Master Thesis Kristiaan Wools Embedding platforms and modular product architectures

(1)

Embedding platforms and

modular product architectures

(2)

(3)

II

Master Thesis

University of Groningen

Faculty of Management and Organization

Technology Management

Author:

Kristiaan Wools

Student Number:

1275011

Company:

Company X

Primary Supervisor:

Dr. Ir. I. ten Have

Secondary Supervisor:

Prof. Dr. Ir. J. Slomp

Company Supervisors:

Ing. J. de Jong

Drs. Ing. B. ter Hedde

(4)

(5)

IV

PREFACE

This report is the result of my graduation assignment, which I carried out during the last months of my study Technology Management, at the University of Groningen. The research was conducted as part of an internship placement at Company X. Most of the research was conducted at the location in Hengelo, the Netherlands.

My gratitude goes out to my supervisors at the University of Groningen, Ingrid ten Have and Jannes Slomp, for their support, guidance, critical remarks, time and effort during my graduation period.

At Company X I would like to thank first of all Bert ter Hedde and Johan de Jong for guidance, comments and support during my research. Besides, I want to express gratitude to the interviewed managers and to Ronnie Damink and the project team for their input in the research. I also want to thank my colleagues at the Engineering department for a pleasant working environment.

Last but not least I want to thank my family and friends for supporting me during my entire study period.

Kristiaan Wools February 2008

(6)

V

MANAGEMENT SUMMARY

This thesis report is the result of the research of product platforms and modular product architectures at the Medium Voltage Switchgear (MVS) product line of Company X. The MVS product line is facing high product cost of their medium voltage switchgear. Besides that, the current MVS offering has a small customer base (mainly the Dutch utility market). This results in vulnerability if one of these customers decides to choose a second supplier or turn away from the products. The upcoming liberalization of the utility market results in takeovers of current customers. This will have an effect of the current position of MVS in its home market, because competitors are starting a competition based on price. Another reason is that the general price level in growth markets is much lower which will have an effect on the return on sales.

During preliminary research and semi-structured interviews, the main causes for high product cost are reinventing the wheel (developing solutions for new product, often not looking at already existing solutions), overdesign (in relation to customer needs), no carryover, delay of time-to-market and integral designed products. Literature research provided the use of product platforms and modular product architecture as the way to solve the problems. The underlying logic of product platform and modular product architectures is that modules, interfaces and standards of the product architecture have to be defined to allow efficient use of product platforms. Taking the empirical evidence into consideration the following research objective is derived:

The objective of this research is to advice the Medium Voltage Switchgear (MVS) product line of Company X on product platform and modular product architectures issues for new to be developed products in order to reduce the product cost. The advice should take Company X’s business system into account.

Opportunities for improvement

From the analyses of the current situation of Company X’s planning process it can be concluded that a platform planning is missing. Regarding the new product development process of Company X it can be stated that that Company X’s product development system does not have an activity output in which the product architecture, and so the modules can be selected from the technical solution.

Improvement proposals

(7)

VI

line within a platform matrix. Potential platforms that follow from the platform matrix should be analyzed based on costs and revenues and vectors of differentiation. The last part of the platform plan is developing the platform integration schedule and platform roadmaps.

To comply with Company X’s business system and Company X’s product development system, the Modular Function Deployment (with a contribution of the Design Structure Matrix) is chosen to embed modular product architectures in the new product development. Although Company X’s product development system fulfills the first two steps of the method, it can be concluded that Company X’s product development system does not have an activity output in which the product architecture, and so the modules can be selected from the technical solution. This resulted in adding the activity output ‘system architecture’ into the phase 1 and phase 2 of Company X’s product development system. The activity output specifies the strategic (using the Module Indication Matrix) and functional (using the Design Structure Matrix) reasons for modularizing the concept.

(8)

VII

CHAPTER 1 INTRODUCTION

The chapter starts in the first paragraph with discussing the company profile of Company X. The second paragraph will discuss Company X’s Business System and two parts of the Company X’s business system, Company X’s product development system and the planning process, which are central in the research.

1.1 Company profile

Company X is a business unit of Company X European Operations. Company X European Operations is a geographical differentiation unit of the Company X Group. The Company X Group is one of the four main divisions of the Company X Corporation. In the following paragraphs Company X Corporation, Company X Group, Company X European Operation and Company X will be discussed.

1.1.1. Company X Corporation

Company X is a premier diversified industrial manufacturer with global leadership in electrical systems and components for power quality, distribution, and control; fluid power systems and services for industrial, mobile and aircraft equipment; intelligent truck drive train systems for safety and fuel economy; and automotive engine air management systems, power train solutions and specialty controls for performance, fuel economy and safety. In 2007, Company X generated sales of $ 13.0 billion USD (2006: 12,4 billion USD) in 125 countries and employed 64,000 people. Company X Corporation is diversified in four divisions:

Figure 1.1.1: Company X Corporation Division overview

The strategy of Company X Corporation comprises of the following elements:  Vision – Being the most admired company in our markets.

 Goals – Achieving top priority goals of profitability and growth.  Mission – Being our customers’ best supplier.

 Values – Making our customers the focus of everything we do.

 Company X Philosophy – Delivering superior performance in support of our customers.  Global ethics – Abiding by the fundamental principles of ethical behavior.

 Corporate Quality Policy– Meeting or exceeding customer expectations through continuous improvement.

 Company X policies – Providing the framework within which Company X conducts its business practices around the world.

(11)

2

Vision: “Being the most admired company in our markets” – Company X compares itself and has the objective to become ‘premier’ within a group of top diversified industrial corporations such as General Electric, Honeywell, Siemens, and United Technologies. In line with this, the vision of Company X is to be the most admired company in her markets. Company X has the objective that customers, employees, and shareholders measure this vision.

