PLM vs ERP: The Battle for Retail Efficiency Heats Up in 2024
Bhagyasri Ghosh
Engineer and Technical Writer/Editor | B2B SaaS, AI, Machine Learning, Data Science and Cloud
Are you overwhelmed by product development? The retail industry is a high-stakes competition for consumer loyalty. One poor customer interaction can push loyal patrons into the arms of competitors, leaving your sales projections in tatters.
According to research, brands lose customers due to:?
1) Poor customer service
2) Quality issues
3) Lack of personalization and self-service automation
4) Inconsistent brand experience?
5) Overpromising, underdelivering, and?
6) Confusing pricing
Today's hyperconnected consumer demands a dynamic retail landscape. To thrive, retailers need to be agile, efficient, and fast. Flexible product offerings and accelerated time-to-market are essential to capturing consumer attention. Product Lifecycle Management or PLM promises a world of benefits to the retail industry. This includes quicker product launches, superior quality, seamless teamwork, and faster deliveries. While these advantages are enticing, a deep dive into PLM is essential to mitigate potential risks and maximize its potential.
I'll unpack the intricacies of Product Lifecycle Management (PLM) for retail, and examine its role in optimizing product development.
In the US alone, retailers lost more than $815 billion in revenue due to product returns. This massive setback could have been avoided with high-tech AI capabilities and software techniques.
Let me break down the revenue loss equation due to retail returns and the fix.
Breaking Down the $816 Billion Loss in Retail Returns
The statement indicates that US retailers experienced a significant financial setback due to product returns.
Here's a breakdown of the information:
- $816 billion: This is the total estimated revenue loss suffered by US retailers as a direct consequence of customers returning purchased merchandise.
- 16.5%: This is the percentage of merchandise purchased that consumers subsequently returned.
For every $100 worth of products sold, retailers had to deal with approximately $16.50 worth of returns.
It shows that the lack of sophisticated retail software dented retail growth in the last 2-3 years. Retailers face a substantial challenge due to poor product lifecycle management, impacting the rate of returns per 1000 orders, and forcing retailers to bear uncontrolled costs in 2024.
For example,
- Inventory management: Dealing with returned items, restocking shelves, and potential markdowns.
- Shipping costs: Covering return shipping for customers and transporting returned items to warehouses.
- Labor costs: Processing returns, inspecting items, and issuing refunds.
- Loss prevention: Preventing return fraud, such as wardrobing (wearing an item once and then returning it).
To mitigate these losses, retailers are increasingly implementing strategies such as stricter return policies, charging restocking fees, and investing in technology to track returns and prevent fraud.
Would you like to know more about the impact of return fraud or specific strategies retailers are using to manage returns?
Retail Revenue Loss: A Complex Equation
Retailers face a significant challenge in revenue loss due to various factors. Retail revenue loss refers to the financial impact of factors that result in declining sales and revenue for retail businesses. This can be attributed to different causes, including changes in consumer behavior, increased competition, economic downturns, and operational inefficiencies.
Most losses are incurred from product returns, inventory shortages, theft, markdowns, operational inefficiencies, and economic downturns. Then, there is the disruptive cost of adopting a new technology, such as the metaverse or generative AI. For instance, the rise of GenAI's use in e-commerce has led to a shift in consumer spending habits, with many customers opting for online shopping over traditional brick-and-mortar stores.
Additionally, the COVID-19 pandemic has accelerated this trend, resulting in significant revenue losses for retailers who were slow to adapt to the digital landscape.
Furthermore, retail revenue loss can also be caused by internal factors such as inventory mismanagement, poor supply chain logistics, and inadequate customer service.
For example, if a retailer fails to maintain optimal inventory levels, they may experience stockouts or overstocking, leading to lost sales and revenue. Similarly, inefficient supply chain management can result in delayed shipments, damaged goods, and increased costs, ultimately affecting the bottom line. Moreover, providing subpar customer service can lead to negative reviews, decreased customer loyalty, and ultimately, lost revenue.
To mitigate retail revenue loss, businesses can implement strategies such as investing in e-commerce platforms, optimizing inventory management, and enhancing customer experience. By leveraging data analytics and artificial intelligence, retailers can better understand consumer behavior, improve supply chain efficiency, and personalize customer interactions. Moreover, adopting omnichannel retailing, which integrates online and offline channels, can help retailers provide a seamless shopping experience, increase customer engagement, and ultimately, drive revenue growth. By addressing the root causes of retail revenue loss, businesses can minimize financial losses and remain competitive in an ever-evolving retail landscape.
3 Major Reasons Why It's Hard to Estimate the Exact Figure for Annual Revenue Loss in Retail
Pinpointing a precise, global figure for annual revenue loss in the retail industry is challenging due to three main factors:
- Diverse Retail Landscape: The industry encompasses all businesses, from small boutiques to multinational corporations, each with unique challenges and loss metrics.
