(FORTUNE Magazine) – Economists have long moaned about their inability to measure the computer's contribution to productivity. But the happy industrial users of at least one software program can cite facts and figures to document handsome payoffs. The software is called product data management, or PDM, and it enables companies for the first time to link their designers, engineers, and manufacturing plants together in a seamless electronic web. The improved tie-up prevents much of the delay and outright chaos that so often bedevils the introduction of new products.

With PDM's help, United Technologies' Pratt & Whitney division was able to cut development time by a year on its mammoth jet engine for the Boeing 777. Managers at QMS Inc., a laser-printer manufacturer in Mobile, Alabama, joyfully relate how the software system made it possible to sweep away meetings and mounds of paper while dramatically reducing defects. Before PDM was introduced, Lucent Technologies, the renamed AT&T manufacturing arm, committed such blunders as failing to notify its French assembly plants of a defective component in a business telephone. Now such slip-ups, which can trigger costly product recalls, are rare.

Other big companies are beginning to shell out big bucks for PDM. Last December, Ford Motor Co. announced the start of a $200 million, five-year strategic technology relationship with Structural Dynamics Research Corp. (SDRC), of Milford, Ohio. Part of the money will be spent on SDRC's Metaphase Series 2 version of PDM. GM's Hughes Aircraft is in the midst of a $70 million reengineering of its product development process; $15 million of that will go into a PDM system from Sherpa Corp. of San Jose, a leading PDM supplier.

Some General Electric divisions already use PDM; so do Texas Instruments' Electronic Group and parts of Xerox and Boeing. Hooked up to PDM, Zurn Industries' energy division was able to transform itself in record time from a manufacturing to a high-tech design company. Schlumberger's big operation in Sugar Land, Texas, that makes oil-field instruments has used PDM to reduce its product-to-market time sharply and in the process has chopped its spending on information technology by 33%.

Feats like that explain the surging interest in PDM. At conferences for users and vendors, including a jam-packed one in Houston last month, attendance has gone up sixfold since the meetings began in the early Nineties. In terms of revenues, PDM is one of the fastest-growing branches of software, except for programs catering to the Internet. According to CIMdata, a software consulting and data-gathering firm in Ann Arbor, Michigan, PDM sales roared ahead by 43% last year to $684 million and are well on their way to reaching $1.6 billion by the end of the century. In software, that's a big number.

A couple of dozen companies are battling to sate the growing corporate appetite for PDM. These range from tiny ADRA Systems of Chelmsford, Massachusetts, to Computervision, Autodesk, Control Data, Hewlett-Packard, and IBM. A relative latecomer, IBM is feverishly building up a team at the Charlotte, North Carolina, headquarters of its manufacturing operations that by the end of this year will number 300 programmers and other staffers. Says Wayne Collier, a senior analyst for D.H. Brown Associates, a technology research firm in Port Chester, New York: "IBM realized very clearly sometime last year that this is going to be the biggest new software system they'll install in the next ten years."

IBM not only is scrambling to sell its software, which is called ProductManager and works with desktop computers, but is also abandoning an old rudimentary, mainframe-based form of product management software in order to switch its own factories to PDM. First to change will be the company's RISC6000 workstation plant in Austin, Texas. The rest of the corporation will complete the transition toward the end of 1997. Norb Tennessen, director of design practices at IBM who is in charge of the worldwide ProductManager conversion at Big Blue, says the intense interest and "undaunted executive support" for PDM extend all the way up to CEO Lou Gerstner, who has been pressing for use of common building blocks and optimized purchasing--both big PDM strengths.

The amazing critter called PDM comes on CD-ROMs, floppies, or tapes. The average cost of installing a system for, say, 50 design engineers runs about $2,000 per engineer in the first year of operation. About half of that goes for installation and training costs, which might be paid to the software company or to a separate firm of systems integrators. Not included in this estimate is the cost of hardware that may already be in place, such as PCs and workstations. If your operation doesn't have a server to play the role of PDM library, prepare to spend an additional $100,000.

