Entries by Modular Management

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Johnson Controls Hitachi

CASE

Johnson Controls Hitachi

How Market Segmentation Helps Bridge Strategy and Products

INTERVIEW

Why Market Segmentation?

Rodolphe Jacson shares some thoughts on market segmentation and product planning.

Rodolphe, please introduce yourself

I’m Director of Global Product Management at Johnson Controls Hitachi (JCH), based in Tokyo. 

JCH offers Residential Air Conditioner (RAC), Package Air Conditioning (PAC) for light commercial application and Variable Refrigerant Flow (VRF) systems for commercial buildings. We also supply chillers, compressors and IoT-connected offerings.

The job of my team is to analyse market trends, define product strategy and build product roadmaps in collaboration with our local presence. After building the roadmap, we develop products with cross-functional teams (Engineering, Procurement, Manufacturing and Sales) in order to meet customer, channel and company expectations. The Global Product Development Division is often defined as the engine for growth.

How do you link market needs to product development?

At JCH we collect market trends and customer needs for product development roadmaps. We usually have 3- to 5-year roadmaps, but they’re often much shorter due to innovation and regulatory changes in terms of energy efficiency, refrigerant use and safety.

For example, one hot topic right now is which refrigerant to use. Ongoing policy changes will impact in just a few years, so we have to prepare for different scenarios. This is not like the car industry, where you can have a 5-7-year development platforms. Our business is more dynamic, like TVs and appliances, where something new comes out almost every year.

Our job is to feed market needs into the product vision, position, pricing and specification, not least at kick-offs with engineering teams who’ll develop and deliver the product.

Why did you choose to work with Modular Management?

It basically came as a package, as we’re working to implement modularity in JCH. This whole package, or journey, starts with understanding market requirements and customer needs. Then you move on to Modular Function Deployment (MFD) and the product architecture. 

For me, market segmentation is a very important opportunity, because we can be a bit technology driven. Most of my team started in engineering and moved on to product management, and despite our success, there’s a risk of focusing too much on technology and stacking features on top of each other. You should never lose sight of the end-customer. 

The customer needs to be in the centre of the conversation. You have to ask, “What really matters?” And to be able to do that, you have to clarify your segments and define groups of customers who want to achieve the same outcome.

How did it go?

It went well. 

We started with the customer journey, when people first start thinking about buying air conditioning. We linked the outcomes to what they want, clustered and grouped them, and looked at providing benefits based on what’s important for each group. With trait-based segments you put the same importance on the same set of benefits and look less at others. The same kind of customer has the same kind of view.

We fully implemented this methodology and ended up with six segments. And with these segments we were able to re-evaluate the size of market based on data and statistics from our market intelligence.

What were the main challenges?

The main challenge is to focus on end-user segments and make sure that their needs drive product development and planning. Our business mainly goes through professional channels, but it’s still important for us to focus on the end user. 

For example, take a hotel. 

We sell air conditioners to distributors and contractors, who in turn sell and install them to a hotel chain. We know that for the channel, on-time delivery, easy selection of product, installation and commissioning will be very important. But the hotel owner will be more interested in energy saving, easy operation or the user experience.

MARKET SEGMENTATION AND PRODUCT PLANNING METHOD

What are the main benefits of doing market segmentation?

The main benefit is to structure and clarify which segments we have and how we should address them. 

We also see how segments can exist in all regions. In the past we’ve had a more fractured, regional focus. Customers in one country were considered to have unique needs. This may be true, but that doesn’t mean that one segment can’t exist in another country or region. In fact, although segment size and market value differ, segments themselves probably don’t. 

Take the example of well-planned heavy user, who thinks a lot about which air conditioner they want at home. This segment may be big in a country like Japan, and smaller in another country where the product has more of a mass market feel. But it’s still highly likely that there are well-planned heavy users in all countries.

Another useful insight is to see whether we’re under- or over-represented in a segment. Analytics show that the global market is worth USD 66 billion. Each segment represents a share of this, and when you put actual sales in each segment, you can see where you’re focusing too much – or too little. It’s important not to unconsciously give up on segments, and by checking the size of each one you can address them properly.

Another benefit is that we can work together across product portfolios (RAC, PAC and VRF), all looking at the same customer benefits. It’s really beneficial to apply a finding like the relative importance of energy saving across both regions and product portfolios. It’s also good to bring together teams together that usually work separately, and get everyone to address the same customer benefits.

What would you have done differently?

The method’s good. No problems there. 

One of the challenges, for each segment, is to design a customer persona. This is difficult because the final document needs to be both very comprehensive and very easy to understand. 

In the end we asked our marketing team and one of their communications agencies to finalize this. The customer persona is important and you need a very fine-tuned document for internal communication. And we’re not specialists at doing that.

What were the key learnings for you?

The real benefit is that you put the customer at the centre of attention. 

Today, we use the customer canvas to benchmark where we are, in addition to competitor comparisons and functional gaps. We spend more time thinking about the needs of the end-customer and the messaging they want. I would have run this exercise for my team in isolation, even if we weren’t proceeding with modularity as a company.

Thanks Rodolphe for your time

Rodolphe Jacson, Johnson Controls Hitachi

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Niklas on Innovation

INTERVIEW

How to Manage Innovation?

NIKLAS GUSTAFSSON, KTH EXECUTIVE SCHOOL

INTERVIEW

Niklas on Innovation

We got the opportunity to speak with Niklas Gustafsson, Program Director at the KTH Executive School in Stockholm. Here’s what he had to say on innovation and business transformation.

You focus on innovation management, why?

I think innovation sums up a lot of the challenges we’re seeing today. In this day and age we’re witnessing the introduction of a lot of new technologies and completely new product and service offerings.

We see this in the consumer business, driven by the new tech coming out of Silicon Valley, but it’s also happening in traditional industries. Big changes are under way, from combustion to electric engines, AI, 5G changing the frontiers of telecom, financial blockchains and new sensors enabling the internet of things. All these innovations are going to transform industries of today into something new.

The question is how companies can manage transformation? And this is where innovation management is a very good tool.

What are the main challenges facing companies today?

I think the biggest challenge is to adapt to the new reality that’s coming, especially for manufacturing companies.

There are so many shifts going on at the same time, in technology, business models and internationalization. A lot is being driven by new technology, but technology itself is not the solution. It’s how you convert technology into a viable business model.

For example, the electrification that’s ongoing in the truck and automotive industry is going to put an end to traditional business models and old ways of thinking.

What are the main opportunities?

If you can adapt, innovative technology presents tremendous business opportunities. I think the future looks very good for companies that are able to transform, adapt and re-educate their personnel.

It’s going to be much tougher for traditional companies that can’t adapt fast enough, which in turn presents opportunities for new companies with interesting and exciting new solutions. Innovative start-ups have the chance to completely transform traditional industries, faster than ever before.

We’ve seen this in Sweden in the music industry, where streaming capabilities have created big new companies. Books is another, where big new companies are buying up older ones.

And it’s not just Silicon Valley type start-ups. The airline industry, for example, is changing to meet new environmental demands, and the shipping industry is also going to have to make big changes. These changes will demand innovative thinking.

Another example is healthcare, where the opportunities are enormous, and we’ll need innovation in legislation too. Legislation that fits the old world won’t always fit the new.

What advice would you give to companies?

Fill up on knowledge. Refill. Understand theory, research, as well as practice. 

I give the same advice to academia. Go out, talk, listen and really understand the companies that are out there, and their problems. There’s a balance at this meeting point of theory and practice, and if you find it you’re in a good position to take on technical innovation and business model transformation.

What's the best thing about your job?

I get to meet a lot of interesting people, ideas and questions. It’s where theory and practice meet.

Any links you'd like to share?

I like trying to understand ideas and think one of the best podcasts right now is called Hidden Brain (external link).

Thanks Niklas.

QUOTE

What I like most about my job is that I get to meet a lot of interesting people, ideas and questions. It’s where theory and practice meet.

Niklas Gustafsson
KTH Executive School

Dynapac

CASE STORY

Dynapac Construction Equipment

Inspiration for Hardware Design

Photo: Blekinge Läns Tidning

DYNAPAC CONSTRUCTION EQUIPMENT

Summary

Dynapac’s Paving Equipment businesses faced a number of challenges, including lower profitability, increasing product variety, growing geographic reach, scale inefficiencies, decentralized product development and strong new emerging markets in Asia. 

The company then implemented a modularity program that delivered significant results: 

  • 6% reduction in direct material cost
  • 30% reduction in total part numbers
  • 15% fewer parts per product
  • 30% reduction in assembly time.

