Arena, The Cloud and the ”dirty little secret of PLM”
Verdi Ogewell posted on October 23, 2014 |

There are three things that stand out when talking about PLM with Steve Chalgren.  He is the VP of Product Marketing with American software developer Arena.

The first is that he feels that the cost of PLM is far too high.  PLM also has a ”reputation of unlimited complexity”, which is the primary reason why so few small and medium-sized businesses are investing in this concept. The second is the how PLM in the Cloud, preferably Arena’s solution, can change this.

Then there’s the ”dirty little secret of PLM”… 

According to CIMdata’s definition, Arena is not one of the “PLM Mindshare Leaders”, but definitely a Category 1 PLM supplier. The company’s system provides a full range of cPDM (collaborative Product Data Management) functionality, has demonstrated scalability, and can be distributed across multiple server networks. 

However, you won’t find a CAD system in Arena’s PLM arsenal, nor any tools for analysis, simulation or visualization. Arena is simply about PLM; easy to use, functional, connected to the supply chain..and it doesn’t cost a fortune. 

It’s PLM for small and medium sized businesses and, like Autodesk’s 360-solution, runs in the Cloud. The portfolio contains modules for BOM, Compliance, Change, Quality, Document, Item, and Project Management, as well as solutions for Demand Analysis, Supplier Collaboration, and Enterprise Integration. There are additional functionalities coming up – after the 26th of October the “Scribe” and “DataExtract” modules will be generally available.

The original PLM in the Cloud company

Arena Software is in fact the original “Cloud PLM” company. They’ve been delivering PLM in the Cloud since 2000, but it wasn’t until recently that a more widespread acceptance of this concept started to evolve. Why did it take so long?

”IT related to product development works like a big oil-tanker”, says Steve Chalgren. ”It’s hard to move and it takes miles to change direction. We’ve met with this problem, which is typical for companies that launch new technologies. Much like Salesforce, also founded in 2000, we had to build everything from the ground up.”

The underlying message is that enterprise software of this magnitude revolves around very long term projects and is rooted in thinking about how PLM and product development processes should be organized.

There are two sides to this coin: From a marketing perspective, change can’t be expected to happen overnight. Sales has to expect a long process before “PLM resistance” can be overcome. On the flip side, the logical consequence of this is that it’s easier for PLM suppliers like Arena to reach startup companies, ”They don’t have legacy systems to consider.  They can make an easy choice and are more interested in trying new things”, says Chalgren.

So it’s no surprise to find Arena’s solutions in target markets like high-tech, electronics and medical devices. However, there are also large companies, with more traditional systems, who use Arena in certain divisions.

Arena has roughly 700 customers, 30,000 individual users, 100 employees, and generates annual revenues of around $ 20 million. Contrary to analyst CIMdata’s indications that the uptake of Cloud based PLM solutions is poor, Arena’s Chalgren claims that, ”It looks great, and we’re growing four times faster than the general PLM market”, referring to Arena’s 2014 Q2 report.

”CIMdata’s focus is on Aerospace & Defense and Industrial, which are the last segments to pick up new things like the Cloud. If you think about it pragmatically, which industry has the most early adopters? It’s high tech. So we’re not seeing what they are seeing. We’re seeing the other shift, and it’s because we’re addressing other markets.”

Things looked tough: Arena’s shift of strategy

Arena’s focus on early adopter and startup-heavy industries has resulted in a brisk growth pace the last 3-4 years, according to Chalgren. A big reason for this was the shift that the company went through during the years after the 2009 recession. As competitors tightened their operations and reduced the number of employees, Arena did the opposite and strengthened its PLM competence.

”Yes, things looked pretty tough”, Chalgren admits. ”But since then we have shifted our strategy and hired some additional talent in the executive rank.” Steve Chalgren is one those hires, with a background at Oracle and Agile.

 The company also recruited their EVP of engineering and systems architect, Wenxiang Ma, from the same place. ”But we also brought in PLM talent from other places like Autodesk and Aras. One consequence is that we’ve seen a significant shift in capability as far as scale and target markets are concerned over the last three years.”

