for the physical product are controlled from receiving the raw materials/components, via production/manufacturing to delivery to the customer. In other words, the ERP system handles information on values and costs for the manufacturing of a product.
A PLM system shows how the product is to be and why
A PLM system mainly handles information about the properties, form and function of the product. Examples are designs, calculations and specifications. The definition of the product is controlled from idea/requirement to concept/prototype to a fully designed product. The system also controls how changes are to be made to the product. In other words, a PLM system handles information on what a product is and how the product has become what it is.
Dig. Differences between PLM and ERP
ERP and PLM cover different function areas
Put simply, it can be said that an ERP system manages financial capital whereas a PLM system manages intellectual capital. See diagram. This difference is also reflected in the users of these two systems. The product-related information in ERP is mainly created by accounting personnel and production planners, while it is usually developers and designers who are the largest users of a PLM system.
Although most ERP and PLM systems attempt to perform many tasks, there are limitations on what can practically be achieved in each of the systems. An ERP system should do what an ERP system is constructed to do (finance, logistics and cash flow) and the same applies to a PLM system (product descriptions).
Interaction between PLM and ERP
Both of the systems manage product information. Accordingly, it is important that they interact well with each other. This interaction applies primarily to articles and product structure (often known as a material list or BOM, Bill-Of-Materials). The product structure is usually created by the design department to identify the components of the product. This information is then used for production planning and logistics. See diagram. Many companies have to manually enter the product structure two or three times in different systems due to a lack of cooperating solutions. This represents an unnecessary use of time and a potential source of error that should be eliminated. See diagram.
Dig. It is important that the same and updated product structure (BOM) exists as both in the “financial world” and the “development world.” The BOM is the interface between ERP and the development tools and is best made with a PLM system.
Who “owns” the product structure?
This is a classic problem and is often the starting point for intense discussions. The product structure is conceived in the development phase and is subsequently transferred to other systems. This can take place automatically via the PLM system which automatically transfers the structures. To do this, an agreement must be reached on the rules for how the structure is to be built up in the PLM system so that it can be used directly in the ERP system for planning and logistics.
Decisions must also be made on who owns what information and which information can be changed in which system and when.
Business rules are the most important
The most important factor is to define clear business rules for the work methodology and transfer between the systems. Are there to be transfers in both directions? Are articles “to be conceived” in ERP or PLM? Are only the “frozen” BOM to be transferred? How are changes to be made to a “frozen” BOM? The aim is to avoid errors in the product structures that result in incorrect goods being purchased and incorrect planning for further production. These errors can be costly and often entail significant delays, something that many companies have experienced...
Once these business rules are in place, it is time to decide the type of technology and the exchange formats that are to be utilized. Integration is relatively simple to accomplish if the business rules have been well defined.
A helpful tip is to have articles and unit lists be conceived in the PLM system and only transfer them after they have been approved and frozen. Every time a new revision is approved, the article and the accompanying BOM have to be transferred again, which provides clear change visibility.
The operations govern the choice
The strengths and weaknesses of the systems are not the only factors governing whether a specific task is to be solved using ERP or PLM, equally as important are the company’s operations. If the company is highly production-oriented with little in-house development, it might be enough with limited PLM functionality in an ERP system.
Similarly, if the company is design-oriented with simple or no in-house production, no MRP¬ functionality is required. Nevertheless, the company will probably want an ERP system but with the primary focus on accounting and administration. The PLM system will then optimally handle all product data and development processes.
No magic involved in the integration of PLM and ERP
A standard integration between a given PLM system and a given ERP system can be purchased in many cases. If an off-the-shelf integration is not available, it is still easy to establish a connection. Most PLM systems are quite open in terms of automatically gathering and entering information. Also, they often support a large range of technologies (file transfers, SOA, ODBC and various messaging services) and different formats (text, XML and web services) used for integration. The limitations are often on the ERP side, particularly if the system is older.
The next step can be to stitch together the information from ERP and PLM and present it jointly. For example, a job number can be entered at one terminal in production and the product specifications and work descriptions can be retrieved. The orders and work descriptions come from ERP and the specifications from PLM.
Summary
It may seem like there is an overlap between PLM and ERP, but each system has its own specific focus areas and properties. Accordingly, most companies conducting product development and production will greatly benefit from having a PLM system as well as an ERP system. The greatest benefit is obtained once shared business rules have been defined and systems work well together.