Dynapac established central product ownership; increased standard features, options and use of common parts; significantly reduced time to market for local product variants and faster quoting; and launched company-wide implementation of new technology for electronic vehicle controls.

Overall, the modular product architecture enabled global product platforms that boosted market share, not least in emerging regions. 

Dynapac Tree

Dynapac’s Product Family Tree for Rollers

CASE

Dynapac Story

Dynapac’s paving equipment faced a number of challenges, including lower profitability, increasing product variety, growing geographic reach, scale inefficiencies, decentralized product development, new emerging markets in Asia.

By 2005, the building of roads in China and other developing countries was the single, most significant market opportunity for Dynapac to grow sales of their products. Although local manufacturers could produce the same types of equipment, products from Dynapac and the other global competitors were more durable, produced a better road surface, and were more efficient. The lower cost of operation justified the purchase of the more expensive machines up to a price point that was slightly less than what could be supported in developed countries.

The challenge for Dynapac and its competitors was to produce products for these developing regions at the right price and performance level. To make a profit, they needed to manufacturer locally including the assembly of final products and the sourcing of components. Besides meeting cost targets, local operations were important for addressing local construction applications that required customization of the existing line of products. 

This was not an easy proposition for Dynapac whose operations were already split between several independently-operating companies. Overall profitability had been on a downward trend as costs continued to increase, and they had little ability to raise global prices. Additional operations in these newly developing countries meant more independent product entities that would be challenged with scale and efficiency. 

Dynapac was also struggling to maintain their technology leadership position in the global market. New technologies in the area of electronic controls were ready to be implementation in both the compaction and paving products, but the company struggled to find the time and resources to make it happen. Other corporate issues including compliance to 2010 emission standards were also demanding the attention of the limited set of resources.

Product Marketing & Management

Dynapac did not have a centralized understanding of the customers within all of the different markets and applications. Each of the regional groups that independently managed their local products and configurations had their own understandings. Without a global process or repository for these insights, it was difficult and time consuming to tackle company-wide product updates.

With the large volume of ideas for product improvements and unique applications in the various regions, each of the independent groups had a long queue of ideas for new product development. The development of these ideas, however, was intermixed with the delivery of custom product configurations to customers. Consequently, the primary source for new product variants within the various families was though customer projects. These new product variants would eventually be document and managed as part of the local product family.

Product Design & Engineering

The company was also organized with different design departments for each product line and regional resources to coordinate the quoting and manufacturing of custom configurations. Each department was skilled and experienced at independently running large, complex development projects. As a result, there was little sharing of resources and designs between these offices and across the various product lines. The same skills and responsibilities were repeated across each of the different group.

Dynapac was struggling to coordinate the whole company for large initiatives including the implementation of electronic vehicle controls (fly-by-wire). New technologies would normally develop within one of the independent product groups where they would eventually be integrated into a specific product during a larger vehicle development program. After completing the program, including the specific challenges for the initial vehicle, other product groups could work to integrate the technology into their products. Because of the independence of the groups and the singularity of product designs little efficiency was achieved with subsequent implementations.

Product Operations

Although they produced vehicle systems like automobiles, the requirements of the production systems were very different. The operations team at Dynapac was challenged with significant product variety and low volume of individual parts. They produced less than a thousand units of any one product variant in a given year. The team had started to look into Lean as a way to eliminate waste, improve efficiency and reduce costs, but they generated only limited success.

The actions to improve efficiency and reduce cost would have to be their own unique solutions. “We had a lot of parts with low volume, and the product cost was increasing,” says Bo Svensson, Project Manager at Dynapac. This led to low cost-efficiency, long lead-times and affected the company’s overall competitiveness and profitability.

To effectively follow the market opportunity into emerging regions, the management team at Dynapac decided to find a different approach to managing and delivering their products. The decentralized approach was generating decreasing levels of profitability as it was scaled-up to support increasing product variety and geographic reach. They needed new products quickly and a way to efficiently and affordably add new technologies to maintain their leadership position.

They sought to globalize product platforms to gain efficiency and simultaneously increase the overall assortment and local coverage. After some investigation, Dynapac concluded that the underlying structure for these platforms needed to be based on a Modular Architecture. “We had investigated different solutions”, says Svensson. “But we also knew that Scania (one of the world’s largest truck, bus and motor manufacturers) was using modularization as a leading system. That was the main reason we went to Modular Management.”

To achieve widespread product and organizational changes, Dynapac initiated a number of projects that began soon after one another. The stagger of projects helped them to take advantage of the learnings from one project just ahead of another. The first project was for tandem asphalt rollers in the 7 to 13 ton range. Larger rollers were followed by smaller sizes.

Revenue Growth

By combining the significant market opportunity in emerging regions of the world and a systematic approach to their product operations, Dynapac expected to increase gross profits by 17%. Modular Architecture would enable the development of a world product platform that could efficiently deliver the range of product needed to satisfy customers in both developing and in developed countries.

The Modular Architecture approach would also enable up to a 50% reduction in time to market for new product variants. This meant more time and resources to modernize the various vehicle platforms and to develop lower priced variants for emerging markets. By isolating key systems and features within modules, an updated version can be added without disrupting the design of the rest of the vehicle. 

By offering a larger range of standard features and options and by reusing the majority of modules in custom products, Dynapac expected to reduce the average time to quote a custom product configuration by 50%. This will get product to customer quicker and it will free-up resources to work on new product development.

Profitability Improvement

Dynapac predicted that increased revenue alone was not enough to meet their profitability targets. Therefore, they also looked for ways to improve the efficiency of their operations and reduce costs. By analyzing both direct and indirect costs, they found opportunities to reduce their total cost basis by 9%. The largest portion, 5%, was coming from efficiency gains in the value added operations. An additional 3% were indirect cost reductions that would come by working with fewer suppliers. The final 1% is a reduction in capital costs coming from better utilization of tooling.

“It was a very deep pre-study,” says Svensson. “The results showed we should make more money. We could save a lot on indirect costs … reduce the number of parts … and be more effective in updating machines.”

For tandem asphalt rollers, the world product platform approach with Modular Architecture would reduce the number of unique part numbers by 40%, and the higher volumes of components would reduce material costs by 5%. Individual vehicle systems could also become more efficiency using 30% fewer parts and requiring 25% less assembly time.

 

By 2007, Dynapac had transformed the first of the tandem asphalt rollers and was well on their way to completing the rest of the product category. They now had a global platform and family approach that has greatly improved their efficiency and reduced product costs. Products are managed on a global scale in order to reuse designs and to use common components, but they have the flexibility to adapt to local applications. Dynapac has been able to effectively address the market opportunity in emerging countries with the right product at the right price. 

They are creating more new products with the same product development resources. Future products are designed in parallel from the same platform reusing many of the same modules. In fact, the primary design efforts have been shifted from developing completely new products to developing of new modules. Additionally, new CAD/CAM support systems, product configurations, marketing materials and manuals are all based on the Modular Architecture and are making a more efficient organization.

“If you’re interested in or thinking about using modular systems, then Modular Management is the right company,” says Svensson. “We see they have the right knowledge to put the modular systems into place. Their consultants worked in a professional way; they have a lot of experience. They were very, very good.”

Product Marketing & Management

Dynapac greatly increased the number of standard features and options offered to their asphalt rolling customers. These product variants are configured directly from the global platform without the need to make local engineering changes. They are using a configuration software tool to coordinate selling and manufacturing of the vehicle systems which is helping to reduce order-to-delivery time. 

To begin the development of the Modular Architecture, Dynapac completed 75 in-depth interviews with customers around the world. The knowledge gained in the analysis of the interview data allowed them to define and map-out the scope of regions, application and customer needs that would be targeted with the global product family. 

Product Development & Engineering

The engineering and design organization at Dynapac changed drastically during the process of developing a Modular Architecture for their roller products. A single development organization now handles the roller product family in one, centralized location. In the past, responsibility was spread out over several product organizations where they would adapt the product design to local applications. This organization has also enabled a tighter coupling with the marketing team improving planning and prioritization of development activities.

The new centralized product family had a large impact on the number of parts needed to support all of the different product variants. The number of unique parts for the product line was reduced by 30% and will continue to decrease. Also in 2007, the parts per product were reduced by 15% and expected to decrease even further.

Determining the product architecture before any detailed design work allowed the team to accommodate and plan for major technology introductions across multiple product families. For electronic vehicle controls, Dynapac isolated the impact of the technology change to a few modules with well-defined, standardized interfaces. At the same time, they were able to take into consideration other vehicle platforms when making major design decisions. Modules not affected by the technology change could be simultaneously developed, and everything could be integrated together later in the project.