Back then Arena targeted mainly smaller companies but step-by-step they’ve been moving into the medium and large medium enterprise sphere.

”A customer with $ 2 million in revenue is our sweet spot. That said we can still do the smaller companies for low cost, but there’s no margin cost for us. We don’t have to create a virtual machine or anything like our competition does; we can just add another copy at the user’s end. We’re talking about companies with a couple of thousand employees or a division of the same size.”

The advantages of a PLM-system in the Cloud

A Cloud based PLM solution may sound dramatic to some, but there are advantages and Arena is not hesitant to point them out. Firstly, the actual user experience is pretty similar to locally installed “on-premise” solutions, as most systems are browser based these days. There is also little difference in terms of functionality.

”However, a Cloud Solution probably is going to be more modern and have a better UI (User Interface)”, Chalgren explains, adding that, “the evolution in this case is about things like automated software updates.”

“Software updates don’t have to be a huge IT-project. You don’t have to spend a year of man hours to have the system run smoothly again. You simply upgrade on Sunday and on Monday you’re up and running again with new cool features.”

But there’s an even more ”revolutionary” effect with PLM in the Cloud, which is one of the reasons for the competitive price Arena offers: ”We have the ability to include lots of partners and data sets instantly to your UI. We can do this because we provide a comprehensive engineering architectural design.” Chalgren also claims that Arena doesn’t spend a lot of money on integration code written for the entire customer base because “it’s a lot of work and the integration quality probably wouldn’t be that good anyway. That’s why we have a fundamentally low cost of delivery compared to our competitors and then of course all the social collaboration opportunity where we now enable deep supply chain collaboration, which is a key to PLM”, he says making a point that Arena is not only addressing the first tier of the supply chain, ”But also multiple tiers, like the design and industrial partners. All those people can instantly collaborate, because the barriers to do so have been removed compared to on-premise.”

Arena’s primary mission: manage BOMs

One of Arena’s main missions is the management of the Bill of Materials (BOM). You could even say that it’s a part of the company’s DNA, as the original name of the company was “” In a world where products are getting more and more complex this is an increasingly crucial issue; the BOM really represent the most critical part of the product realization process.  It’s the recipe and ingredients of how to build a product. Ultimately it’s about getting the eBOM (engineering BOM) into Arena converting it to a mBOM (manufacturing BOM) and communicating that to the supply chain and the ERP system. It’s one of today’s required core capabilities of a PLM system.

”We started as a "BOM only" solution and we still focus around that”, Arena’s VP of Product Marketing declares, “But we also have very comprehensive file versioning capabilities, so once you have the BOM, the AML (Approved Manufacturer List), and the AVL (Approved Vendor List), you have the core to wrap up the change order process and the supply chain operation.”

In the high tech, medical device and other segments,–where multi-level, rapidly changing BOMs are the norm, this is a key capability. The product cycles are short, the competition is aggressive, and there are a lot of components that change going on the way to release, not to mention the loads of design changes and optimization done per costing or regional manufacturing. The basic demand is a system that can manage all those changes and make sure that you keep running in sync.

”You know, it’s really about the changes”, Steve says. ”I did a little research and found out that in the six weeks after July 1st our customers had almost 15,000 change orders. You can do those changes on anything, on spreadsheet for instance. But if you can’t ensure that the 2,000 people who are working on your product anywhere in the world, know about this change, well, you’re going to have a lot of trouble due to people making the wrong parts. That’s the key to PLM for us.”

Getting the BOM together is an area where Arena’s competitors from the traditional PLM arena are having problems.  "We can get the job done”, claims Steve Chalgren, pointing at a number of cases.

The ARENA CASEBOOK: NVT went from spreedsheet to managed BOMs”

NVT is such a typical Arena case story. The company develops video transmitters, receivers and power supply systems primarily for the security industry’s video surveillance system market.
Before implementing Arena, the company used generalized tools like Excel spreadsheets to manage the BOM. NVT’s paper-based engineering change order (ECO) procedures resulted in time-consuming complications with managing unwieldy change order packages.

