Research analysts from LNS attended the Plex Systems Analyst Day in early November at the company’s headquarters in Troy, Michigan. In an unusual move, Plex hosted its Customer Advisory Board (CAB) concurrently, giving customers and analysts a chance to interact directly. This level of direct access is rare among software vendors and demonstrates a strong show of confidence by the Plex executive team. The Plex CAB includes representatives from companies in automotive, metal forming, food and beverage (F&B), aerospace and defense (A&D), and other discrete and batch manufacturing industries.
Customer Business Challenges
Plex customers introduced their businesses and explained their current challenges, and a few common threads emerged:
1. WORKER SHORTAGE: The manufacturing worker shortage worsens across all industries, and companies are beginning to take more drastic measures to address it. One Plex customer said they were turning away new business because of the difficulties they face hiring and training workers. Another revealed plans to consolidate and relocate factories from remote US areas to the industrial Midwest, where they believe skilled manufacturing workers are more readily available. (The shortage also continues to push these companies towards smarter manufacturing systems and automation, of course.) In one piece of bad news for Plex, a current customer reported they were indefinitely delaying a planned 2019 site implementation because of personnel issues; other software companies may be seeing the same sorts of delays in the manufacturing industry.
While the hot manufacturing market is leading to worker churn, LNS has identified that manufacturers can reduce worker churn by deploying strategies that:
- Reduce obstacles to worker onboarding and daily work execution – make a fresh assessment of worker-facing technology and processes
- Make workers feel like a part of a team focused on the greater good. LNS’ Connected Worker practice will provide more insights in this area in the coming year
2. MERGERS and ACQUISITIONS: M&A activity, backed primarily by private equity investors, continues at an accelerated pace across all manufacturing industries. A large percentage of the companies present discussed their challenges preparing for a spinoff, integrating a newly acquired division or facility, or adapting to new management operations after a full-blown acquisition. Several companies noted that the Plex cloud solution made it easier to prep for and execute on these moves – and Plex has a demonstrated history of M&A activity involving their customers, leading to new business for Plex.
3. RISING COSTS: In certain industries, the tariffs (and more broadly, increasing commodity prices) are forcing these companies to focus on cost disciplines. Again, one customer indicated that Plex’ capability to manage surcharges for raw materials made it easier to address the cost pressures.
Additionally, Plex arranged for a factory tour at Coastal Automotive, a Plex customer that uses lightweight foam from Dow to create energy-absorbing blocks that are installed behind a car’s headliner to absorb head impacts and deflect airbags in specific directions. This small company headquartered in Rochester Hills, Michigan uses Plex for all manufacturing operations, including storing recipes and machine work instructions along with part numbers; these instructions are uploaded to CNC machines which cut the foam to specification. While Coastal found the cloud nature of Plex made it easier to start small and scale over time, they bought Plex based on functionality and not because it was a cloud-based system. This fits with LNS Research findings in previous years; companies choose a manufacturing execution system (MES) and ERP platforms based on overall functional fit.
Company Growth, Platform Uptime, and Customer Success
Interim CEO Don Clarke shared the company’s 2018 YTD growth numbers: 53 new customers and 55 new go-lives (can be a plant or an entire organization). Without details about the existing customer base, we estimate that this puts the company in the 20-25% YoY growth rate – consistent with the company’s historical growth trends.
Plex revealed eye-opening numbers regarding system uptime: just 36 minutes of downtime in 2016, and only 18 minutes in 2017. For the 2018 YTD, the company reported 99.998% uptime. These numbers are remarkable for any cloud solution, and support Plex’ decision to build its infrastructure rather than relying on public cloud providers. The downside is the overhead this creates for the company and the difficulty of expanding internationally when all the Plex data centers are in North America. Later in the day, the company revealed plans for overcoming these limits.
Clarke also discussed the company’s renewed emphasis on “customer success,” including changes to the company’s incentive compensation package, so every employee is focused on customer success. Given Plex’ pricing model, which is tied to company size (e.g., revenue or no. of employees), customer success equals Plex success, according to Clarke. With the historical failure rate of ERP implementations (or the speed of delayed or reconfigured projects), LNS sees this as an obvious – but smart – move by Plex.
Plex Names New CEO
Plex parted ways with its previous CEO more than a year ago and named Don Clarke, the CFO, as “interim” CEO. As of the Analyst Day in early November, Clarke retained the interim title but seemed confident that the search for a new CEO was nearing its end.
On December 3, Plex named enterprise software veteran Bill Berutti as new CEO, starting immediately. Berutti previously served as president of cloud and enterprise solutions at BMC Software. Berutti had also spent 17 years in various roles at PTC. On the surface, this looks like a good hire for Plex. We’ll update our opinion soon after meeting Berutti.
Looking Forward to 2019 and Beyond
A large portion of the day was reserved for discussing future product and platform plans. This was led by Richard Murray, the company’s Chief Product Officer, and his team.
Plex has ambitious plans for 2019-2020, including entering the MES market (separate from the manufacturing ERP market), moving from a pure private cloud to a hybrid private-public cloud, and extending the platform’s APIs to enable full-blown development of branded applications by certified partners, and eventually making the core functionality of Plex available on Azure.
We were eager for an update on the previously announced acquisition of industrial analytics company DATTUS, and that update was provided by Anurag Garg, formerly CEO of DATTUS and the new Head of Analytics and IIoT at Plex. Near-term plans included the non-integrated offering of DATTUS’ machine-level monitoring functions to Plex customers, as well as a plan to move away from the Kepware server to support Ignition, MT Connect, OPC US, and other data historians and machine-level connectivity interfaces. Overall, we found these plans to be less than what we had hoped for, though we recognize that Plex is still in the early stages of integrating the two companies. While other players in the industrial analytics market are surging forward with new use cases and new functionality focused on driving industrial transformation, Plex has not yet communicated a vision regarding the value the unique integration of analytics, MES, and ERP functionality can provide to its customers, which LNS believes can be a strong competitive differentiator when complete.
Plex remains a highly competitive and well-thought of player in the manufacturing ERP market, and its product and platform plans for the next few years are ambitious and should enable the company to strengthen its position in core markets (automotive, metal forming) and increase its reach in new markets (e.g., MES). Still, the company has not yet fully articulated a vision of how its manufacturing ERP, MES, and analytics functionality fits into the rapidly growing industrial transformation market trend; we will be watching closely for updates in the coming months.