Product Operations

Dynapac operations were greatly improved with the implementation of the Modular Product Architecture. Operations became much more uniform around the world, and the teams could share experiences and improvement initiatives. Modules were now being built and tested upfront before they were assembled into the vehicle, and the overall assembly time was reduced by 30%.  They are also attacking problems and issues in smaller, more manageable chunks.

Dynapac also involved their suppliers early in the design process. Several key modules including the engine, cab, hydraulic and electrical subsystems were setup to take full advantage of the architecture. By reusing modules across the different sizes or rollers and across the world, they were able to reduce material cost by 6%.

 

During the development of the Modular Architecture, the team at Dynapac spent a lot of time understanding customer needs and how they align with the physical properties and performance of their products. One of the big discoveries they made was how important the human interaction with the vehicle was to the safety and efficiency of the machine.

Through the analysis of the relationships between customer value and product functionality within the Modular Architecture, Dynapac discovered that driver visibility was a key attribute of the product. This discovery reprioritized many of their design efforts to deliver a higher level of performance for this property. They paid special attention to the size and placement of the windows and the location of the cab relative to the working components.

Trane

CASE STORY

Trane Commercial Air Handlers

Inspiration for Hardware Design

TRANE COMMERCIAL AIR HANDLERS

Summary

Trane Commercial Air Handlers were facing a number of challenges, including rising costs, requirements for more energy efficient products, older product families, challenges to product leadership with competitor’s new features and options, proliferation of parts, and high product and systems complexity. Operational improvements through lean and process automation were effective yet insufficient, and the company, as a long-term market leader, was finding it hard to sustain price premiums and market share.

In this situation, Trane embarked on a modularity program that delivered dramatic results: 

  • 58% reduction of part numbers
  • 15% reduction in overall product cost
  • 10% reduction in the cost of operations
  • 7% reduction in direct material costs
  • 50% reduction in development time.

The new line of air handlers also became the most energy efficient on the market, achieved lower levels of humidity compared to competitor products and reduced energy consumption by up to 30%. Customers were offered lower acquisition costs, more product variety (50% increase) and lower operating costs, and Trane successfully defended its market-leading position with modular designs.

Trane Performance Climate Changer Air Handler

Story

Commercial heating, ventilation and cooling (HVAC) products have a lifetime of around 20 years, and the technology has evolved slowly but steadily over the years. Large and complex HVAC systems are specified for individual customers through a direct sales network, approved by engineering, built to order and installed by a system integrator.

In 2007, rising energy costs and conservation initiatives were driving demand for more energy-efficient products and for retrofit and refurbishment of existing, less-efficient systems. Trane was the market share leader in North America and was working to grow in other regions by leveraging their reputation for reliability, flexibility, and product innovation.

Market dynamics caused many of the commercial HVAC products to become commodity-like with pressure on even the complex ones to reduce price and cost. The average age of Trane Commercial Systems Air Handler products was relatively old by industry standards and many new features and options were being introduced by competitors. They needed to make significant investments to update the product portfolio with value-added features that would help them to stay ahead of the competition. 

Trane had always been a strong company with good profitability and long-term organic growth averaging 7-8%, but they were looking for ways to continue fine-tuning their operations. In the years preceding this case, the product teams had been deploying Lean techniques and component rationalization. These initiatives saved money, but in many situations Trane discovered that additional improvements were limited without changes to the existing product design.

One team in Commercial Systems uncovered that hundreds of different motors were being supported by the engineering and operations system. As the team examined the issue, working motor-by-motor, they always found good technical reasons why each motor was used. In the end, very few motors could be eliminated.

Product Marketing & Management

When the modular climate changer product family was introduced in the 1990’s, it quickly became the leading air handling product in the market. Not only was it the performance leader, but it could be configured to meet the needs of very specific applications. This was accomplished through a series of functional building blocks that could be manufactured separately and assembled into a complete system. This product strategy paired well with Trane’s technical, relationship-based selling methods, and for many years the building contractors and HVAC engineers preferred to work with Trane.

As demand for the product grew, Trane invested in an automated order engineering process that helped create the engineering drawings needed to manufacture and assemble each individual system. This decreased the time and errors when the engineering team to release an order. Eventually, they also invested into automated production systems that could use the data from the order engineering process to produce accurate components even though they may have never been built before. 

In the years leading up to 2007, it was becoming apparent to the marketing team that the Modular Climate Changer product family was reaching the end of its product lifecycle. Competitive products introduced in the market had more of the features that were in demand by building managers and occupants. Opportunities for reducing costs were also greatly diminished, and Trane was faced with a large new product development effort to reinstate their product leadership position. 

Product Design & Engineering

The customer-facing modularity of the product was a continual source of activity and challenge. The ongoing product engineering team had strong capabilities to deliver and maintain the current family of products. They were occupied with customer orders and the maintenance of the current air handler product family. Components such as coils and filters were constantly adapted to deliver exactly what was agreed to by the sales team and customer. 

According to Trane’s Product Engineering Director, Jim Wendschlag, “Trane’s central station air handling units expand a wide range of unit sizes and offer a multitude of features and options to meet the different needs of many building types in many climates. This product flexibility over time led to the proliferation of thousands and thousands of parts and high product and systems complexity and associated costs.” 

Improvement efforts for years were focused on the optimization of the order engineering process and the automation of the documentation needed to build the large range of product configurations. Product design data such as bill-of-materials fell into a lower priority and were kept in spread sheets rather than vaulting, MRP or PLM systems. 

As with many continuation engineering teams, they had little time for new product development, and the growing list of product updates sought by the marketing team required the broader involvement of Trane engineering resources. Large new product development projects typically required the commitment of resources for 36 months before any new product entered the market. For many years the air handler project waited to make it to the top of the list of investment priorities. 

Product Operations

A skilled and ambitious operations team championed many investments that improved the efficiency of providing the large range of product configurations. In addition to the removal of waste by deploying the principles of Lean, they looked to process automation to off-set the product complexity that was carried through to the manufacturing plant.  

Many improvements were made through the years but the problems of product complexity remained. Flow through the plant was often halted because a special operation needed to be done on one system. In 2007, the air handler product family comprised of the M-series indoor and T-series outdoor systems were built on separate manufacturing lines. Near the top of the list of improvements for many years was the rationalization of these two manufacturing lines. The two systems shared many components, but the merging of the casings required changes to the design of the products.

The leadership team at Trane Commercial Systems was faced with the challenge of how to invest into a new family of air handler products. They wanted to maintain and grow market share by re-establishing their product leadership position.

With a long-standing focus on cost reductions and maintaining levels of efficiency to support the wide range of product configurations, Trane sought to develop a family of products with a new set of innovative features. The family would be delivered from a Modular Architecture that could be efficiently updated during the product lifecycle. They also wanted to preserve and enhance the investments that had been made in streamlining and automating the manufacturing plant. 

Revenue Growth

Implementing the modular architecture for the air handler product family promised to reduce the time for new product development by adding more detailed up-front planning and the ability to simultaneous develop and launch a variety of different modules at different times. The goal was a 25% reduction in time for major changes and 33% for smaller updates. They also planned to reduce the order-to-delivery time. For large products delivery time was expected to be reduced by 50%, and smaller products were to be reduced by 63%.

Trane also sought to increase their ability to maintain their leadership throughout the lifecycle of the product. The underlying speed of development would help, but they also needed the ability to introduce minor features without impacting the majority of the product design. By creating a standardized interface, for example between the air handler and the control system, it would be easier to introduce new features and integrate the controls with new and existing systems.

Profitability Improvement

Along with faster development of new products and features, Trane planned to achieve a reduced level of investment to make changes and updates to the product family. This would allow them to make more frequent, smaller changes and to continuously improve product operations and profitability. A 10% reduction in the cost of operations was projected, and the cost of materials would be reduced by 7% through more efficient designs, higher volumes and planned purchasing. Trane also intended to integrate the separate indoor and outdoor versions of the product into the same architecture and to share interfaces to the casing.

The cost of providing such a wide range of product configurations remained high even with process automation. Trane looked to Modular Architecture for a way to maintain the customer-perceived flexibility of the current product family while lowering overall costs. As a working goal, they established a key performance indicator that said 80% of orders would be 100% configured from standard modules while the remaining 20% would use 95% standard modules. 

An example of a higher level of product assembly is the external casing that encloses all of the internal components and allows air to enter and exit at specific locations. While developing the Modular Architecture, the team at Trane discovered that the casing is a key technical solution for an air handler. It embodies many of the properties of the product and impacts many of the different ways customers perceive the value of the product. 

