Executive Summary
Manufacturers of residential HVAC products don’t always realize they’re trapped in a complexity spiral. Expanding product variety seems necessary to meet customer demands—but behind the scenes, it drives engineering overload, supply chain inefficiencies, and bloated manufacturing costs that quietly eat away at profitability.
A common misconception is that reducing complexity means reducing the number of products offered to the market (SKUs). Complexity reduction isn’t about offering fewer products—it’s about reducing the number of unique parts and redundant engineering efforts that make expanding product variety costly and inefficient.
Leading HVAC manufacturers that have implemented strategic modular product architecture have successfully increased product variety while cutting internal complexity by:
- 40-60% fewer unique parts
- 30-50% faster product development cycles
- Up to 40% reduction in internal engineering and procurement costs.
If you believe that you are already modular but haven’t achieved these levels of operational outcomes, your modular product architecture strategy is likely not thought about as an initiative that delivers value to the entire business.
What You’ll Learn in This Blog
- Why complexity is driving up your costs and slowing down product innovation.
- How modular product architecture enables a broader product assortment with lower costs.
- How leading manufacturers have reduced engineering time, supply chain risk, and manufacturing complexity.
- How you can expand your product lineup profitably while streamlining operations.
By the end of this blog, you’ll understand why HVAC companies must shift from managing individual SKUs to optimizing their product architecture—and how doing so leads to faster product launches, better cost control, and a stronger competitive position.
If your modular product architecture isn’t delivering real business value, cutting SKUs won’t solve the problem—it just masks it. The real challenge is managing complexity without sacrificing flexibility. Download the scorecard to find out if your strategy is truly driving operational outcomes.
The High Cost of Complexity – And Why It’s Holding You Back
All HVAC manufacturers start with good intentions—they want to offer more variety, serve more customer needs, and stay competitive. But as they expand their product offering, something happens behind the scenes.
Each new SKU adds more unique parts to their supply chain. Entire new product platforms are often introduced without retiring old ones, adding many new parts to the inventory. Engineers spend more time making small tweaks to designs instead of working on real innovation. Manufacturing schedules become harder to manage with constant changeovers. Before long, the company is dealing with exponential complexity growth—and the costs that come with it.
The Unseen Costs of Complexity
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Product Development Delays: More unique components mean longer design cycles, more testing, and increased compliance burdens.
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Manufacturing Inefficiencies: Increased part variety leads to frequent production changeovers, excess inventory, and longer cycle times.
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Supply Chain Risks: More unique parts require more suppliers, longer lead times, and increased risk of shortages.
Key Takeaway: Complexity doesn’t just slow you down—it silently erodes your profit margins with excess costs across engineering, manufacturing, and supply chain operations.
Why Most HVAC Companies Think They are Modular—But Aren’t Modular Enough
Many HVAC manufacturers already believe they have modular products. If you ask an HVAC engineer, they’ll break their products down into:
This functional decomposition is a step toward modularity—but it’s not enough to deliver benefits along the company’s entire value chain. A strategic modular product architecture should be a company asset that is developed and leveraged by all functions, building and accelerating value creation.
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The Critical Difference Between Modules & Modular Product Architecture Many HVAC companies assume they have modularity because their products are built from recognizable subsystems. But having technical chunks of a system isn’t the same as having a strategic modular product architecture. A true modular product architecture does more than break a product into pieces—it:
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To illustrate how complexity creates cost inefficiencies across different parts of an HVAC manufacturing business, consider the following table:
Table 1: Hidden Costs of Complexity vs. Savings from Implementing Modular Product Architecture
When an HVAC company lacks a strategic modular product architecture, every new model requires separate engineering, procurement, and validation efforts. This complexity accumulates across the product lifecycle, adding unnecessary costs and slowing time-to-market.
By adopting modular product architecture, HVAC companies can build more products with fewer unique parts, streamline manufacturing, and simplify regulatory compliance—all while expanding their product portfolio profitably.
Takeaway: Simply having "modules" doesn’t create efficiency—modular product architecture structures them in a way that delivers real business value.
How Modular Product Architecture Unlocks a More Profitable Product Portfolio
Many HVAC manufacturers assume that reducing complexity means cutting SKUs—but that’s a misconception. The most successful manufacturers have found that they can actually increase product variety while lowering internal costs—but only if they are strategic in how they define and implement their modular product architecture.
Without a strategic modular approach, adding new product variations leads to runaway complexity—more engineering effort, more part numbers, and longer lead times. But with strategic modular product architecture, companies can expand their portfolio without sacrificing efficiency, cost control, or speed to market.