Mission: “Being our customers’ best supplier” – Company X’s mission is to be her customers’ best supplier, providing distinctive and highly valued products, services, and solutions. A phrase in Company X’s mission is “in order to be our customers’ best supplier, we must truly understand them and create offerings that meet their needs”.

Goals – Company X defined the following top priority goals of annual profitability and growth:  15% Income Growth – “Charting our path to profitability.”

 15% Return on Invested Capital – “Proving we invest wisely.”  10% Sales Growth – “Growing the right way.”

 13% EBIT Margin – “Making more profit, efficiently.”

 9% Free Cash Flow as a Percent of Sales – “Freeing up cash to grow faster.”

1.1.2. Company X Electrical Group

Company X's Electrical business is a global leader in electrical control, power distribution, and industrial automation products and services. The Company X Business Group headquarters is located in Pittsburg, PA. Company X has over 17.000 employees and some forty factories all over the world.

The Company X Group is a divided with the product groups and geographical operations as differentiations. First, the product divisions are historically US based and are not extended in to the acquired businesses:

PCSB (Power Components and Systems Business) PQCB (Power Quality and Control Business)

ECD (Electrical Components Division)  RPD (Residential Products Division) EAD (Electrical Assemblies Division)  ICD (Industrial Controls Division) EES&S (Company X Service & Systems) LSUD (Large/Small UPS service Division)

TSD (Telecom Service Division) Besides the differentiation on products, the Company X Group is also divided into four geographical operations:

Figure 1.1.3: Company X Division overview

(12)

3

1.1.3. European Operations (EO) of Company X

The Company X Group of the European Operations is divided into six product lines, namely:

Residential Light Commercial: United Kingdom, Middle East, and African Markets (RLCU) – This product line consists of all standard products manufactured according to the British specifications and predominantly sold within the United Kingdom, Middle East, and Africa.

Residential Light Commercial: Mainland Europe (RLCE) – This product line manages the standard products manufactured to the European specifications and mainly in the Netherlands.

Original Equipment Manufacturing Business Group (OBG) – The OEM Business Group manages the Low Voltage Devices product line, Low Voltage OEM assemblies, OEM Customer Service, and OEM Key Account Sales.

Low Voltage Systems (LVS) – The Low Voltage Systems group manages the low voltage switchgear, motor control centers, and busbar trunking systems. The group primarily focuses on both the contractor and end user markets.

Medium Voltage Systems (MVS) – The Medium Voltage Systems product line manages the medium voltage switchgear, like ring main units and a variety of types of switchgears up to 24kV. Company X Service & Systems (EES&S) – The Service product line installs systems and platforms at location. Moreover, it provides maintenance, upgrades, and inspection to installed systems for customers.

The European Operations (EO) has several production plants across Europe. Plants are situated in the Netherlands (Company X in Hengelo), Belgium (Brussels), Denmark (Vejle and Glostrup), and the United Kingdom (Birmingham, Holyhead, and Middleton). Market focus is on the EMEA region (Europe, Middle East and Asia) with the home countries as core markets (dark blue) and light blue and green markets as focus for new growth opportunities (See figure 1.1.4).

Figure 1.1.4: EMEA Market focus

(13)

4

functional managers. The other hierarchy is the executive or operational one. In the Company X case this is product line focused (mentioned above) or operationally linked to the location manager, also known as the plant manager. An overview of the matrix organization is given in Appendix I.

1.1.4. Company X

Company X, with about 1,000 employees, is located in Hengelo and is active in the electrical power distribution industry since 1907. The company develops, produces, and sells products for switching, distribution, and protection of electrical energy in power utility networks at low voltage (up to 1,000V) and medium voltage level (up to 50,000V).

Company X is an important partner for the distribution of utility companies in maintaining the high level of safety and reliability of the power supply. Furthermore, the company delivers installations for residential applications as well as products and services for the industry. Company X constructs products for applications in different markets, like residential housing, commercial buildings, machinery builders, industrial plants and utilities. Company X consists of five product lines: Medium Voltage Systems (MVS), Low Voltage Systems LVS), Low Voltage Components, Service and General Supplies. The Medium and Low Voltage Systems assemble products. Low Voltage Components and General Supplies are the departments that produce the components for the assembly lines of LVS and MVS. The department Service deals with the after sales service.

In addition to the strategy of Company X, the European Operations of Company X developed an aligned vision and goals:

Vision: The vision of European Operations – including Company X – is “earning admiration through speed and solutions for profitable growth”.

Goals – The key elements in the vision are admiration, solutions, growth, profit, and speed. At plant level, Company X has set strategic goals to strengthen itself on those key elements:

 Goals for growth expressed as target annual sales up to 2012.

 Customer Intimacy expressed as a percentage On Time Performance (OTP).  Profitability expressed as percentage of sales and targets for reduction of stocks.  Operational Excellence goals on Company X Business Excellence scores.

 Organizational Capability expressed as number of training hours and employee engagement scores.

1.2. Company X Business System

(14)

5

objectives. The most effective approaches are evaluated and selected as best practices and re-deployed throughout the company to harness the power of ‘One-Company X’.

Figure 1.2.1: Company X’s Business System at Glance

Company X’s Business System is comprised of the following elements (further explanation can be found in Appendix II):

Foundation – The foundation of the Company X Business System consists of common vision, mission, business systems, and core values. All these parts together present a widespread foundation for all Company X divisions in the world.

Planning – With a standardized approach towards strategic planning, profit planning, and Organizational Capability Planning (OCA), Company X wants to accomplish leaders across the company to focus on positioning their business and functions to: achieve premier performance, identify opportunities that will reshape Company X, mobilize faster to capitalize on opportunities, and develop the talent and skills of their employees.

Growth – Company X has established a growth model that consists of three elements: market growth, market outgrowth, and acquisitions. These elements together establish a solid foundation for future success at all levels of the corporation.