This realization established new priorities in the design of the product to maximize the effectiveness of the casing.  In fact, large capital investments were made to fully automate the forming of the sheet metal and the installation of insulating foam. The casing now contains interfaces to most other modules and the specific casing variant is chosen once the configuration of the rest of the product is completed. A unified casing is designed and manufactured for each product combination. The automated equipment takes care of the manufacturing complexity. 

The development of the modular architecture also allowed Trane to address nagging customer complaints about the availability of replaceable air filters. The discipline learned and momentum gained in creating standardized interfaces throughout the product allowed them to tackle the challenge of integrating standard filters. As a result, filters are selected as off-the-shelf components, reducing the time and money for customers to procure a replacement. 

An example of a higher level of product assembly is the external casing that encloses all of the internal components and allows air to enter and exit at specific locations. While developing the modular architecture, the team at Trane discovered that the casing is a key technical solution for an air handler. It embodies many of the properties of the product and impacts many of the different ways customers perceive the value of the product. 

This realization established new priorities in the design of the product to maximize the effectiveness of the casing.  In fact, large capital investments were made to fully automate the forming of the sheet metal and the installation of insulating foam. The casing now contains interfaces to most other modules and the specific casing variant is chosen once the configuration of the rest of the product is completed. A unified casing is designed and manufactured for each product combination. The automated equipment takes care of the manufacturing complexity. 

The development of the Modular Architecture also allowed Trane to address nagging customer complaints about the availability of replaceable air filters. The discipline learned and momentum gained in creating standardized interfaces throughout the product allowed them to tackle the challenge of integrating standard filters. As a result, filters are selected as off-the-shelf components greatly reducing the time and money for customer to procure a replacement. 

Product Marketing & Management

At the time of launch, the new Trane Performance Climate Changer Air Handler (see Figure 2) was the most energy-efficient air handler in the market. It provided overall better comfort for the conditioned spaces and obtained lower levels of humidity. Energy consumption and the corresponding emissions were reduced by up to 30%. Customers saw a lower initial cost and additional savings during long-term operation. 

Trane changed the basis of sales discussion and competition to focus on the value of an overall higher performing system. Many of these facets of performance were new ones that were not previously exploited within the market and were discovered during the process of developing the Modular Architecture. The new product family maintained the leadership position that was once held by the legacy Modular Climate Changer. 

By including both the indoor and outdoor product families within a single Modular Architecture, Trane improved their efficiency beyond what they could have done with each individually. The number of physical sizes available to customers was increased from 18 to 26, and they increased the number of new and available product options. The automated order engineering process became less critical to the delivery efficiency of the product because most orders became pre-determined configurations within the architecture.

In the words of Jim Wendschlag, “This new approach, together with innovative engineering systems design, is providing us with opportunities for significant direct and indirect labor efficiencies and a much faster product change through the product life cycle.”

Product Development Engineering

The time to develop the first in the family of new air handlers was decreased from 36 to 18 months including the upfront time to develop the modular architecture. Even with portions of the new and old product in the market, this trend was expected to continue because the vast majority of the new products were now being configured from a pre-defined set of module variants. Along with a larger set of completed designs, these variants had pre-determined operational plans that would reduce the engineering team’s involvement in fixing manufacturing and sourcing issues. 

The team saw a 58% reduction in the number of parts needed to be created and managed in order to deliver the new air handler product family. This was in addition to the underlying efficiency gained by combining the two separate families. From Jim Wendschlag perspective, “We were helped to develop a new approach to modular design focused on part count and complexity reduction while adding to the product flexibility for the customer.”

Product Operations

The time to develop the first in the family of new air handlers was decreased from 36 to 18 months including the upfront time to develop the modular architecture. Even with portions of the new and old product in the market, this trend was expected to continue because the vast majority of the new products were now being configured from a pre-defined set of module variants. Along with a larger set of completed designs, these variants had pre-determined operational plans that would reduce the engineering team’s involvement in fixing manufacturing and sourcing issues. 

The team saw a 58% reduction in the number of parts needed to be created and managed in order to deliver the new air handler product family. This was in addition to the underlying efficiency gained by combining the two separate families. From Jim Wendschlag perspective, “Modular Management … helped us develop a new approach to modular design focused on part count and complexity reduction while adding to the product flexibility for the customer.”

Trane Commercial Air Handlers were facing a number of challenges, including rising costs, requirements for more energy efficient products, older product families, challenges to product leadership with competitor’s new features and options, proliferation of parts, and high product and systems complexity. Operational improvements through Lean and process automation alone were insufficient. This long-term product leader no longer commanded a price premium and was losing market share.

To solve these issues, Trane embarked on a modularity program. The results included 58% fewer part numbers, 15% reduction in product cost, 10% reduction in operations costs, 7% less direct material costs and a 50% reduction in development time. The new line of air handlers also became the most energy efficient on the market, achieved lower levels of humidity compared to competitor products and reduced energy consumption by up to 30%. Customer saw lower acquisition costs, more product variety (50% increase) and lower operating costs. 

Trane was able to successful defend and strengthen  its market leading position via modular design.

Guldmann

CASE STORY

Guldmann People Lifting Systems

Inspiration for Hardware Design

GULDMANN PEOPLE LIFTING SYSTEMS

Summary

Guldmann People Lifting Systems were looking to scale up a diversified product portfolio. The market was demanding a larger range of ceiling-mounted and mobile people lifts at acceptable delivery and price points. The challenge was to keep growing while maintaining market position as a state-of-the-art, customer-focused lift supplier; without losing control over cost.

The company was also looking to grow in developing countries, where they needed to extend their product offering with lower cost variants. To enable this, Guldmann implemented a modularity program. 

The program delivered dramatic cost-side results including: 

  • 90% reduction in part numbers per product and level of inventory; 
  • decrease in product lead time; 
  • significant cost reductions;
  • higher volume sourcing.

On the revenue side, annual revenues were estimated to have doubled.

Story

In 2003, Guldmann was the market leader for ceiling and mobile lifts. Sales in this market were strong and they were contributing a significant portion of the bottom-line. CEO, Carsten Guldmann, however, was concerned about the challenges that the company would face as it continued to grow. He and the team of top managers also recognized the opportunity in the market would be with continued product diversification and customization. Users and buyers of lifts were looking for more customized products.

With their eye on the long-term success of the company, the leaders of the company looked for a way to grow the company without becoming over burdened by the complexity of increased size. They also looked for a way to provide an increasingly wide range of products while maintaining the cost, quality and lead-time of the solutions to customers.

Product Marketing & Management

The team identified that the GH2 Platform of lifting products would be challenged to address the changing market needs with the right price-points and lead times. The company had strong capabilities to deliver customized solutions for any one customer, but they had limited capacity and a limited set of customers that would wait for engineer-to-order systems.

The company needed to predict more of the range of solutions that were needed in the market and spend the time to develop products ahead of actual orders. Of course, there would always be special needs within many of their delivered solutions, but they were striving for a major portion of solutions to be delivered from pre-developed components.

Product Design & Engineering

The GH2 Platform comprised a flexible assortment of products, but it was clear that the current design would lead to larger and larger levels of overhead to manage the added models that the market requested. The ceiling lifts are complex medical-grade systems with stressed and moving components. Careful and intricate engineered efforts are required to ensure robust and long-term operation.
There was no established product development process at Guldmann to introduce new designs. The product platform had evolved over time with new customer projects. The replacement of the GH2 platform would be a major undertaking for the company, one that had never been done before.

Product Operations

Sourcing and manufacturing at Guldmann had been deployed mostly on an individual project basis. There were some common components that could be manufactured in volume and made available in inventory, but the majority of components were built from design drawings that were recently created.

Higher volumes of more diverse products would be a big challenge for the company’s product operations. Growing the organization in proportion to the increased volume did not carry an attractive business proposal. The organization needed to find efficiencies that would support continued product diversification and increased volumes.

Guldmann sought to create a new product platform that would sustain them for the next twenty years. They intended to keep growing while maintaining a market position of a state-of-the-art, customer-focused supplier without losing control over the cost. They also looked to grow in the developing regions of the world where they also needed to extend their product offering with lower cost variants.

The new platform would be based on a Modular Product Architecture from which a steady stream of product variants could be drawn over its lifetime. The plan was to make a major upfront investment to develop and ensure a robust and beneficial platform. They would then leverage the investment by accelerating the launch of many new module variants. This was the largest product development project the company had every attempted.