How It Works: Three Key Enablers of Profitable Product Expansion
Pre-Defined Modules
- Instead of engineering each new product independently, manufacturers create a set of reusable, scalable building blocks (that is, module variants) that work across multiple products.
- This eliminates the need to redesign core components, significantly reducing engineering time and costs.
Late-Stage Differentiation
- Customization (that is, modules having a lot of variance to meet customer/market demands) is applied at the final stage of production instead of at the component level, reducing SKU-based complexity.
- This allows for market-driven variety without increasing upstream supply chain and manufacturing burdens.
Supply Chain Resilience
- Fewer unique components mean higher procurement leverage, stronger supplier relationships, and reduced risk of shortages.
- Standardized parts across product families reduce cost volatility and improve forecasting accuracy.
Bosch Home Comfort Group (formerly known as Bosch Thermotechnolgies), a leading global manufacturer of HVAC systems, faced a growing complexity challenge as it expanded into multiple regional markets. Each market had different regulatory requirements, efficiency standards, and customer preferences, resulting in a fragmented product portfolio with redundant engineering and procurement inefficiencies.
To address this, Bosch implemented strategic modular product architecture, restructuring its HVAC product lines around common modules and configurable variants. This shift reduced engineering workload, consolidated supply chain complexity, and enabled faster adaptation to local market needs—without excessive SKU proliferation.
The impact was substantial:
- Cost reductions from fewer unique components and streamlined procurement.
- Faster time-to-market as new products leveraged pre-engineered building blocks.
- Increased product variety without a corresponding rise in internal complexity.
Key Takeaway: By decoupling product variety from rising costs, Bosch achieved a more scalable, profitable product portfolio while continuing to meet the needs of diverse customer segments.
Strategic Advantages: Why HVAC Manufacturers Need Modular Product Architecture Now
By shifting to modular product architecture, HVAC manufacturers can:
- Expand their product portfolio profitably while reducing internal complexity
- Reduce time-to-market for new models
- Strengthen supplier relationships by consolidating component sourcing
- Improve operational efficiency without cutting product variety
Figure 1 illustrates how the cost of adding new products is significantly higher in a typical HVAC company compared to one with a strategic product architecture. Without a modular approach, additional costs/additional SKU can more than double due to redundant engineering, fragmented supply chains, and inefficient production processes. In contrast, a well-architected modular product portfolio keeps costs under control, enabling greater product variety without excessive complexity or expense.
Figure 1: The Complexity-Variety Paradox – How Strategic Product Architecture Enables Profitable Growth
This visual illustrates that reducing complexity isn’t about cutting SKUs—it’s about decoupling product variety from rising internal costs. A strategic modular product architecture allows manufacturers to expand their portfolio while maintaining cost efficiency.
Takeaway: Modular architecture isn’t about reducing SKUs—it’s about breaking the link between expanding product variety and rising internal costs.
Conclusion: How to Get Started with Complexity Reduction using Modular Product Architecture
Complexity isn’t just an engineering challenge—it’s a profitability challenge. The HVAC manufacturers that thrive in the future won’t be those who simply manage complexity but those who strategically eliminate unnecessary complexity while scaling profitable variety. Modular product architecture is the key to breaking the cycle of complexity engineering workloads and supply chain inefficiencies, that comes with an ever-growing number of SKUs. The companies that implement it successfully will not only expand their product portfolios but will do so faster, more efficiently, and at a lower cost than their competitors.
Now is the time to shift from reactive complexity management to a strategic, scalable product architecture that drives sustainable growth.
Next Steps
If you're operating in a make-to-stock environment, complexity isn't just inconvenient—it’s expensive.
Too many SKUs, redundant components, and outdated product architectures quietly inflate inventory, procurement, and production costs. But it doesn’t have to be that way.
We’ve created a set of actionable resources to help you take the next step:
- HVAC Complexity Scorecard – Quickly assess how much product variety is costing you.
- Self-Assessment Tool – See if your current product architecture is holding you back.
- Modular Architecture Roadmap – A clear, step-by-step guide to optimizing your product portfolio without sacrificing market coverage.
Download the full toolkit and start simplifying your product assortment—without compromising your business.
Want to Know More?
If you’re interested in learning more about how we can support your business, feel free to get in touch.
Hank Marcy
Chief Account Executive
+1 952 254 7608
hank.marcy@modularmanagement.com
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