“We did not have a readily accessible record of product history,” says Ben Hsu Director of Operations at NVT. “Without the capability to formalize our engineering change request it resulted in frustrating miscommunications, conflicting revisions, product errors and launch delays.”

 Hsu turned to Arena's BOMControl to automate NVT’s manufacturing processes. This Cloud-based solution allowed Hsu’s team to store critical documentation in an easily accessible central repository. In addition, BOMControl’s database made keeping track of vendors easy.

  “BOMControl provided a single centralized repository for information where we can obtain product information without digging through boxes of paperwork,” said Hsu. “Additionally, Arena provided a comprehensive and flexible database for our BOMs and approved vendor list. This solution has helped us streamline our engineering considerably.”

The biggest challenge for PLM software providers
The NVT case highlights one of the biggest obstacles when it comes to SMB companies’ (small and medium sized) slow transition to PLM: many product developers and engineers are still using spreadsheets and home grown systems. According to Steve Chalgren this is the biggest challenge for PLM software providers today. ”There are still many small and medium sized organizations out there who don’t understand the value of PLM and how this concept can help them”. 

”I’ve been in PLM since 1998, and I still hear the same comments from prospects that I heard back then. They have spreadsheets or some homegrown tools and the data is all messed up. And then, when we show them the PLM solution they so often say: ’I had no idea that life could be made so much easier’”.

Back in 1998 it was normally understood what PLM – or rather PDM – could do because it was focused on a smaller set of challenges. ”But today the massive messaging about PLM has made the concept to appear gigantic in scope.” It all becomes so large that it is hard to get a grip on it. What mainly was PDM has expanded and, claims Chalgren, ”today even analysis tools are considered to be part of PLM, innovation tools as well, and I think that people have the basic problem that they are afraid of PLM, because it seems like a computer science project. And they feel like they have neither time nor the money to take that on. Back then they just said ‘no’, now they don’t understand PLM because there’s so much talk, that it is confusing.”

The dirty little secret of PLM
Besides BOM management, one of Arenas core marketing messages is about supply chain collaboration. The capability to perform in this area “is claimed by lots of PLM vendors but not delivered”. Chalgren’s “dirty little secret” is that there is really isn’t much supply chain collaboration happening with PLM. Why? Here’s how Chalgren reasons:

”Even though people talk about supply chain collaboration quite a bit, they seldom act on it to its full potential. Yes, there are examples of companies that deployed it across their supply chain, but those are rare. At best they deploy it to a couple of people and a handful of manufacturers that they work with.”

”Let’s say that we’re talking about a contract manufacturer building a product. Normally there are probably no less than 15 people involved, people that you actually communicate with. But there are far more people who would want to talk to you about various things around that product: Everyone that actually builds it, the supervisors that run the assembly line, the in-circuit cast, the pick and place machine, and then there are the people who do the re-work, the shipping department, the overall program managers - altogether a bunch of people, not to mention that the contract supplier also can outsource (things like plastics and cables among others). Yet, how many of the by now probably plus 200 people that are working on your products are collaborating via PLM?”

Chalgren’s point is that this ”lack of deeper supply chain connectivity” is due to the fact that enterprise PLM companies generally charge a lot for each supplier active.  Not everyone, but a lot of them do. This means that many companies simply cannot afford to include their entire supply chain.

”If I have a need for 200 licenses (like in the example above) it’s a lot of money. Accordingly, companies don’t do it. Even those who have a budget for it don’t because there’s a IT burden for the OEM to provision 200 people.”

Provisioning in this case is about creating individual usernames, passwords, managing their roles and the data they can have access to in the PLM system. Then there’s the firewall which also is a major burden. It simply takes a lot more resources to manage this than the initial licensing cost implies.