Revenue Growth

By offering an expanded range of price points and customizable configurations, Guldmann planned for large sales growth within new channels and geographic locations. In a market where the other major competitors were offering mostly standardized solutions, they expected to win with solutions matched better to the specific customer needs. It was not a technical challenge in designing product that could do the job of lifting people; it was a challenge to deliver products in an acceptable amount of time and at a reasonable price.

Profitability Improvement

By controlling the direct and indirect product costs, the desired price could be supported. Direct material cost would be reduced by purchasing in larger volumes and in fewer transactions. They also sought to eliminate over-specification of components which was a common time-saving practice of selecting components with assured performance versus exactly matching the component to the application.

Indirect cost would be saved in large part due to the reduction in the number of different product designs being managed by the engineering and operations teams. This was indicated by measuring the number of active part numbers. They goal was to cut in half the number of part numbers in the GH2 platform. The company expected to reduce their overall indirect product cost which would come in part from a reduction in materials inventory, work-in-progress and finished goods. They would be working from a master manufacturing plan with greatly reduced lead times.

The team at Guldmann developed a Common Unit and Carry Over module called the Chassis Module. A number of other modules with high levels of variance connected to this module via standardized attachment and transfer interfaces. 

It is rare that you can connect so many high variance modules to a single Common Unit and Carry Over module.

The Chassis Module was a die-casted aluminum component that integrated a lot of different parts into one. It was the heart of the lift and was planned to remain the same for the 20-year life of the product platform. It can be built in large quantities, and the team worked hard to optimize cost and supply-chain efficiency.

 

In 2007, four years after the work was started, the GH3 platform was launched. By 2012, Guldmann’s annual revenue had doubled and the assortment of products on the new GH3 platform had increased dramatically.

The management team devoted a limited number of resources to the development of the new platform in order to control expenses and keep up sales and delivery of products from the existing platform. This proved to be the right balance of time and investment for the very proactive move Guldmann was making in the market.

After the initial platform launch, the remaining product variants were launched in the next two and half years. They have also continued to launch a new variant each year since. All of this has occurred without the addition of any new research and development resources.

Product Marketing & Management

As of 2012, 70% of the volume had converted over to the new, modular assortment. And by 2013, Guldmann planned to fully phase-out the GH2 product platform. 

Their cadence of adding new products looked to continue and they were able to enter the lower end of the market with a limited number of modifications in selected modules.

Guldmann also changed their messaging to the market. They launched a campaign around the central idea of More Time. With products from the GH3 platform, customers were becoming more efficient in their efforts to moving and handling people leaving more time for direct care. The identification of the importance of this benefit to customers came during the process of creating the Modular Product Architecture. Early in the process they used Quality Function Deployment (QFD) to determine the key Customer Values and established that every decision they made about the product could be linked back to the customer. The list of Customer Values became known as the company’s Ten Directives and a poster of QFD was hung in Carsten Guldmann’s office.

Product Development Engineering

Guldmann has started to follow a stage-gate product development process that has given them the discipline to focus their efforts on specific modules to launch pieces of the product assortment in waves. They have done this with a relatively small team while keeping the old platform viable in the market.

The team was diligent in the refinement and perfection of the module system enabling specific strategies for each module and protecting these strategies with robust interfaces. See an illustration of the GH3 module system in Figure 3. Their careful efforts won’t need to be repeated for over twenty years. They are now able to efficiently develop new product variants by making changes to very specific modules and have successfully launched new products every year.

The product development team was also able to simultaneously reduce the total number of active part numbers while increasing the size of the product assortment. The average number of unique part numbers per product variant has been reduced by a factor of ten. With the larger assortment, they are spending less time designing individual customer orders and can focus on new product development or high-value custom lifting systems.

Product Operations

Guldmann created a new assembly line that included module production cells that feed into the final assembly. It was a Kanban system that draws on whole module variants that are then assembled quickly into a final product. They could manage the supply chain for each of the modules and differentiate into the range of final products very late in the process.

Late differentiation was also possible due to the software that was loaded directly on the assembly line for each product variant, including a unique self-test. This enabled quick and easy testing, no matter which product variant was being assembled.

Guldmann also implemented a number of Common Unit modules for efficiency improvements in production and procurement. These modules had only one variant and were included in most lifting products. The supply chain could then be forecasted with greater accurately, with some modules able to be sourced in low-cost countries.

Guldmann People Lifting Systems were looking to scale up a diversified product portfolio.

The market was demanding a larger range of ceiling-mounted and mobile people lifts at acceptable delivery and price points. The challenge was to keep growing while maintaining market position as a state-of-the-art, customer-focused lift supplier; without losing control over cost.

The company was also looking to grow in developing countries, where they needed to extend their product offering with lower cost variants. To enable this, Guldmann implemented a modularity program. 

The program delivered dramatic cost-side results including: 

  • 90% reduction in part numbers per product and level of inventory; 
  • decrease in product lead time; 
  • significant cost reductions;
  • higher volume sourcing.

On the revenue side, annual revenues were estimated to have doubled.

Whirlpool

CASE STORY

Whirlpool Product Architecture

Inspiration for Hardware Design

WHIRLPOOL CASE

Product Architecture Bridges Strategy and Results

STEVE PADDOCK, FORMER SENIOR VICE PRESIDENT OF PRODUCT DEVELOPMENT, WHIRLPOOL

Whirlpool had a clear strategy for its many brands of microwave ovens. 

Despite this clarity, the company found it hard to build competitive advantage, and was challenged by low profitability, limited product variants, low end-customer flexibility, low-cost competition, short model lifetimes and limited brand differentiation.

The company then engaged Modular Management to develop a product architecture. The goal was to realize brand differentiation – and accelerate value creation – by increasing the number of product variants, reducing costs and maintaining rapid refresh of models that could be produced in small batches. 

The success of the microwave program fueled a corporate-wide initiative to deploy product architecture in all Whirlpool product categories, including cooktops, ovens, dishwashers, refrigerators, freezers, clothes washers and clothes dryers.

Cost and Revenue Impact

With brand strategies driving market volumes and price premiums, the cost side results were significant:

  • 35% reduction in unique parts
  • 25% fewer parts per product
  • 20% reduction in parts costs
  • 40% fewer platforms
  • 10% material cost reductions. 

Although harder to identify causality, quantifiable market impacts were also considered remarkable, including significant brand price premiums that even exceeded the cost side results.

Full Story

Microwave ovens (MWOs) were being designed and produced in Norrköping, Sweden. The primary business was countertop MWOs, which were characterized by:

  • Global, high-volume products
  • Highly standardized SKU’s with zero or very little configuration
  • Extremely high cost-sensitivity due to direct, low-cost competition
  • Model lifetimes of only one to two years.

The Whirlpool strategy was asking the team to figure out how to produce a larger variety of higher-end microwaves that could satisfy a wide range of customers and quickly evolve with new technologies and design trends. 

Successfully achieving this objective would require the team to overcome a number of business challenges.  They would need to revamp production, create a leaner overhead structure and transform to a nimble, consumer-focused product development organization.

Whirlpool needed a way to efficiently develop and produce a wide variety of brands and models, and Modular Product Architecture became the clear answer enabling a broad range of brands and SKUs from a single, efficient MWO platform. Modular Management helped the team identify the primary challenges and identified program objectives and targets that would be achieved through the creation and implementation of a Modular Product Architecture.  The program, named “Opera” would be driven to meet the business goals with the following objectives:

  • Market strategy – Products adapted to multiple brand requirements
  • Product assortment – Multiple brands with over 10X increase in variance
  • Total factory output – Accommodate annual unit volume output reduction of 60%
  • Manufacturing strategy – Small production runs
  • Inventory strategy – Production to order
  • Total annual cost – Reduce proportion to output
  • Average unit cost – Limit to 3% increase 
  • Indirect cost ratio – Maintain ratio with lower total cost

New Strategy – New Type of Product

In addition to the challenges presented by the business goals, a built-in MWO presented several new technology challenges.  Highest among these is the cooling. Countertop MWOs have a free supply of air all around, but a build-in needs air circulated with the aid of a fan. 

Previously, their traditional countertop MWO used microwave power and, in some cases, an extra grill element. The new built-in MWO platform was designed to offer two new cooking modes; forced convection and crisp. The team also had to develop an approach to provide clear brand differentiation, distinct customer variety, and a planned development path to meet the rapid refresh requirements of the high end appliance market.

Flexible Control Panel

The Opera project had a very clear goal of incorporating a wide range of different styles in terms of look, feel and operation of the products. The platform needed to efficiently accommodate this large variation while impose as few constraints as possible. 

