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

CASE STORY

MTS Systems

Inspiration for Hardware Design

MTS SYSTEMS

Summary

MTS Systems is a global supplier of test systems and industrial position sensors for a wide array of applications, including wind turbines.

The company faced had a number of challenges, including decreasing profitability and increasing lead times; a proliferation of products and parts that was scaling with growth; and competitors that were offering “good enough” products with lower prices and shorter lead times.

MTS decided it needed a transformative change and launched a modularity program that delivered significant results, including: 90% reduction in total number of parts; 35% reduction in customer project costs; 70% reduction in lead time; 75% reduction of work-in-progress.

Before modularity MTS used 11,000 parts to build 150 product variants. After modularity, the company used 800 parts for 100,000 product variants.

MTS Servohydraulic Load Frame Product Family

CASE

MTS Systems

MTS Systems had a number of challenges, including decreasing profitability and increasing lead times; a proliferation of products and parts that was scaling with growth; and competitors that were offering “good enough” products with lower prices and shorter lead times. MTS decided on a transformative change.

Beginning in 2002, market growth for test equipment was fueled heavily by newly developing countries where local companies were starting to design and manufacture higher quality, higher complexity products. MTS, who had established themselves in these markets years prior, was well positioned to take advantage of these new opportunities. 

As leader of this niche market and inventor of the core technologies, MTS had seen many years of strong profitability. Customers were willing to wait a long time and pay a lot of money to buy a system from MTS. As new competitors entered the market and existing competitors chose new ways to compete, a new level of products was introduced with “good-enough” performance, lower price and shorter lead times. Some customers could no longer justify the additional time and money required to purchase from MTS.

The company was organized into groups around small market niches that included automotive shock absorbers, aerospace aluminum, asphalt road materials, artificial knees and many others. Each group managed a separate profit-and-loss perspective and controlled profitability of every order using margin-based pricing. Over the years, this arrangement led to the branching of MTS’s core business approach toward the optimization of price performance for the narrow slices of the market. It also led to the proliferation of product variations within product areas that required an increasing number of parts to produce. Operations had a very difficult time gaining leverage, and it was hard to identify opportunities for improvement to the overall business.   

Continued growth in the market was limited by MTS’s ability to address the demand for lower prices and shorter lead times. Their project-based operational model became ineffective resulting in increased cost, lead time and quality issues. Operations were pushed to capacity, and the scaling-up of the current system was not a viable business option. A new approach was required to meet the broad range of customer requirements while maintaining long-term profitability.

Product Marketing & Management

A small, disconnected marketing team at MTS attempted to manage the full breadth of markets, products and customer applications that formed the niches. Each area generated new requirements and potential changes to the product, but it could be five or more years before development resources were available to make changes. It was very difficult to keep products fresh once they were launched.

Sales teams were organized by niches, and they consisted of both sales and application engineers. The teams were capable of gaining a deep understanding of what each individual customer needed and would go out of their way to deliver exactly that. Their pursuits were sometimes detrimental to the company in how they consumed time and resources. The teams often knew more about an application than the customer and needed to coax decisions in order to configure a test system. The consequence of this structure was that it led to a broad range of different product configurations. Test systems were built for additional customers within niches, but there was almost no repetition across niches.

In order to improve the efficiency of selling, a product configurator was created for a few product areas that included a range of product performance, features and options. It greatly improved the accuracy of the communication between sales and engineering, but it made no improvement to operations or product management. The configurator included all reasonable product properties that customers may want, but there was no predetermination as how the product would be produced, if it had been built before, or if it was a profitable configuration. Since there was no active connection between the sales configurator and operations, sales people configured whatever the customer thought they needed, and engineering decided how it was designed and manufactured. 

Product Design & Engineering

The product design function at MTS was closely coupled to project engineering. Each customer project had an engineer assigned to follow the order through the system and to troubleshoot when something went wrong. The planning of projects always included a contingency for schedule and cost both of which were burdened by the customer. The goal was to ensure project profitability and deliver it on a promised date even if the date was later than what the customer originally requested.

Each customer project was accompanied by a new set of paper documentation. Little efficiency was gained in engineering even when the sales teams were able to sell close copies. After customer projects were completed and quality problems were resolved, the design teams could then focus their efforts on new product development. Consequently, development activities took a back seat and they were risky activities for product teams to propose. Most of the innovation and new designs occurred on customer orders with the risk built into the price and schedule.

Efficiency gains in engineering were realized only with individual people. Based on their own experiences, each would develop processes to optimize their efforts. In many cases, it was easier for individuals to start from scratch on a project versus reusing someone else’s documentation. This mode of operation covered-up the system-wide challenge because people were doing their jobs well. Problems occurred only when the system of people was disrupted.   

Product Operations

Since every customer test system was new to some extent, many issues during manufacturing became science projects. Each took a lot of time and brainpower to resolve, and involved highly skilled and experienced people. The learnings from issue resolution were stored in the heads of the people who worked on the problem because there was no process to share across the company. Project engineers would try to pick the same operational resources each time they needed to build a system in the same product area.

The wide range of components supported by the supply chain was managed without the support of forecasts or the ability to buy anything in volume. The lead time for projects was established by the component with the longest lead time, and the low volumes offered MTS little buying power and control over prices or designs. Components that were available one year may not be available the next year.

In 2002, MTS was focused on improving the efficiency of their operations by reducing the effort for individual projects. They needed to meet the lower cost levels required by the evolving market. The organization was over-burdened and stressed, but the business proposition to scale-up operations in its current state was not attractive. A new approach was needed to regain control of the system and meet the changing requirements within the market.