What you get for these expenditures is a wondrous central nervous system that can transmit design data, authorizations, and other information from a host of company computer operations. As a rule, it makes no difference that some of them run on Unix workstations while others use Windows PCs or Macs. "PDM," says VP Anthony B. Crawford at Intergraph, a vendor, "is barriers-busting software."

The simplest PDM system brings order to that last unautomated corporate frontier known as design and engineering. Drafting has been automated only in a limited way since the advent of computer-aided design (CAD) about 20 years ago. In its more elegant manifestations, CAD allows a designer to call up a 3-D model of a car door to his screen and crank a virtual handle to see how tightly the window glass fits--and similar wondrous feats. But few CAD systems keep track of the floods of paper and electronic data they generate. Worse, most companies have multiple CAD systems that can't talk to each other.

PDM lets authorized people check what's been created in dissimilar CAD programs, though they can't necessarily call up all the drawings. It also has built-in commands that nudge these folks to take timely action--checking for flaws in a proposed design, making the needed engineering changes, or simply signing off so that the project can keep moving along. Since the data all repose in a central electronic "vault" accessible to designated associates, PDM slays one of the worst dragons of engineering: the inability to find drawings among mounds of them. According to studies by the Coopers & Lybrand consulting firm, as much as 70% of an engineer's time is wasted looking for paper and electronic material and attending meetings. Frustrated by the search for drawings, engineers have often found it easier to design such simple components as screws from scratch rather than keep on hunting.

At most companies, PDM extends its neurons beyond design and engineering. Once CAD is tied in, the logical next step is to include production-tracking software called manufacturing resource planning (MRP), a computer version of a scheduling technique that's been around since the late Sixties. Presto, PDM now can expedite product designs and changes right through to the production line. Suddenly, documents such as "bills of material" listing parts and costs, work orders, and other files that have to be reviewed by many people along the way are handled onscreen rather than on paper, with a minimum of foul-ups. One blessing is a reduction in scrappage and rework of products put together with the wrong parts.

PDM can orchestrate even more activities. Extended upstream in the development cycle, it enables marketing types to peek into the designers' vault and suggest ideas for new products. Downstream, it can supply parts data to repair shops working on products already in use by customers. In its most inclusive version, says Pat Toole Sr., IBM's astute group executive for technology, PDM can provide "a management system from initial concept through the end of product life."

PDM, in short, is seen by enthusiasts as the answer to corporate prayers. Ed Miller, president of CIMdata, thinks it will usher in the era of computer-integrated manufacturing, a 20-year-old vision of production flowing as smoothly as a river that long foundered because of the complexities involved. Some companies are pushing PDM beyond their own walls to forge better ties with suppliers. Pratt & Whitney is already linked with more than 30 of them via PDM, and executives of Hughes Electronics talk of hooking up with EDS, another GM affiliate, and maybe the big automaker too, for corporatewide purchasing of parts and components.

To see how PDM can stop problems before they start, consider this tale of product development at an imaginary organization. Sue Dreamer, the product designer, learns during lunch with Larry Merchant, marketing manager, that customer ABC has come up with a new use for product XYZ. If we made this small change in the product, suggests Larry, we would sell millions more of it. Sue says she'll give it a try.

Back in her office, she works up a schematic drawing of the changed product on her screen. Then she zips it electronically to Joe Producto, the assistant product manager, and Jack Drafter, the engineering manager. Both get a message on their screens reminding them that they must approve the sketch. Oops, Jack is on vacation! Under the old system his absence could have stopped the process, since he might have checked out the master paper drawing of the XYZ product and failed to return it to the traditional library of sketches and diagrams. But PDM is designed to bypass vacationing bosses. The sketch is called up electronically by Joe Producto, who is authorized to approve the sketch in Drafter's absence.