Operational Excellence – Operational Excellence (OE) represents the tools and processes to drive performance excellence. Global competitive pressures demand that Company X achieves operational excellence. Global customer requirements demand perfect performance. To be able to compete against these pressures and to satisfy the demands, Company X has internalized seven tools for OE: Company X’s product development system, Company X Lean System/Six Sigma, Supply Chain Management, Company X Quality System Environment, Health & Safety and Fixed Capital Optimization.

(15)

6

represented in Functional Excellence provide critical support, making it possible to break free the time to implement the high performance tools of Operational Excellence and accelerate on a continues path of growth. Leveraging the specialized expertise represented in Functional Excellence, results in stopping inefficient replication of processes and focus on breakthrough innovation, customer satisfaction, and growth.

Assessment – Company X incorporates several assessment tools in order to measure and evaluate its current business. Targets are set at different levels in the organization, from individual employee up to business unit level.

Learning – One of the concepts expressed in the Company X Philosophy is the idea that the contribution to Company X’s business goals means accepting the challenge of lifelong learning

1.2.1. Company X’s product development system

Company X’s product development system is a project management system that supports project teams throughout all phases of a project and is an important part of the Company X’s Business System (Operational Excellence) within the scope of this research. With quality control checkpoints and decision points at strategic intervals throughout a project, Company X’s product development system reduces risk of project failure and ensures effective communication and coordination among project team members, project stakeholders and Company X leadership. Through four inter-related components (Phases and Gates; Project Management; Design for Six Sigma; and Portfolio Management) Company X’s product development system gives project teams templates, tools and structure. Further explanation of Company X’s product development system will be described in chapter 9.

1.2.2. Planning

The planning element of Company X’s business system is a standardized approach towards strategic planning, profit planning, and Organizational Capability Planning (OCA). The strategic plan establishes goals and strategies for achieving profitability, productivity and competitive advantage and aligns organizational competencies, assets and resources to achieve them. The profit plan identifies and quantifies resources and actions required to achieve goals and strategies detailed in the strategic plan. The last part of planning is the Organizational Capability Assessment (OCA). The OCA drives a high-performance culture by identifying and developing a diverse, strong and talented workforce. The planning process will be further discussed in chapter 7.

1.3. Report overview

(16)

7

Part 1: Preliminary research & Research approach

CHAPTER 2 PRELIMINARY RESEARCH

The preliminary research is divided in to four parts: situation, predefined problems, internal analysis and preliminary conclusions that can be derived from this preliminary research.

2.1 Situation

Within the MVS Product Line Company X currently produces and sells different products. The different products of Company X are grouped within three product families; Primary Switchgear, Secondary Switchgear and Ring Main Unit (RMU).

Within MVS the difference in ring main unit, secondary switchgear and primary switchgear is made on basis of the application of the product. In general RMU’s and secondary switchgear are used for switching, protection, metering and distribution of electrical energy. Primary switchgear adds motor starters and contactor panels to that.

RMU’s are used in ring networks, therefore mostly applied by utility customers, (major) industries with own rings and infrastructure like subways. RMU’s are basic in their design; there is a limited number of panels and limited number of low voltage equipment.

Secondary switchgear is mostly applied above the RMU in the ring, or sometimes as extendible RMU. This application is most common in utilities and industries with own networks. Also secondary switchgear is applied in industry, infrastructure and when there is a demand for specific panel sequence and or specific low voltage equipment. The modularity and flexibility in panel sequence is an advantage. Although secondary switchgear can be withdrawable, in most applications fixed design is sufficient. Secondary switchgear is 3,3kV up to 36kV, maximum of 1250A.

(17)

8

Figure 2.1.3: Planning Process of EO MVS product line

2.2 Predefined problems

The predefined problems explain the need for the research. The need is caused by internally and externally influenced factors to the organization. The main predefined problem is that the product cost is too high. Internal influences can be the organizational structure, strategy, product portfolio or production processes that need to be adjusted. External influences can be a change in the behavior customers, competition, government or international standards.

Internally influenced factors

Firstly the current portfolio of the MVS product line is partly going to be replaced by new-to-be-developed products.

x

External influenced factors

The current MVS offering has a small customer base (Hamer, 2007). The main customer of the MVS product line is the Dutch utility market. This results in vulnerability if one of these customers is deciding to choose a second supplier or turn away from the products. The upcoming liberalization of the utility market results in takeovers of current customers (Nuon, Essent, and Eneco) by the utilities biggest players in Europe (EDF in France, Eon and RWE in Germany and Endesa in Spain). This which will have an effect on the current position of MVS in its home market, because competitors are starting competition based on price (Hamer, 2007).

2.3 Internal analysis

In order to clarify the problems, semi-structured interviews were held with Company X’s managers (Appendix IV). The interviews provided causes for the problems and solutions how to answer the need to lower the products costs. The following conclusions can be deducted from the interviews:

 According to the managers, the functions of the products within the MVS product line are more or less the same. In the new product development process, R&D develops new solutions for every problem, often not looking at already existing solutions. A synonym for this is Reinventing the wheel.

New Product Development

New Product Development Product Line Roadmap

Product Line Strategy

New (parts of a) Product New Product Line Portfolio

Product Line Performance

Leads to

(18)

9

 Overdesign is the next problem. Developed products are often overdesigned in relation to customer needs. A recurring quote that came up during the interviews was ‘Company X delivers the Rolls-Royce in the MVS market’. This overdesign is not always a value adding activity that customers are willing to pay for.