”It’s hard for any IT department, not only because of budgetary reasons, to manage for instance a thousand users outside of the company”, Steve says, adding an even more serious deal killer:

”Even if you had all the money in the world to provide a supplier with this in your PLM system; what would you say when your IT security team shows up and ask you about what would happen if someone who quits their job and that person is someone who HR wants to cut off from any access to the enterprise system? How do you know when any of those, say thousand people, in your supply chain quit? And how do we know that we turned them off from access to our PLM system? There’s no process on the planet for the HR department to let us know when those people quit. The security team would probably say that this is unacceptable.”

”The notion of deeper supply chain collaboration is an illusion”

The notion of deeper supply chain collaboration is an illusion, the Arena representative asserts, claiming that they’ve done something about it, and developed a product called Arena Exchange. Chalgren describes it as “disruptive”:

”When we discovered that ’dirty little secret’ and until we came up with Arena Exchange basically we saw all those problems, but we also saw the ability to get people in because it’s Cloud based. We leveraged the licensing and the use provisioning like you would on Twitter, so it’s very social: you just invite someone into a collaboration exchange and they can see what you’re sharing with them. And by the way, they can invite you in too. Additionally there’s a security control in this where I can say, ’I’ll invite you and you can invite a third person, but I have to approve that third person before he can come in’”.

What about product data? ”We take a snapshot of data, which is based on the product data exchange, multi-level BOM files, red lines, everything you’ll see in a PLM system, but it’s a snapshot of data so it’s much more secure. Think of it as a manufacturing bill package, discretely placed out there, so the IP risk is very low. You can invite people very quickly into the collaboration and our licensing is only to charge the originator, so everyone that’s invited is free.”


My take: it’s a ” David and Goliath” market situation

Despite the rapid growth, Arena is still a small company in a David and Goliath market situation. On one hand they are facing competition from PLM giants like Dassault Systemes, Siemens PLM, and PTC. On the other hand there’s the ERP vendors like SAP, Oracle, Infor and IFS. As if that was not enough, they also have to keep an eye on smaller SMB competitors like Aras, Contact Software, Lascom, and Omnify, to mention a few. All of them address PLM mainly from Arena’s specialty angle: cPDM, collaborative PDM. It’s a challenge of almost “epic” proportions, which highlights a potential weak spot. Arena’s current revenue base is small compared to the top earners, and as such they are more susceptible to the impact of economic variations. This could affect the company’s ability to keep up with the development speed of the larger vendors’ significantly larger R&D departments.

The major solution providers’ PLM suites are well established and growing, and their dominance is difficult to break. However, there are a couple of aces up Arena’s sleeve.

CIMdata writes in its latest August report: “As new technologies are developed and incorporated into cPDm solutions, and/or mergers and acquisitions occur, opportunities still exist for new providers to move up in the rankings.”

But success is not only about new groundbreaking technologies, it’s also about applying those new technologies (and old technologies too) and platforms like the Cloud, in smart ways. What from an R&D resource perspective can appear as an “overwhelmingly” strong advantage can turn out to be the opposite. We’ve seen many examples of how sheer size is not necessarily the only proof of success and capacity for great solutions.

There are others and Arena points to them; ease of implementation, upgrade and use; the advantage of the Cloud; a focus on specific hard to solve problems like BOM complexity; smart supplier collaboration solutions, and last, but certainly not least: a competitive price and TCO (Total Cost of Ownership).

Can Arena benefit from Autodesk’s ”all in” bet on PLM in the Cloud?
There are opportunities for companies like Arena to effectively penetrate “new” market segments; high tech startups is only one example of an area where the users have a “tabula rasa” PLM perspective.  Generally the “electronification” of everything is a sweet spot. As more and more industries that until recently dealt with “uncomplicated things” enter this new paradigm and join the trend of electronification, Arena could very well be their choice. 

Many of these companies are likely to base their products and product functionalities on Cloud solutions. Why wouldn’t they want to have their primary product development collaboration tool on that same platform? 

Finally: Autodesk’s all in bet on the Cloud was the best ”gift” that Arenas's marketing department could get. Suddenly the PLM spotlight moved away from the Cloud skeptical IP security related product development discussion.

So, while Autodesk grows in the Cloud, creating lower barriers for PLM on this platform the question is: What can Arena benefit from it? A lot, in my opinion.

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