In a traditional MWO, knobs and buttons are placed directly on the Printed Circuit Board (PCB) in one of a number of reserved positions. If a knobs location was unanticipated by the initial design, a completely new PCB must be created. Additionally, each unique configuration requires a unique panel with a specific set of holes. Each of these panels requires a unique tool. Therefore, the traditional design has very limited flexibility due to:

  • Each knob/display configuration requires a unique panel
  • Knobs, buttons and displays can only be placed in predefined locations as relocating will require the creation of a new PCB

The modular product architecture allows for a very different approach to this problem. First, panels had pre-defined surfaces so knobs could be placed in any location. Making these holes did not require tools, but were drilled with a laser to produce smooth edges. Second, buttons and knobs were placed directly in the PCBs so all buttons, displays and knobs could communicate with the PCB via a standardized interface — a cable with a connector. All mechanical knobs were replaced with electronic knobs. This improved their lifetime and addressed known quality issues. Because of increased purchasing volumes, the price of electronic knobs was reduced to that close to the old mechanical knobs.  

As a result, the Opera team designed several panel styles.

“It’s clear that at the time we could not have reached the results we achieved without Modular Management,” said Jorma Mäkilä, Opera platform owner. “I believe we saved a full year of development time and we launched the first Opera products well ahead of schedule.

Using Modular Function Deployment®, “the Opera product was divided into 36 modules which allowed for concurrent engineering,” said Mäkilä. “The Opera team produced a specification for each module. These module specifications capture key data about the module and its variants. The key consultant from Modular Management held weekly Quality Assurance meetings with all design engineers to make sure nobody took off on their own track or broke any interfaces. The truth is, his work was extremely important in the project.” 

Actual overhead cost reduction in the project was 20%. Eventually, Opera was integrated with the oven platform, “Minerva”, which required the Norrköping site to coordinate efforts with the main oven site in Italy regarding brand, market identification and channels. 

“The mindset of modularity allows us to predict the impact of any request for change much more quickly than before. This saves time and energy. In our old designs, when someone asked us for a styling or performance change, we had to review the entire design. Now we can easily see which modules are impacted and provide a response much more quickly than before,” Mäkilä said. An early configurator showed where the unwanted couplings between modules existed and was very helpful in de-coupling the design as much as possible.

Mäkilä also said modularity allowed the team to work with drawings and Bills of Materials more efficiently than before.

Whirlpool had a clear strategy for its many brands of microwave ovens. 

Despite this clarity, the company found it hard to build competitive advantage, and was challenged by low profitability, limited product variants, low end-customer flexibility, low-cost competition, short model lifetimes and limited brand differentiation.

The company then engaged Modular Management to develop a product architecture. The goal was to realize brand differentiation – and accelerate value creation – by increasing the number of product variants, reducing costs and maintaining rapid refresh of models that could be produced in small batches. 

The success of the microwave program fueled a corporate-wide initiative to deploy product architecture in all Whirlpool product categories, including cooktops, ovens, dishwashers, refrigerators, freezers, clothes washers and clothes dryers.

With brand strategies driving market volumes and price premiums, the cost side results were significant:

  • 35% reduction in unique parts
  • 25% fewer parts per product
  • 20% reduction in parts costs
  • 40% fewer platforms
  • 10% material cost reductions. 

Although harder to identify causality, quantifiable market impacts were also considered remarkable, including significant brand price premiums that even exceeded the cost side results.

,

Tusen tack

NEWS, MARCH 2019

Tusen tack

THAT’S ONE THOUSAND THANKS IN SWEDISH

1000 LinkedIn Followers

Many thanks to all of you who follow Modular Management on LinkedIn

One thousand followers is a record for us.

We believe that configurable product architectures are key to bridging strategy and results. Not only do they create value for customers, they help companies solve many challenges, including how to speed up innovation, connect people, data and products, and reduce complexity. Something worth sharing.

Our goal with LinkedIn is to publish relevant material reasonably often, not least regarding who we are, what we do and why we do it. It’s also a key channel for recruiting senior consultants and young professionals from around the world. Don’t hesitate to email if you’re curious to find out more about what a career at Modular Management looks like. 

Above all, LinkedIn is a channel for us to learn from you. So one thousand thanks, or tusen tack as we say in Swedish.

MEDIA CONTACT

Dellner

CASE STORY

Customer-Centric Modular Design

Case

Dellner

Customer-Centric Design

Dellner provides connection systems for train manufacturers across the world.

In order to ensure compatibility with major train types, Dellner couplers are based on a flexible, modular concept that supports customer-centric sales and aftermarket services. Business recognition has come in the form of a Super Company award - or Superföretag as they say in Sweden - from business magazine Veckans Affärer.

At Modular Management we're happy to have supported Dellner on the modular coupler. Watch the movie to find out more.

SUMMARY

"With more than 500 options, Dellner couplers are based on a flexible modular concept. The modular design enables us to offer high spare parts availability, short lead times and lower maintenance costs."

Dellner Product Movie

FOLLOW DELLNER ON LINKEDIN

Peab

INSIGHT

Flexible and Attractive Housing

Case

Peab

Peab is one of the largest contractors in the Nordics for building and home construction.

The company has been able to create a modular product architecture that enables flexible, affordable and attractive housing.

Peab PGS

Peab’s business for building construction was experiencing a number of challenges, including increasing market demand for lower cost multi-family housing, declining productivity, incomplete building drawings, and previous failed efforts to produce prefabricated buildings with enough variation and features. To solve its challenges, Peab had to find a holistic solution that leveraged the repetitive elements of its manufactured building components (product business) with its flexible design and build capabilities (service business).

Peab embarked on a modularity program with the support of Modular Management. This program generated results including a 50% reduction in building design costs, 50% less construction time, 75% less rework, 50% reduction in on-site indirect costs, and 16% overall cost reduction. The modularity program enabled cost reductions and productivity improvements while enabling the necessary building options and variety.

SUMMARY

Flexible and Attractive Housing

Peab PGS shares how a product architecture enables flexible, affordable and attractive housing. If Swedish isn’t your language, fast forward to 2:05 and see the architecture in action. Even if we’re not totally objective, ‘Housing for Everyone – Collaboration is Key’ is a cool video.

The Full Story

Peab is one of the largest contractors in Europe’s Nordic region for building and home construction. The company provides construction services, civil engineering services, industrial products and property development. The largest division, construction services, is divided into regional groups that manage their own sales, profits and operations.

Contractors like Peab work with architects, designers and clients to coordinate and manage the construction of a building. They provide all the material, labor and equipment and hire any specialized subcontractors needed to complete the project. They work from a contract to build that includes a budget and schedule. Peab is constantly bidding on new contracts and their profitability is tied directly to the winning bid price and effective project execution.

There are many interacting systems within a building that need to be coordinated though the design plans and site construction manager. The industry is conservative and innovation is slow with new designs being implemented for the first time on actual projects. On any one construction job, there are always unknowns that need to be figured out by the onsite team.

The industrial products division of Peab manufactures building products including roof tiles and prefabricated concrete elements. They also supply raw materials in the form of asphalt, concrete, gravel and rock. The operations of this division are in stark contrast to the operations of construction services. Here the company can deploy industrial processes to optimize the cost, quality and lead time of the associated products. It is difficult to implement the same concepts in construction services because almost every new building is unique.

Newly constructed residential buildings in the Nordic regions of Europe had become inaccessible to people with normal levels of income. Purchase prices and rents had increased disproportional to existing buildings. A large market opportunity existed for any construction company who could bring the right product to the market at the right price.

In response, construction firms were looking for ways to reduce costs and offer a more affordable product. They were also striving to shed a reputation for being wasteful and inefficient. Government studies at the time showed the vast majority of industries making productivity improvements over the years, while construction has seen decreased productivity.

The fourth or fifth time a copy of a building was built, firms could reach significant cost savings. This seemed the simple solution, but communities want to control the style and variety of buildings within their boundaries. In reality, a standardized building has a very limited market, and any pre-manufactured building needs to be adapted to both the local site and the demands of customers, local authorities and architects.

Another way to reduce cost was to develop industrial-type processes that would improve efficiency of the actual construction. These processes could also support the construction of buildings with lower-skilled workers. This was not only a desirable position in terms of lower labor cost, but it also addressed the predicted future shortage of skilled tradespeople.

In 2002, Peab setup an internal project called Peab Gemensamt System (PGS) to investigate answers to these challenges. They looked into continuous improvement initiatives, including Lean, that could remove waste and reduce costs. They also looked at using more pre-manufactured components that could be built in a factory and assembled onsite. At the end of two years of investigation, the team had a good idea of the scope of changes that were needed. They needed to change both processes and designs, but they did not have a viable approach to do it.