 A problem that is related to the first one is the amount of carry over. A carry over is a part of product or a sub-system of a product that can be re-used (carried over) from an earlier generation of a product to a new generation or from one product family to another. Except for bolts and nuts Company X currently doesn’t use the same parts/modules within the MVS systems. New solutions that come from the NPD process often lead to a fulfillment of the external requirements, but the internal alignment is often overlooked. The problem is not that the NPD process delivers products that don’t comply with the customer requirements, but major opportunities lie within the re-use of components.  Another problem is the delay of the time-to-market of R&D projects. According to a

manager, the current average duration of all projects within the R&D Department is x times the planned time. Consequently, this results in higher development costs and which will affect the final product cost of R&D projects.

 Analysis of the current product portfolio and interviews revealed that products are often integral designed. An integral design consists of components that perform many functions, are in close spatial relationship to each other and are highly synchronized. Normally, a change made to one component requires a change to other components for a correct functioning of the total product. According to managers the main reason is that the new product development process, doesn’t contain rules and information regarding the product architecture. A negative implication that has to do with the integral design is the bid-manager (a product configuration tool for Sales, R&D etc). Bid-manager requires flexibility in the production process and a clear overview of the product structure. The use of a clear product architecture helps to structure the bid-manager program and gives a better overview for Marketing, Sales and Production. Next to that, Company X is following a satellite concept. This means products or parts of products should be produced and developed in other countries in the future. An integral design makes it hard to decouple parts of a product to be produced or developed in other countries.

2.4 Preliminary conclusions

(19)

10

CHAPTER 3 RESEARCH APPROACH

This chapter presents the methodology of the research in a structured way. The first paragraph describes the research motivation. In the second paragraph the research objective in formulated. The problem statement derived from the research objective is presented in paragraph three. Finally, the research design and research method are elaborated in paragraph four.

3.1 Research motivation

Technology advantages, increased competitive pressure, globalization of markets, changing customer needs and shorter product life cycles create constant change in today’s business markets (Cooper, 2004). In recent years, companies have made significant investments in optimizing product development and manufacturing operating processes in pursuit of economic value. Unfortunately, many of those same companies have missed the opportunity to tune their product’s architecture to align their business objectives. In fact, most companies have not made the realization that a product’s architecture can determine the fundamental economics of the product as well as company results (Reinertsen, 1997).

Problems

Problems mentioned in Chapter 2, are all related to product cost. The main causes are reinventing the wheel, overdesign, no carryover, delay of time-to-market and integral designed products. The chapter ends with the conclusion that the MVS product line of the Company X has to introduce a product platform and embed modular product architectures in the organization. Looking at the portfolio management process mentioned in paragraph 2.1, the two main variables that can be influenced are the NPD process and Product Line planning.

3.2 Research objective

Taking the empirical evidence stated above into consideration the following research objective can be derived:

Textbox 3.2.1 Research objective

Definitions:

Modular product architecture: The product architecture decomposes a product's overall functionalities into a product design composed of functional components and component interface specifications that define how those components interact in the product design (Ulrich & Eppinger, 1995).In a modular product architecture, components are interchangeable, autonomous, loosely coupled, individually upgradeable and interface are standardized (Fine, 1998)

(20)

11

Product platform: a product platform is a set of subsystems and interfaces intentionally planned and developed to form a common structure from which a stream of derivative products can be efficiently developed and produced (Muffatto & Roveda, 1999).

Product cost: The product cost are all costs associated with a specific quantity of the production of a good or service (Fuchs & Van Vlimmeren, 2005).

Company X’s Business System: Company X’s framework for managing Company X’s worldwide operations as one integrated operating company by providing a common philosophy set of values, management tools, and measures.

3.3 Problem statement

The following problem statement can be derived from the research objective:

Textbox 3.3.1 Problem statement

In order to answer the problem statement it is subdivided into examinable research questions. The research questions are further explained in the following paragraph.

1. What are reasons to embed product platform and product architecture in an organization? 2. What is the effect of product platforms and product architectures on product cost?

3. How should product platform be stated in an organization?

4. How does the planning process of Company X MVS product line looks like? 5. How should product platform be introduced in the Company X MVS product line? 6. How should modular product architecture be embedded in an NPD process? 7. What does the New Product Development Process of Company X look like?

8. How should modular product architectures be embedded in the Company X ’s NPD process? 9. How should product platforms and modular product architectures be implemented within the

Company X MVS product line?

(21)

12

3.4 Research design

In this paragraph the design of the research is elaborated. First, the research approach is described. Second the conceptual model is described together with research questions and the responsible chapters.

The research can be defined as a problem solving research (De Leeuw, 2003). The research has the intention to deliver knowledge that is applicable in a particular situation of a particular company in practice, and to use this knowledge to resolve the predefined problems. The research is divided into three main phases. The first phase of this thesis is the diagnostic phase, which can be divided into two parts: a diagnostic scan (problem analysis and conceptual analysis) and a second, more detailed analysis. These phases are combined in chapter 2. The second phase represents a literature review that is done to understand and explain the concepts of the research. During the third phase, solutions are chosen and implemented or recommended. To collect data, desk and field research, as well as primary and secondary data are used for the thesis. Primary data is found using field research and secondary data is gathered via documents on the intranet or previously conducted research. The primary data are more directly related to the purpose of this research and the secondary data will be of complementary nature. To gather primary data semi-structured interviews and observations are used. Semi-structured interviews are the best possible way to gather general information, since with this method it is possible to cover pre-defined topics, without knowing all possible responses in advance. A structured interview would have the risk that the respondents are not able to give all the details they would like to. An unstructured interview carries the risks that important issues are not covered during the interview, or that the conversation will move in the wrong direction (Jankowicz, 2000). There are certain preconditions or boundary conditions of the research to comply. It should be noted that product architecture and product platform are applied because of the problems mentioned in chapter 2. In this thesis, the focus is on the solution rather than the range of problems. The study of product platforms and modular product architectures has effect on the problems, but alternative solutions to the specific problems are not approached. A precondition of Company X MVS is that the research should be aligned with the Company X’s business system (described in paragraph 1.2). To do this part 3 describes the planning process, part 4 describes the implementation in Company X’s product development system and Appendix V describes the link of platforms and modularity with Lean (and so the Company X’s Lean System).