- Multiple Loss Categories: Revenue loss can stem from various sources, including returns, theft, markdowns, out-of-stock, operational inefficiencies, and economic downturns.
- Data Privacy: Not all retailers publicly disclose detailed financial information, making comprehensive analysis difficult.
Mitigating Losses
While eliminating all losses is impractical, retailers can implement strategies to minimize them:
- Robust Returns Management: Efficient return processes can reduce costs and improve customer satisfaction.??
- Advanced Inventory Management: Utilizing data analytics and demand forecasting can optimize inventory levels.??
- Loss Prevention Measures: Implementing security systems and employee training can deter theft.
- Pricing Optimization: Dynamic pricing strategies can help maximize revenue and reduce markdowns.
It's important to note that the impact of these losses varies across different retail segments and geographic regions.
PLM: The Backbone of Digital Transformation in the Retail Industry
Today's hyper-connected consumer demands a dynamic retail landscape. To thrive, retailers need to be agile, efficient, and fast. Flexible product offerings and accelerated time-to-market are essential to capturing consumer attention. Product Lifecycle management, or PLM promises a world of benefits to the retail industry. This includes quicker product launches, superior quality, seamless teamwork, and faster deliveries. While these advantages are enticing, a deep dive into PLM is essential to mitigate potential risks and maximize its potential.
I'd like to explain PLM in detail here.
Product Lifecycle Management (PLM) is more than just a software solution; it's the cornerstone for a successful digital transformation strategy. By creating a digital thread, PLM ensures critical product information is accessible to the right people, at the precise moment they need it, and in the context necessary to drive innovation.
The Origin of PLM Software
Product Lifecycle Management is a fine concept. However, PLM is seldom explained in simpler ways. I use the "cobbler technique" to explain the meaning of product lifecycle.
There are three main stages in the product lifecycle:
Beginning of product Life (B-O-L)
BOL mostly involves product design and manufacturing.
Design encompasses product, process, and plant design, while manufacturing entails production and internal logistics.
During BOL, product concepts are generated and realized through a collaborative process involving designers, planners, and engineers. Tools, techniques, and methodologies are employed to develop product design, production processes, and manufacturing plans, often managed through ERP systems.
Middle of product Life (M-O-L)
The MOL phase involves product distribution, customer use, and support services like repair and maintenance. During MOL, products are in the hands of end-users and service providers. Data on product distribution, usage, failures, and maintenance can be collected to track product status and enable real-time services like car control.
End of product Life (E-O-L)
The EOL phase involves product retrieval, disassembly, refurbishment, recycling, or disposal. EOL begins when a product no longer meets user needs. Valuable information about product materials and components is shared with recyclers and reusers to facilitate efficient reuse and recycling.
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Specific PLM Modules and Use Cases
PLM software comprises various modules to address different aspects of the product lifecycle. Let's explore some key modules and their corresponding use cases:??
Core PLM Modules
- Product Information Management (PIM):
- CAD/CAM Integration:
- Change Management:
- Supply Chain Management:
- Quality Management:
Industry-Specific PLM Modules
- Fashion PLM:
- Automotive PLM:
- High-Tech PLM:
Additional PLM Capabilities
- Collaboration Tools: Enable effective communication and teamwork among distributed teams.
- Document Management: Stores and manages product-related documents, such as specifications, drawings, and test reports.
- Analytics and Reporting: Provides insights into product performance and process efficiency.
While the concept of managing a product's lifecycle has been around for centuries, the digital tools we recognize as PLM software today have a more recent history.
I have created a "Brief History of Product Lifecycle" infographic for my audience.
As you can see, the modern concept of PLM evolved from manual, paper-based systems to sophisticated software solutions that manage the entire product lifecycle. AI, automation, and customer experience trends lifted cloud-based PLM software recently. Before we head there, let's understand how PLM works.
How PLM Software Works
PLM software acts as a central repository for managing product information and processes throughout its lifecycle. It integrates various departments and functions, ensuring smooth collaboration and efficient product development.
Key functionalities of a PLM system:
- Data Management: Stores and manages product-related data, including designs, specifications, materials, and manufacturing processes.
- Workflow Management: Defines and automates the product development process, from concept to launch.
- Collaboration: Facilitates communication and collaboration among different teams involved in product development, such as design, engineering, manufacturing, and marketing.
- Change Management: Tracks and manages product changes, ensuring consistency and compliance.
- Quality Management: Supports quality control processes and ensures product compliance with standards.
- Supply Chain Integration: Connects with supply chain systems to manage suppliers, materials, and inventory.
How it works:
- Product Conception: The product idea is captured and initial requirements are defined.