Product Marketing & Management

There are basically two channels though which buildings are designed and constructed. The first is a direct sales channel where an independent owner, usually a real estate developer or the long-term building owner, tenders the project. The owner determines the specification, and potential contractors bid for the job competing primarily on price and, to a smaller extent, lead time.

The other channel is for the contractor to build on speculation (spec). They develop their own land with a building that is targeted at a specific customer group while anticipating an eventual buyer. There is more freedom to design a building meeting cost objectives, but the builder is still subject to the requirements of architects and external designers who might not share the same priorities. For both channels, the local authorities have the final decision determining whether a building will complement the neighborhood.

Product Design & Engineering

The complexity and massive number of details in a building design meant that no design was ever fully completed. There were always details that needed to be figured out during the actual construction. Plans would often include notes that were guidelines for completion, but they won’t specify the detailed design parameters. This happened often, for example, with curved and blended corners where the details of the final product were left up to a skilled tradesperson. For any one project, it was hard to predict what would be the onsite challenges.

New designs and concepts were conceived electronically or on paper by architects and engineers outside of Peab. The CAD systems that were used were not homogeneous, and the data being shared was mostly two-dimensional sectional drawings. The design teams were constantly starting new full-scale experiments that are put into practice by the Peab construction team. The self-contained process of new product development did not exist at Peab. If the new design didn’t work-out, they needed to adjust and make the overall project come together.

Product Operations

The operations team at Peab was constantly challenged with the generation of waste. Waste includes pure waste such as wait-time, interruptions from weather and rework. It also includes forced waste from new and unproven designs; changes in people’s roles and responsibilities; and overlooked details in the construction process that generate unnecessary activities. Waste can also occur with any building construction project from a lack of a systematic, industrialized and optimized approach. Onsite costs are decreased only when a project runs more smoothly.

The skills and experience of the site manager was an essential component for project success. Decisions and reevaluations are constantly made by this person and the individuals who do the actual work. They are constantly adapting and adjusting, and they use team consensus and opinions to feed the decisions. One of the big challenges they face is the quality of the incoming supply of materials. In most construction operations, there is no process or individual proactively managing this, and site managers need to react when a problem arises.

By creating PGS, Peab sought to make significant changes to the way buildings are constructed. They first looked at ways to apply Lean and other industrial methodologies to the current processes. Limited productivity gains came out of any continuous improvement activity, and after two years they realized that they needed a holistic approach to both the building design and the construction process in order to achieve their goals.

They needed to start from scratch and develop a whole new approach to the building product in order to reach the targeted cost savings. Peab also knew that they couldn’t just build the same building over and over again. It would require a product family with a range of buildings like the figure below that have some underlying commonality. After much research and analysis, they decided to pursue a Modular Architecture.

Revenue Growth

By meeting the price point in the market, Peab expected to grow sales at unbelievable levels. They first needed to meet the cost targets, but they also needed to offer customization of the building to maintain visual variety and satisfy the demands of local authorities and architects. They also recognized the advantage of on-time completion of the buildings which would ensure maximum financial benefit for the building owners.

A Modular Architecture would allow Peab to incorporate a range of building features and options into the same family of building products. It would also allow them to phase in and out new designs by maintaining a consistent set of interfaces. With this approach they had a viable plan to meet the market requirements and eventually dissipate the industry’s reputation for dismal productivity.

Profitability Improvement

The key to Peab’s success in this new market space was a 26% cost reduction. In the past they were able to achieve this cost level only after the fourth or fifth time they built the same building. But now they wanted to do it the first time, every time. Peab expected to achieve overall cost reduction of 15-16% in 5 years and 24-25% in 8 years once volume levels increased.

Peab approached the challenge by applying the promised benefits of a Modular Architecture and identifying targets within each of the cost categories. They set major goals of 50% cost reduction for both the building design costs and the onsite indirect costs. The rest of the cost reductions would come from direct material and direct labor cost reductions.

The team also expected to improve the predictability of the construction process primarily through a 75% reduction in rework. More projects would be completed on-time, overall scheduling would improve and they would incur less rework cost. This rework cost is mostly attributed to the unplanned resources required to correct the details in the final customer sign-off.

Developing a Modular Architecture proved to be the key action for Peab to deliver the right product to the market at the right price. After the launch of the product family in 2007, they quickly achieved variable cost targets for design activities, materials and onsite management. The fixed cost would be on track once they reached planned volumes. They also offered buildings that were desired by customers and had enough variety to satisfy architects and local authorities.

They had developed an industrialized process for a design-and-build industry that would lend itself to continuous improvement. Lean could be used to improve process and reduce waste. Materials and resources could now be managed with PLM and ERP systems. Revenue and profits were more predictable and business calculations could be made with some accuracy. Decisions that were based primarily on instinct and past experience can now be supplemented with risk-lowering data.

Compared to the traditional method of construction, the direct staffing for this type of business is greatly reduced. However, the biggest challenge has been changing the minds of the people and getting them to embrace the new way of working. It is very easy for people who have worked in the traditional construction industry to fall back into their old way of thinking. Peab needed to give constant attention to the change that was occurring with this new way of conducting business.

Product Marketing & Management

During the development of the product architecture, the team at Peab worked hard to align building specifications with architects and system designers. They wanted to limit the options and the overall price, but allow for enough design freedom to preserve variety in the housing market. Figure 2 illustrates some of the components and systems that can be selected within the new product family. By having limits, professional customers, such as housing companies, can sometimes feel constrained. Peab is working to overcome these feelings by developing a costing tool that accompanies their building configuration tool. It will help drive the professional customers toward an optimized solution with a faster cost feedback then they ever had in the past.

Product Development Engineering

The engineering activities at Peab have shifted from designing individual buildings to designing the assortment of functions and modules within a product family. In the past, much of their time was spent preparing the plans and site documents used during construction. Now they pre-develop and reuse these documents and continue to improve them as more buildings are built. Past documents were vague and often incomplete causing many things to be solved onsite.

Peab engineering is now much more like an industrial company that designs and produces products. They have an industrial IT setup including part number management through a PLM system and a 3D CAD system that uses parametric models. For many building modules, the variability has been limited and the production process established so that manufacturing drawings are no longer required. For the modules still in need of manufacturing drawings, a configuration tool is used to easily generate what is required.

Product Operations

Lead times and variable costs targets were reached within five years after launch of the new product with volumes at only 25% of long-term forecasted levels. The team expected to meet the overall target as the fixed costs are spread out over higher volumes.

The most significant change to the building process was the implementation of many standard operations. Peab is now employing many more industry workers on the building sites who are skilled at performing standard operations and implementing continuous improvements. This is a larger pool of potential employees versus the pool of specialized construction workers. The final assembly of the buildings onsite is accompanied by complete and reliable documentation that is created during the ordering process within hours of the release of the final configuration.

The factory employs all industrial workers who work on repetitive, well-established processes. The production of concrete inner wall elements began in the traditional way using detailed drawings that included the overall dimensions, specifications for steel reinforcement and the location of any doors. After building a handful of walls, the workers no longer needed the drawings. They were able to accurately manufacture the component using the bill-of-materials and the configuration information.

By predefining the assortment of building dimensions, features and options, the operations team has been able to reuse forms, tools, and fixtures while implementing dedicated production stations. Forms have been designed on a grid of 100 millimeter increments to allow for efficient resizing and repositioning of features. Problems in manufacturing are avoided or solved more quickly, and there is a good flow of communication between onsite and back-office engineering. They have a plan and a team to execute each building and know what they are doing to a high level of detail.

They are also managing their supply chain more effectively. Materials and components that gained enough volume are being produced in Poland or other low-cost countries. Peab factories can now purchase components directly from the OEMs where they were previously required to go through a distributor. They have also started to co-develop new components with industrial suppliers in a typical OEM-supplier relationship.

Peab spent a lot of time during the development of the product architecture to develop a standardized interface for the way a floor slab attached to any vertical load carry element. During typical building design, a lot of attention is focused on individual joints to ensure robust connections, but no company had looked across all the different combinations of elements being joined. Now, within their new architecture, an individual building element’s joint doesn’t need to be defined. Common connections have greatly improved their overall efficiency and reuse of components.

Peab enabled a cost-optimized overall structure while considering all the layouts that they wanted to include in the architecture. They wanted to make sure the whole system was considered. The PGS project also changed all the processes from building design to construction to emulate the industrialized processes in other industries.