(22)

13 Leads to

Figure 3.4.1: The conceptual model

In order to answer the problem statement, research questions are formulated which will be described below. The research questions are bundled in the different parts to give a better overview in the report.

Part 1: Preliminary research and research approach

Part 1 has described the preliminary research (Chapter 2) and the research approach (Chapter 3).

Part 2: Literature review

1. What are reasons to embed product platform and product architecture in an organization? 2. What is the effect of product platforms and product architectures on product cost?

Many authors of different disciplines in the scientific literature describe different concepts and definitions of product architecture and product platform. In order to start the research a literature review has taken place to understand the principles behind product platforms and product architectures (Chapter 4). These definitions will form the basis of this research. Next, the effects of platforms and product architecture on the product cost are described (Chapter 5).

Part 3: Introducing Product Platform

3. How should product platform be stated in an organization?

4. How does the planning process of Company X MVS product line looks like? 5. How should product platform be introduced in the Company X MVS product line?

The third research question is being researched using a literature review of platform strategy and product platforms (Chapter 6). Research question four will discuss Company X’s annual planning process (Chapter 7). Research question five will discuss a platform plan using the methods of Pittiglio, Rabin, Todd & McGrath (2006) and Mascitelli (2001) in order to embed platforms in Company X’s MVS product line (Chapter 8).

Has influence on Reduce Product Cost

Modular Product Architecture

Function Component Allocation Interfaces Product Platform Platform Roadmap Company X MVS Product Line planning

Product Roadmap

Company X New Product Development

(23)

14

Part 4: Embedding modular product architectures

6. How should modular product architecture be embedded in an NPD process? 7. What does the New Product Development Process of Company X look like? 8. How should modular product architectures be embedded in the NPD process?

Part 4 starts with a literature review that has taken place to show the difference in product development management according to architectural approach (Ulrich and Eppinger, 2000). This start is mentioned in research question six (and Chapter 9). Next, the New Product Development process of Company X is discussed (Chapter 10). Research question eight will discuss the embedding of modular product architectures in Company X’s product development system (Chapter 11). The Modular Function Deployment of Erixon & Ericsson and the Design Structure Matrix of Pimmler & Eppinger are used to embed modular product architectures in the NPD process.

Part 5: Implementation in the company

9. How should platform and modular product architectures be implemented within the Company X MVS product line?

The last research question will be about success factors about implementing and governance the product platform and modular product architectures in the organization (Chapter 12)

Part 6: Conclusions & Recommendations

(24)

15

Part 2: Literature review

CHAPTER 4 GENERAL LITERATURE REVIEW

Alignment on a common set of operating definitions is critical, because of a potential lack of a common language between engineering, marketing and product management. This chapter describes the definitions, relation and properties of the concepts used in this research.

4.1 Definitions

Many companies these days are developing product platforms and designing families of products based on platforms to provide sufficient variety for the market while maintaining the necessary economies of scale and scope within their manufacturing and production process (Simpson, 2006). The terms product platforms, families and individual products are hierarchical different and cannot be used as synonyms.

Product platforms

Platform thinking is the process of identifying and exploiting commonalities among a firm’s offerings, target markets, and the processes for creating and delivering offerings (Halman et al. 2003). A product platform can be defined as:

 “a set of subsystems and interfaces that form a common structure from which a stream of derivative products can be efficiently developed and produced” (Sawhney, 1998).

 "a set of common components, modules, or parts from which a stream of derivative products can be efficiently developed and launched" (Meyer & Lehnerd, 1997, p. 7)  "a collection of the common elements, especially the underlying core technology,

implemented across a range of products" (McGrath, 1995, p. 39)

 "the collection of assets [i.e., components, processes, knowledge, people and relationships+ that are shared by a set of products” (Robertsen & Ulrich, 1998, p.20) Muffatto and Roveda (1999) collected the different streams of product platform definitions and summarized all the constituting elements in the following definition: a product platform is a set of subsystems and interfaces intentionally planned and developed to form a common structure from which a stream of derivative products can be efficiently developed and produced.

Product family

A product family is the stream of derivative products derived from the platform or the collection of products that share the same assets. Possibilities to define a product family are product platform, process platform, customer platform, brand platform and global platform (Halman, Hofer & van Vuuren, 2003).

The main requirements for building a product family based on a product platform are A certain degree of modularity to allow for the decoupling of elements and

(25)

16

Product architecture

The concept of product architecture was first introduced by Abernathy and Utterback in 1975 and successfully adopted by lots of other researchers (Erixon, 1998; Ulrich, 1995; Baldwin & Clark, 1997). According to Fixson (2005), product architecture can be nominally defined as a comprehensive description of a bundle of product characteristics, including number and type of components, and number and type of interfaces between those components, and, as such, represents the fundamental structure of the product. Ulrich defines the product architecture as “the scheme by which the function of a product is allocated to physical components” (Ulrich, 1995). Consistent with Ulrich and Eppinger (2004), the product architecture serves the purpose of defining “… the basic physical building blocks of the product in terms of what they do and what their interfaces are to the rest of the device”. Complex mechanical and electromechanical products, usually consist of a substantial number of components, the product architecture then encompasses the information on how many components the product consist of, how these components work together, how they are built and assembled, how they are used, and how they are dissembled.