- Design and Development: PLM provides tools for creating and managing product designs, simulations, and engineering data.
- Collaboration: Teams collaborate on product development, sharing information, and making decisions.
- Manufacturing: PLM generates manufacturing instructions, bills of materials, and production plans.
- Supply Chain Integration: Manages relationships with suppliers, tracks material availability, and optimizes logistics.
- Quality Control: Monitors product quality throughout the lifecycle and implements corrective actions.
- Product Launch: PLM supports product launch activities, including marketing, sales, and distribution.
- Product Lifecycle Management: Tracks product performance, collects customer feedback, and plans for product updates or end-of-life.
Benefits of using PLM:
- Improved product quality
- Faster time-to-market
- Reduced costs
- Enhanced collaboration
- Better decision-making
- Increased innovation
By effectively managing product information and processes, PLM software helps organizations achieve operational excellence and gain a competitive advantage.
Imagine a seamless flow of data: From an initial concept to the final product, where everyone involved has a clear and up-to-date view. This is the power of PLM. By centralizing product information, it eliminates silos and fosters collaboration across teams, from design and engineering to manufacturing and sales.
Beyond information sharing, PLM is instrumental in building a resilient supply chain. It provides the visibility and control necessary to adapt quickly to changes, whether it's a shift in consumer demand, supply chain disruptions, or unforeseen challenges. In essence, PLM equips organizations with the agility to thrive in today's dynamic market.
By establishing a solid foundation with PLM, businesses can unlock new opportunities for growth, efficiency, and innovation.
PLM in Retail and E-commerce
The retail and e-commerce industries have unique challenges when it comes to product lifecycle management. Let's delve deeper into how PLM can address these challenges.
PLM for Retail and E-commerce
Key Challenges:
- Rapidly changing fashion trends
- Short product lifecycles
- Complex supply chains
- Omnichannel retail
- Increasing consumer expectations
How PLM Helps:
- Speed to Market: PLM streamlines design, development, and production processes, allowing retailers to quickly introduce new products and respond to trends.
- Supply Chain Visibility: Provides real-time visibility into the supply chain, enabling better inventory management and reducing stockouts.
- Product Information Management (PIM): Centralizes product data for consistent and accurate information across all sales channels.
- Collaboration: Facilitates collaboration between design, merchandising, sourcing, and production teams.
- Quality Assurance: Ensures product quality and compliance with regulations.
- Returns Management: Streamlines the returns process, reducing costs and improving customer satisfaction.
Specific PLM Modules for Retail and E-commerce
- Merchandising Planning: Supports product planning, assortment planning, and range planning.
- Visual Merchandising: Manages product visuals, styling, and store layouts.
- Sourcing and Vendor Management: Manages supplier relationships, purchase orders, and quality control.
- Omnichannel Management: Integrates with various sales channels (online, retail stores, mobile) for consistent product information and inventory management.
- Consumer Feedback Management: Collects and analyzes customer feedback to inform product development and marketing.
Use Cases in Retail and E-commerce
- Accelerated Product Development: By streamlining design, sourcing, and production processes, PLM helps retailers bring new products to market faster.
- Improved Supply Chain Efficiency: PLM provides visibility into the supply chain, enabling better demand forecasting, inventory optimization, and risk management.
- Enhanced Customer Experience: Consistent product information and efficient returns management contribute to a positive customer experience.
- Increased Profitability: By optimizing product development and supply chain processes, PLM helps retailers improve profitability.
Mastering the Product Lifecycle: The Power of PLM
A product’s journey is more than just its conception and creation. It’s a complex lifecycle encompassing design, development, production, distribution, and ultimately, end-of-life. Each stage presents unique challenges and opportunities that can significantly impact a product’s success.
In today's fast-paced, hyper-competitive market, managing this entire lifecycle efficiently is paramount. It requires a holistic approach that considers everything from material sourcing to product disposal. This is where Product Lifecycle Management (PLM) software becomes indispensable.
PLM serves as the central nervous system of product development, connecting various teams and processes. By providing a single source of truth for product information, it fosters collaboration among designers, engineers, manufacturers, and other stakeholders. Whether teams are located in the same office or across different continents, PLM ensures everyone is working with the latest data.
Furthermore, PLM empowers businesses to make informed decisions throughout the product lifecycle. By analyzing data on factors such as material costs, production efficiency, and customer feedback, companies can identify areas for improvement, reduce waste, and enhance product quality.
Ultimately, PLM is more than just a software tool; it’s a strategic advantage. By optimizing product development and management processes, businesses can accelerate time-to-market, reduce costs, and deliver products that truly resonate with customers.
Retailers handling large product volumes can optimize operations with a strategic development platform. PLM and ERP software work in tandem to streamline design, sourcing, and production, boosting productivity and efficiency.
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