Another oops. Jane Machinski, the manufacturing supervisor, also sees Sue's drawing on her PC screen. Somewhat to Sue's chagrin, she weighs in with some comments suggesting that if designers drew it right the first time, there would be no need for all this highfalutin PDM stuff. Sue feels a fleeting pang of nostalgia for the pre-PDM days, when Jane and all those other kibitzers were left out of the process. But Jane has typed in a money-saving suggestion: "Sue, if you used a snap fit instead of screws in the product change, it would save us eight hours of labor on 100 units."

A platoon of other worthies, whose opinions would otherwise not have been sought until it was too late, see Sue's sketch on their screens and weigh in with their 25 cents' worth. Bob Beancounter suggests that if the product could be manufactured and shipped by the end of March, it would lift first-quarter revenues and profits. Pete Buyer from purchasing reports that he has just received an offer for a favorably priced material that could be used in the XYZ product. Steve Service suggests that if the access panel for repairing the product was made two millimeters wider, troubleshooters could use a new tool that replaces a defective chip 20 minutes faster.

Satisfaction with PDM is high. A CIMdata survey of 56 companies in 1994 turned up only one that said it would not put in the system again; the company was apparently oversold by software salesmen on what to expect, and how soon.

One user with reasons to feel contented is jet engine maker Pratt & Whitney. A strong point of PDM's is that it creates an easily retrievable data trail documenting engineering changes and other essential information. Such documentation on the company's engine for the Boeing 777, abundantly provided by IBM's ProductManager system, helped Pratt & Whitney win unusually prompt certification from the Federal Aviation Administration for over-the-ocean flights by direct routes far from land. According to one well-informed source, that gave Pratt & Whitney an advantage in landing orders over rivals GE and Rolls-Royce, who used different PDM systems and are still awaiting similar certification. Pratt & Whitney's 41% share of 777 engine orders is well ahead of the competition's.

Before PDM was installed at QMS Corp., the maker of laser printers found itself in a typical bind. At interminable meetings, engineering changes were discussed and fought over. "Everybody from the mail boys to vice presidents took part in those meetings, which at times turned contentious," says Ray Alstadt, vice president of products and technology. In the course of wrangling over engineering changes, the combatants would hunt through a stack of paper three feet high. Often the drawings couldn't be found. That's because the 100 designers and engineers at QMS--scattered from Mobile to Huntsville, Alabama; Boulder, Colorado; Portland, Oregon; and San Jose--relied on FedEx, faxes, and interoffice mail, as well as a "sneakernet" at headquarters, runners taking drawings from building to building.

Under Sherpa's PDM system, QMS hasn't had a meeting on engineering changes in two years. With less duplication of effort and fewer misplaced drawings, QMS has been able to cut its flow of paper documents from 1.2 million pages a year to fewer than 200,000. Delays in approving design changes are a thing of the past. Says Alstadt: "I don't have to go pry and poke."

Those far-flung designers and software engineers, moreover, can now work on products concurrently on their screens. CAD files are easily accessed with keystrokes. The time required to introduce new printer circuitboards into the manufacturing cycle has been shortened from 31 days to 20. On the factory floor, PDM has helped cut the internal defect rate--defects caught before products are shipped--from as much as 20% to 2.6%. The "external" defect rate in printers reaching customers now fluctuates from 0.2% down to zero.

QMS's outlay for the transition to PDM was $1.2 million, with $800,000 going for hardware and the rest for the software. Alstadt says this was recouped through savings in two years. In addition, the company pays modest yearly maintenance fees to the software supplier.