4.2 Product Platforms

A platform is the common basis of all individual products within a product family. In the beginning this concept was centered on the automotive industry, where a platform, beyond being a fundamental part of the structural frame of the car, is the part of a product that is shared between different models of a unique family. Examples of these platforms are the floor group, drive unit, part of the cockpit, axles, suspension and fuel tank (Wilhelm, 1997).The principle behind the platform concept is to balance the commonality potential and differentiation needs within a product family. A basic requirement therefore is the decoupling of elements to achieve the separation of common (platform) elements from differentiating (nonplatform) elements (Halman et al. 2003). Baldwin and Clark (2000) define three aspects of the underlying logic of a product platform:

(1) Its modular architecture

(2) The interfaces (the scheme by which the modules interact and communicate) (3) The standards (the design rules that the modules conform to)

(26)

17

designed according to the strongest requirements. This can lead to overdesign of the specific module and lead to extra initial costs (Krishan & Gupta, 2001). An eventual drawback can be that the products within the family have too much similarity (Baldwin & Clark, 2000).

Leveraging

The focus of a platform is how to derive value from leverage (Pittiglio, 2006). Leverage comes in several forms. First is Cost Leverage, which is characterized by several qualities. It involves the reuse of product technology across product lines (which includes similar parts, processes, materials, interfaces, and subsystems), the identification of commonality between product lines to enable platform building blocks and use of platform building blocks to reduce the cost of development, manufacture and service. Market Leverage is the second major form of leverage. It includes reuse of product technology across market or market segment boundaries, a focus on commonalities in customer needs across markets, and development of flexible/modular systems to accelerate time-to-market.

Commonality vs. distinctiveness

Achieving leverage in Platform Planning is the artful balance between commonality and distinctiveness. Conditions in which platform leverage is difficult to attain are new and undefined markets where specific customer requirements are being satisfied for the first time. In mature markets, platform leverage is more achievable given a known set of customer segments, customer requirements, and track record of product performance. It is in this environment that effective leverage can spawn a whole new category of product without dramatically increasing development cost.

4.3 Product architecture

Ulrich defines the product architecture as “the scheme by which the function of a product is allocated to physical components” (Ulrich, 1995). The functional elements of a product are the individual operations and transformations that contribute to the overall performance of the product. The functional elements are sometimes called functional requirements or function-structure. Ulrich (1995) calls the function-structure the arrangement of functional elements and their interconnections. An example of a function-structure of a trailer can be seen in figure 4.3.1.

(27)

18

The physical elements of a product are the parts, components, and subassemblies that ultimately implement the product’s functions. The physical elements of a product are typically organized into several major physical building blocks, which we call chunks. Each chunk is then made up of a collection of components that implement the functions of the product. The architecture of a product is the scheme by which the functional elements of the product are arranged into physical chunks and by which the chunks interact (Ulrich & Eppinger, 2004).

Two main product architecture dimensions are the function-component allocation (FCA) and interfaces (Ulrich & Eppinger, 2004; Fixson, 2005).

4.3.1 Function-Component allocation (FCA)

The function-component allocation (FCA) is concerned with the extent to which a product’s functions are allocated to physical components. It measures for each function (on the selected architecture level) the degree of function-component allocation. More specifically, each function is assigned to components that determine its position relative to the extremes of 1-to-1 and many-to many relationships between functions and components. A 1-to-1 measurement indicates a situation in which the function under consideration is provided exclusively by one component, and this component provides exclusively this function only. This style of FCA is called modular-like. Erixon (1998) defines a module as the breakdown of a product into building blocks (modules) with defined interfaces, driven by company specific reasons. In other words, modules are units in a larger system where they are structurally independent of one another, but work together. A few-to-many measurement indicates a situation in which a function is provided by many components (an integral-fragmented style). A many-to-few measurement denotes an integral-consolidated style where one component provides multiple functions. Finally, a many-to-many measurement represents an integral-complex FCA style. It is important to take the FCA measure for each product function individually because the reuse of a component across a product family depends to a large degree on the role a component can play in different products (Fixson, 2006). Ulrich (1995) and Fixson (2005) illustrate the difference between integral and modular product architectures with the comparison of two trailers (Figure 4.3.2 (top)). The both trailers provide the same functionality. However, they exhibit very different product architectures. Figure 4.3.2 (bottom) shows two different patterns of how each component provides one or more functions. The lines between the functions and the components show the interfaces.

(28)

19

4.3.2 Interfaces

Interfaces or interactions are multidimensional and are concerned with three characteristics of the interfaces that connect the components. The first characteristic, interface intensity, describes in detail the role each interface plays for the product function. Interfaces can be spatial, or they can transmit material, energy, or signals or any combination of the above (Pimmler & Eppinger, 1994). The second characteristic, interface reversibility, describes the effort it requires to disconnect the interface. This effort depends on two factors: the difficulty to physically disconnect the interface, and the interface’s position in the overall product architecture. Finally, the third characteristic, interface standardization, depends both on product features as well as the population of alternatives (Fixson, 2006).

4.4 Modular vs. integral product architecture

As indicated by Fine (1998), an integral product includes components that perform many functions, are in close proximity or close spatial relationship to each other and are highly synchronized. Normally, a change made to one component requires a change to other components for a correct functioning of the total product. In contrast, in a modular product architecture components are interchangeable, autonomous, loosely coupled, individually upgradeable and interfaces are standardized. In order determine the extent to which a product architecture is modular, or non-modular is information that is required for each function and attribute individually. Fixson (2005) described three steps to turn the function-component relationship into a design parameter. The method is explained in Appendix VI using the example of the two trailers of Figure 4.3.2.

Perhaps the most important characteristic of a product’s architecture is its modularity (Ulrich & Eppinger, 2004). A modular architecture has the following two properties:

- Chunks implements one or a few functional elements in their entirety.

- The interactions between chunks are well defined and are generally fundamental to the primary functions of the product.

The opposite of a modular architecture is an integral architecture. An integral architecture exhibits one or more of the following properties (Ulrich & Eppinger, 2004):

- Functional elements of the product are implemented using more than one chunk. - A single chunk implements many functional elements.

- The interactions between chunks are ill defined and may be incidental to the primary functions of the products.