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Alfa Laval

CASE

One-Touch Configuration

Case

Alfa Laval

One-touch Configuration

Alfa Laval is a world leader in heat transfer, separation and fluid handling. The company’s global organization embraces 42 major production units and 17 000 employees in 100 countries.

Key enablers for smooth configure-to-order are the modular product architecture and an information model.

The modular product architecture at Alfa Laval is now clearer and better documented. Thanks to PALMA®, data can be connected and communicated to CPQ, PLM and ERP business systems. 

By restructuring the product with the Modular Function Development (MFD®) method, the new module system enhances the intrinsic modularity of the Alfa Laval gasketed plate heat exchanger range – and this has been achieved without any design changes. A key success factor for the new architecture has been to define the right level for the modules, neither too big nor too small, and as a result they are now more manageable.

PALMA® is proprietary software from Modular Management. It has been used by Alfa Laval to create the modular product architecture and document it in information model format. In addition, PALMA® is the tool for Alfa Laval engineers to maintain product data, including specifications and rules for dimensioning and performance.

PALMA® has tools to execute the information and create configuration intent and logic. The user-friendly interface enables access to data in a common environment for both engineers and configuration modelers. This enhances collaboration between and enables faster development of a new configuration model.

With the integration of PALMA®, and business systems including CPQ, PLM and ERP, the information model creates a digital thread throughout the value chain of Alfa Laval gasketed plate heat exchangers and eliminates manual data transfer and interpretation. As a result, Alfa Laval is now using PALMA® as an enterprise solution to develop, communicate and share modular product architectures across all product areas.

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SUMMARY

How to Enable Configure to Order?

 

There are two key enablers for Alfa Laval’s cutting-edge order-to-configure process:

  1. Configurability
  2. Information Model.

Alfa Laval continuously develops the gasketed plate heat exchanger assortment to correspond to new and increasing market demands. This development has incurred challenges for internal business processes to accommodate more complexity. 

This configure-to-order project was designed to reduce manual involvement in product specification and delivery, and extensively minimize internal workload, reduce the number of module variants and eventually reduce lead times from order to delivery.

The Full Story

Here we focus on two key enablers for Alfa Laval’s cutting-edge order-to-configure process:

  1. Configurability
  2. Information Model.

Configurability

The first enabler to improve the configurability of existing products is to restructure them into modules with defined interfaces. The product structure, or architecture, is defined at a level so the modules are neither too big and complex, nor too small and numerous. The architecture is created by restructuring the existing design, without redesign, so desired business effects can be reached faster.

Information Model

The second enabler is to define the modular architecture in an Information Model that feeds product data to downstream business systems, including Cost Price Quote (CPQ), Product Lifecycle Management (PLM), Computer Aided Design (CAD) and Enterprise Resource Planning (ERP). 

In the Alfa Laval case, the information model is developed, executed and governed in PALMA®. PALMA stands for Product Architecture Life Cycle Management and Alfa Laval uses this enterprise solution from Modular Management to develop and communicate modular product architectures across product areas. In summary, a modular product architecture improves the configurability of the assortment and PALMA® software manages the information model and enables system integration.

Alfa Laval is a world leader in heat transfer, separation and fluid handling. The company’s global organization embraces 42 major production units and 17 000 employees in 100 countries.

Alfa Laval’s gasketed plate-and-frame heat exchangers provide efficient heat transfer in compact equipment with a small footprint. The products are used for heating, cooling, heat recovery, evaporation and condensation. Industry applications include heating, ventilation, air conditioning, refrigeration, engine cooling, dairy and food processing, and even larger processes in the oil/chemical production and power generation. The product range is almost as broad as the industries it serves.

Over the years, the assortment has grown in line with demands for faster and more frequent launches of new, updated and customized products.

To maintain and develop this strong position, Alfa Laval realized that a fundamental change was needed in how products were structured and offered to the market. 

The decision was made to introduce a more modular product architecture to enable the configure-to-order process and integrate IT solutions along the value chain. The vision was for seamless and fully-automated product handling, from CPQ via PLM into ERP 

Challengers for Product Marketing & Sales

Alfa Laval uses a CPQ configurator to sell products. 

Although customers increasingly want to configure their own solutions to optimize their heat exchange process, the product structure used by the configurator did not reflect the modular design of the product. This lack of configurability led to a higher resource load when creating and maintaining specifications and configuration rules. It also necessitated non-value adding activities in the organization and longer lead times for product launches. For many projects, only the most prioritized parts of the offering were implemented in the configurator. And in very big projects, only the highest volume variants were implemented. A big challenge.

Although improvements had already been made in both the product structure and configurator, several issues could only be solved by a new approach to the product rules and logic.

Challenges for Product Design & Engineering

Heat exchangers are highly configurable products and because customized solutions are highly sought after, steps to improve configurability have the potential to deliver high value. 

The configuration model at Alfa Laval had to be improved. Product logic and rules were not easily accessible, which created dependencies on product and configuration experts. This also caused delays in implementing new variants in the configurator, not to mention difficulties in getting new engineers and product managers up to speed.

Longer lead times for new product launches were primarily due to the specification workload caused by the product structure. For example, an update of a single part could require updates to thousands of specification documents. No fun and a clear downside business risk.

The product structure generally provides a good overview of modules, variants and product data. Yet in the old structure and its accompanying documentation, this overview of design variants (parts or assemblies), including where they were used, was lacking. 

It was considered essential to improve governance of the product model and shorten the analysis time needed for design changes to be approved.

Challenges for Operations

Due to a high degree of customization, and a less than optimal product structure, the delivery process was complex and included non-value adding activities. To reduce and avoid manual activities in the delivery process, the goal was set to integrate the sales order systems with the ERP system. The product architecture information model was to be the enabler – the common ground – to link cost and lead times. At the early stages of product configuration by customers, it was about to become clearer what could be built, at what cost (internal) and when (internal/external to customer).

There were two main goals for the order-to-delivery project:

1. Restructure the modular system. The target was to significantly reduce the number of module variants, directly impacting many activities within engineering, product management and the supply chain. 

2. Create a configuration solution for the full gasketed plate heat exchanger product offering. The target here was to establish a solution that was easier to maintain for engineers in terms of product data, specifications and performance rules. It should also provide a better overview of the logic and rules used during configuration. 

Since gasketed plate-and-frame heat exchangers products are highly configurable to meet specific needs, customers need to be able to select a solution based on parameters ranging from capacity, flow routing, extra inlets and outlets to material choices, temperature and different pressures for the various flow media. The new configuration model had to manage this and enable a simpler and more robust solution.

The new restructured module system and configurator solution is now in place and the results are being followed closely.

Two of the main impacts are reduced workload and shorter lead time when launching new product variants.

Reductions in workload for product development and management are expected to be in the range of 15-20%, and the removal of non-value adding activities is also expected to positively contribute to employee satisfaction and competence development. When repetitive tasks are replaced by more challenging and interesting ones, work usually gets more fun.

Aside from the workload reduction, dependencies on expert product and configuration personnel will also be reduced. With fewer bottlenecks, the organization can increase efficiency and become more self-contained. A more complete offering in the configurator means less manual work in the sales and order processes and fewer design-to-order activities. In operations, manufacturing and assembly is already smoother, since orders can be built as configured.

Key enablers for smooth configure-to-order are the modular product architecture and an information model.

The modular product architecture at Alfa Laval is now clearer and better documented. Thanks to PALMA®, data can be connected and communicated to CPQ, PLM and ERP business systems. 

By restructuring the product with the Modular Function Development (MFD®) method, the new module system enhances the intrinsic modularity of the Alfa Laval gasketed plate heat exchanger range – and this has been achieved without any design changes. A key success factor for the new architecture has been to define the right level for the modules, neither too big nor too small, and as a result they are now more manageable.

PALMA® is proprietary software from Modular Management. It has been used by Alfa Laval to create the modular product architecture and document it in information model format. In addition, PALMA® is the tool for Alfa Laval engineers to maintain product data, including specifications and rules for dimensioning and performance.

PALMA® has tools to execute the information and create configuration intent and logic. The user-friendly interface enables access to data in a common environment for both engineers and configuration modelers. This enhances collaboration between and enables faster development of a new configuration model.

With the integration of PALMA®, and business systems including CPQ, PLM and ERP, the information model creates a digital thread throughout the value chain of Alfa Laval gasketed plate heat exchangers and eliminates manual data transfer and interpretation. As a result, Alfa Laval is now using PALMA® as an enterprise solution to develop, communicate and share modular product architectures across all product areas. 

Curious? Just email info@modularmanagement.com for more.

One-Touch Configuration