At Lucent Technologies, the opaquely named successor to AT&T's old Western Electric, chaos reigned in pre-PDM days. Recalls David Gower, who was PDM manager at AT&T and continues in that post at Lucent: "The designers hid in their little corners and did their designs. They would give a paper draft of a drawing to the CAD department people, who hid in their corner and did their thing. Finally, a stack of papers a foot high would be put in an envelope and sent to the factory. And the factory would say, 'We can't make it!' "

At the company's business phone assembly plant in Shreveport, Louisiana, Gower says, the situation got so bad that "we were losing information--we couldn't find it. If you were lucky, it would take anywhere from four hours to a day and a half to find a drawing." The manufacturing operation, using an ad hoc "work around" practice, would substitute components for the prescribed ones without letting other plants or service personnel know. In a fairly typical case, they dropped a supplier who was making a defective resistor but failed to notify AT&T's French plants, which were making the identical model with resistors from the same supplier. This led to costly, wholesale recalls of the telephones in France.

The PDM system from Sherpa, which AT&T introduced throughout its manufacturing facilities in 1991, prevents that kind of disaster. Says Gower: "When I make a change in a PDM design, I change it everywhere automatically." Those changes can also be made earlier in the product cycle, averting potentially horrific cost hemorrhages. Students of the subject have calculated that while it costs $1 to make a change in a product's conceptual design stage, the amount rises to $10 if the modification is made during the so-called simulation or analysis phase, when products are tested by computer, then soars to $1,000 during prototype testing and $10,000 after manufacturing has begun.

Gower can't give a precise figure on the savings from PDM. "What did we get from the system? The answer is kind of obvious," he says. "It's clear that we have better access to information and make fewer errors. The overall quality of information has improved drastically. We're seeing a much more effective management of product data. Prior to PDM, for example, it took us a year to transfer information needed to make the business telephone in France--we just didn't have it in hand. With PDM, we can do it in about three months or less. In that single instance we save tens of millions of dollars, and we've paid for the system."

Companies that embrace PDM have a wide range of choices. They may settle for the core system by putting in those computer vaults and automating the engineering change process. Two fast-growing companies--Workgroup Technologies Corp. of Lexington, Massachusetts, with its CMS program, and ADRA Systems with its Matrix PDM--are filling that niche with easy-to-install PDM software.

At the other extreme, PDM can form the basis for weaving together almost all of a company's activities. One powerful new vehicle for doing that is a program called SAP R/3, developed by a German company called SAP A.G. This is a successor to a manufacturing resource planning system called MRPII but takes in much more: marketing and sales, distribution, human resources, and finance. IBM's ProductManager, as well as advanced PDM programs such as Metaphase 2 jointly developed by SDRC and Control Data, can be joined to SAP R/3.

Installing PDM takes planning and patience. AT&T-Lucent's Shreveport plant immediately faced the dilemma of what to do with "legacy" data--reams of existing drawings and schematics. One option was to scan all that information into the system, but scanned documents cannot be manipulated digitally, which is the main advantage of PDM. Eventually Shreveport went back to its original CAD files and manually loaded them one by one into the system. This is a labor-intensive job, but it's worth it. One big plus: It gives designers instant electronic access to parts used in earlier business telephones that might work in new ones.

The cultural change, even more wrenching, consumes about 80% of the time it takes to put in PDM. "We wanted PDM to make information visible across the company," says Lucent's Gower. "Engineers didn't particularly like that. They didn't want people in manufacturing to see their designs early, because manufacturing could say that was not going to work. People in manufacturing, on the other hand, kept insisting that if people in the labs designed things right to start with, there would be no need to change the system." Gower recalls an engineer who claimed that never making mistakes was his No. 1 strength and that PDM would remove his ability to make such a boast.

But once PDM is running, resistance melts, especially when designers and engineers no longer have to ransack files for drawings. W.E. "Bill" Harrington, a member of the IBM consulting group that helps both IBM and outside clients with PDM installation, tells about a conversation he had with an aerospace engineer. "I asked him, 'What are you going to do with the additional time?' The guy said: 'Wait a minute. Don't go too far with that line of thinking. Gathering this data, going and looking at each person's desk, is a kind of migraine headache. PDM is increasing the fun part of my job and taking away the migraine headache.'" And helping the company conquer.

REPORTER ASSOCIATE Tricia Welsh