Looking at the properties above, Ulrich and Eppinger (2004) state that products are rarely strictly modular or integral. Rather, the product exhibits either more or less modularity than a comparative product.

(29)

20

4.4.1 Properties of modular product architectures

Advantages

Greater variety and flexibility

Increased product variants

Increased product variants can be offered easier without adding a lot of complexity to the production process. Easier product change can lead to better market segmentation and switching among product variations improves management of demand cycles and uncertainty. There is also a better translation of market needs into technical solutions (more variety) and that will have an effect perceived quality by the customer.

Strategic flexibility

Modular product architectures enhance an organization to quickly react to market changes, market uncertainty and changed technology using quick changes of only component or module and creation of product variants based on the combinations of new or current modules.

Mass customization

Many authors state that modularity is an enabler to achieve low cost mass customization. Mass customization is a strategy that helps customizing a large variety of high demand products using the development and design of modules of components. It allows the organization to play with combinations of groups of combinations of groups of components to develop and customize a larger quantity of products.

Enabler of platforms

Modular product architectures are the basis of platforms and product families on basis of platforms. Baldwin and Clark (2000) define modular product architecture as one of the three aspects of the underlying logic of product platforms.

Reduction of costs, complexity and risk

Economies of scale

Modules can be used in different product within the product family. The standardization of components will lead to economies of scale in component commonality. This can result in lower cost due to learning curves and a better organization of the production process.

Improved serviceability

Modular systems which require maintenance or repair can be replaced or repaired easier due to the decoupling of modular product architectures. Components or modules can be repaired separately and on another location easily. Besides that it can be replaced direct due to clear and standardized interfaces.

Separate testing

(30)

21 Outsourcing

Subcontracting/outsourcing for component development allows access to component development capabilities in other firms resulting in more variety enhancing and high-performing components which reduces initial investment in development and reduces technical and management resources. Another advantage relating outsourcing is the increasing buyer power for common components that can lead to lower purchase costs.

Shorter Time to market

On time performance

Using modules can also have an effect on the speed in the production process by faster assembly and less throughput time due to the assembly of complete modules. Besides that, the delivery performance can be improved through the postponement of operations of differentiation which can lead to a fast reaction of the market.

Simplified upgrading

The use of modules leads to a shorter product life cycle and better fulfillment of customer needs through incremental improvements such as upgrades, add-ons or adaption. Improved products can be brought to market quickly by substituting components. Besides that, because a module is decoupled from the rest of the product it can be upgraded easier and can be incrementally improved.

Development

Modules enhance a greater speed in developing new products by parallel development and the reuse of modules. Module task specialization in production, engineering and development will result in more technical learning and innovation facilitations due to decoupling of components. The can lead to more reliability of product and system due to a higher production volume. The time-to-market of new product development can be also reduced due submitting the modules to the specific teams which, due to early specification of interfaces, can than separately design, built and test the module.

Drawbacks

Product development

Product modularization gives a lot of benefits to a manufacturing company. However, the modularization process is not a simple task, because the designers of a modular system must know a great deal about the inner workings of the overall product or process in order to develop the visible design rules necessary to make the modules function as a whole ( Baldwin and Clark, 2000). Because interfaces should be specified early in the process, mistakes of the specifications, interfaces and performance goals of the modules can only surface at the moment when the modules are integrated.

Imitation

(31)

22 Unnecessary size and mass

Modular architectures share fewer functions, which can lead to unnecessary physical architectures and that can lead to an increase of size and mass of a product (Ulrich & Eppinger, 2004).

Costs

The development of a good and solid architecture can take extra effort in order to make the architecture good and solid enough to use it in several products. The management and determining interfaces and FCA can take effort, which will lead to extra costs.

Module Drivers

Erixon (1998) identified twelve driving forces for modularization within the product that cover the entire product life cycle. Several authors (Ulrich, 1995; Ulrich and Eppinger, 2004; Sanchez, 1999) also list a range of reasons for the grouping of technical solutions or parts to modules, the module drivers. Blackenfelt (2001) summarized these module drivers in the next table.

Module Driver Explanation (Group elements because...)

Commonality …they will be common across the products. Variety …they will vary across the products.

Internal planned changes

…they are all planned to be redesigned during the period. Externally driven

change

…they all will be redesigned during the period due to externally controlled changes.

Carry over …they all will stay the same over a period.

Concentration of risk …they all are affected by risky development and in case it fails, the existing module may be used.

upgradability …upgrading should be facilitated with them as one module when new elements are developed.

Addability …add-on should be facilitated with them as one module to ensure that the system may be extended.

Reconfigurability …reconfiguration should be facilitated with them as one module to ensure that modules may be exchanged or moved within the system. Separate development …it is beneficial if they may be developed by one team separate from

other teams by ensuring little need for information exchange.

Parallel development …it is beneficial if they, as one module, may be developed concurrently with other modules

Incremental development

…it is beneficial if modules may be redesigned and released one at a time.

Pre-assembly …they should be assembled before final assembly, in parallel with the assembly of other modules.

Separate testing …they should be tested together before final assembly.

Late differentiation …they all may be used to differentiate the products late in the process. Out-sourcing …they all should be bought by one supplier.

In-sourcing …they all should be developed and/or manufactured in house. Repair …they all should be repaired together as a module.

Replenishment …they all should be replenished together as a module. Component reuse …they all should be re-used together in a later product.

Material recycling …they are all of similar material, which is to be recycled after use. Incineration …they all will be incinerated in the same process after use. Landfill …they all will be used as landfill.

(32)

23

4.4.2 Properties of integral product architectures

Jose and Tellenaere (2004) give an overview of the trade-offs between modular product design and integral product design. The benefits of integral design are: interactive learning, high levels of performance through special technologies, systematic innovation, superior access to information, protection of innovation from imitation, high entry barriers for component and module suppliers and craftsmanship. Ulrich and Eppinger (2004) state that an integral architecture can be a better solution: The first reason is that an integral architecture can initiate that a holistic design optimizes the performance characteristics. Secondly, because of the product architectures that are driven by size, shape and mass of a product.

4.5 Concluding remarks

Alignment on a common set of operating definitions is critical, because of a potential lack of a common language between engineering, marketing and product management.

Three aspects of the underlying logic of a product platform are its modular architecture, the interfaces and the standards. By sharing components and production processes across a platform of products, companies can develop differentiated products efficiently, increase the flexibility and responsiveness of their manufacturing processes, and take market share away from competitors that develop only one product at a time. Other benefits include reduced development time and system complexity, reduced development and production costs, and improved ability to upgrade products. Platforms also promote better learning across products and can reduce testing and certification of complex products. A product platform can also facilitate customization by enabling a variety of products to be quickly and easily developed to satisfy the needs and requirements of distinct market niches.

The advantages of modular product architecture are:

 Greater variety and flexibility, because of increased product variants, it enables platforms and the possibility of strategic flexibility and mass customization.

 Reduction of costs, complexity and risk, because of economies of scale, improved serviceability, separate testing and the possibility of outsourcing.

 Shorter time to market, because of a better on time performance, simplified upgrading and through improvements in the development.

(33)

24

CHAPTER 5 PLATFORM AND PRODUCT ARCHITECTURE EFFECTS ON

COSTS

The following chapter describes the effects of platforms and product architecture on costs. The first paragraph mentions the effect on cost based on the hierarchy level. In the second paragraph the effects on costs based on the product life cycle (PLC) of products are discussed.

5.1 Design hierarchy level

The level of difficulty to establish a link between design decisions and their cost effects depends on the design hierarchy level at which the decisions are made (Fixson, 2006). On a very detailed level, it is fairly straightforward to construct a link between the design decision and its cost implication for two reasons. Firstly because on the detailed level it is often clear on what costs to focus, and secondly because well-known links with historical data often exists. Going higher on the design hierarchy level, the knowledge on cost effect decreases but the potential to influence costs increases. As can be seen in Figure 5.1.1, the product architectures design decisions has a low knowledge on cost effects, but a high potential to influence costs.

Figure 5.1.1: Product architecture decisions in the design hierarchy (source: Fixson, 2006).

5.2 Cost effects within the product life cycle

Every product and system, regardless of size, value and lifetime, progresses through different phases during its life: design and development, production, use, and retirement.

Design and development phase

(34)

25

Development scope refers to a measure of the total amount of work that must be completed in order to develop the members of a given product family. Development scope reduces as commonality between product family members increases. Economies of scale reduce the development effort reached because of the reuse of design solutions across product families. Besides that, the use of modular product architectures implicates decreasing interface intensity and increasing interface standardization which allow work parallelization of the work packages which shortens development and testing time (Baldwin & Clark, 2000).

This development scope reduction may be partially balanced by a penalty that is associated with the development of common components. The penalty may be caused by increased design complexity and to coordination costs.

The use of platforms will increase the design complexity because of the addition of interfaces to a common design, because the designers should take account of different products and interfaces. The extra effort is about the extra time about the decision of the market segments that will be served with this architecture and also about considerations that have to be made to make the modules solid enough to use in several and future products (platforms). Product architecture lowers the design complexity because the FCA and interface intensity determine the number and size of development teams, which affect scope and frequency of communication within and between teams.

Coordination costs arise from the need to agree on a superset of requirements that represents the minimal needs of all products that will share a common component. With respect of product architecture, the FCA and interface intensity determine the number and size of development teams, which affect scope and frequency of communication within and between teams.

Learning represents a third development cost category. Learning reduces the effort associated with repeating similar tasks (Boas, 2008).

The closing remark is that the literature often suggests that a net development cost reduction is expected for the use of platforms. For the most part, it is acknowledged that developing the lead variant (first product and platform) will cost more than the independent alternative because a set of common components is being developed with the intention of future reuse across the members of a product family. Follow-on variants are expected to cost less due to reuse of the common components. With respect to modular product architectures, Blackenfelt (2001) gives a simple overview of the relation of cost to the number of variant order (Figure 5.2.1). When the number of variant orders (and thus time) increases and the modules and architecture is solid, costs will be reduced because less effort is needed to develop future products.

(35)

26

Production phase

Production costs can be broken down into direct and indirect costs. Direct costs include materials and labor. Indirect cost (also referred to as “overhead”) represents those costs that are not directly attributed to materials and labor.

Common materials may impact production costs in several manners. Shared economies of scale result from the combined production rates of simultaneous production of more than one product. The learning benefits are accelerated by increased production numbers and potentially by higher production rates, given overlapping production.

Labor is related to overall task complexity and is typically expected to reduce with increasing cumulative production totals. The labor reduction is the result of learning that occurs through the repetition of the same tasks. With respect to commonality, common components create aggregate demands that drive labor costs down the learning curve at a faster pace and, potentially, to a lower end point.

To understand how product architecture affects material and labor it is helpful to review the basic idea behind design-for-manufacturing (DFM) and design-for-assembly (DFA) guidelines. DFM aims at simplifying manufacturing processes, which results—in addition to lower investment—in reduction of process variability and ultimately in faster process rates and higher yields, and thus lower cost. In contrast, DFA generally emphasizes part count reduction. Part count reduction is generally seen as a cost reduction tool (Galsworth, 1994), the use of only one assembly direction and the preference of symmetrical parts (Boothroyd, et al., 2002).

These findings result in cost curves that increase in opposite directions with respect to the optimal number, and thus complexity, of modules into which a product should be decomposed. The minimum of the sum of the two curves depends on their specific shapes (Figure 5.2.2).

Figure 5.2.2: Manufacturing and assembly cost with respect to number of modules (Blackenfelt, 2001).