These operational issues along with a desire to control and improve overall profitability caused MTS to make sweeping changes to the organization. With a new organization aligned by business functions, they hoped to shift the focus to core profitability and to the identification of business-wide opportunities. As a result, the sub-optimization within market niches was gone, but the pendulum had swung too far in the other direction. Specialized knowledge was not being delivered where it was needed in a reasonable amount of time.

In 2004, MTS launched a series of initiatives to balance the organization and secure their ongoing leadership position in the market. Called the Market Leader Challenge, it sought to improve the competitiveness of the company’s products and processes. Using modular architecture to efficiently deliver products was supporting the Leverage Product Offerings initiative. It would create a new operating model for higher volume products to keep up with market growth in emerging regions, and it would expand the range of product performance and features to address new product entrants.

MTS chose a single product family to pilot modular architecture and intended to work on others in succession. A pilot approach was chosen because the business systems and process that were being created for the product family were not replacing existing ones. The new process could be developed and tested on a small scale with new people and then repeated within another product area. The management team picked product areas that reached across multiple niches and consolidate technical capabilities, and chose servohydraulic load frames as the first.

Revenue Growth

Servohydraulic load frames are used by MTS customers for complex fatigue life and fracture growth studies on metals and composites or for conducting simple tension and compression tests on consumer products and building materials. This is a market niche where competition had increased and MTS market growth potential was threatened. To maintain a competitive offering, they sought to reduce customer lead times significantly lower than their 48-day average.   

Lead time reduction would be accomplished though the new modular architecture that would collect the full scope of this product area into a single product platform. A goal was set to achieve 80% of orders using product configurations of 100% established modules. These could be delivered in a fraction of the 48 days. The remaining 20% of orders would use 80% established modules and would reduce the time to both design and deliver. 

Profitability Improvement

The management team determined that the additional capacity required to meet the growing market demand would come from increased efficiency rather than the addition of resources and manufacturing space. A large chunk of the efficiency would come from having more orders configured instead of designed, and this would lead to a 30% reduction in job cost. 

The operations would also become more efficient by reducing the number of part numbers that needed to be managed by the various teams. By creating a modular architecture, a 90% reduction in total part count was expected. MTS also established a goal to keep new part creation to less than ten per week.

 

With a new approach to delivering solutions to the market, MTS has added the efficiency and capacity needed to keep up with the market growth. By leveraging the similarities of the test systems across applications though a deliberate family of products, they were able to take advantage of some level of scale. In the words of CEO Laura Hamilton, “Modular platforms have helped us build a cost advantage. We’ve reduced our unique part numbers.”

Much of the success at MTS was due to the implementation of teams within the major business functions. These teams of managers and core implementers worked together to figure out how to implement the Modular Architecture in their function. The successful results encouraged the management team at MTS to continue to develop Modular Architectures for other products. This included the family of electronic control system and the family of software applications.

Product Marketing & Management

The initial launch of the servohydraulic load frame product family was a great success. It incorporated an extensive update of the products across the many application niches that would have individually taken ten years or more. The number of overall product variants was increased by more than 100%. Features and system performance for each of the individual applications was increased by sharing across the entire product family.

At the same time the new Modular Architecture was being developed, the sales organization was changing to support the Market Leader Challenge. Sales teams were being deployed regionally instead of by market or application. They were becoming generalists instead of specialists and needed to rely on others for specific application knowledge. The ability to configure products from a predetermined set of designed and managed variants was an important factor in their success with the change.

A new product configurator was implemented that was linked directly to the operational systems. It was based on the modules within the architecture, and whatever was sold by the sales team from the configurator was built by the manufacturing team. The efficiency of the product family was controlled with the predetermine variants offered in the configurator. The people-dependency of delivering product was removed from the process.

A more efficient marketing organization also evolved out of the development of the Modular Architecture. A single product manager was assigned to the management of the common platform components that made up the core of any system. This individual is focused primarily on managing the internal process and issues to improve the operational efficiency of the product. Other market and product managers are focused on the components like software and test fixtures that adapt the core of the system to specific applications. These folks can manage multiple applications and limit their involvement in the core product.

Product Development Engineering

Engineering activities at MTS have increasingly shifted away from delivery of specific customer orders to the up-front design of a planned product platform. In fact, the development of the first Modular Architecture for servohydraulic load frames solidified the need for a research and development department. MTS found that it was necessary to separate the engineers working on new products away from the demands of everyday customer projects.

The platform design of the load frames is a marvel of design efficiency. The overall part numbers were reduced by 75%- 90%. Before the modular architecture there were 11,000 unique part numbers to build 150 unique product variants. With it, they only need 800 unique part numbers to build over 100,000 unique product variants. Many customized test systems can also use a portion of the platform integrating newly engineered content through standardized interfaces.

Documentation is one of the key engineering functions that was addressed in the load frame project. It was once a paper-based process where project-specific drawings were created, printed and shipped with each order. It is now a paper-less process that automatically builds CAD models and simplified eDrawings from product configuration data. It eliminates much of the non-value-added time engineers used to spend on each order, and individual project costs have been reduced by 18-35%.

The electronic documentation now also contains all of the manufacturing information. When a product is configured, the production operations are configured at the same time. The documentation has also become an important tool for governing the Product Architecture. Changes now needed to be planned and approved. Using paper would have allowed the organization to go back to its old ways. 

Product Operations

The initial Modular Architecture project proved to the management team at MTS that they were on the right path to regain capacity and efficiency in their operations. For load frames, the average time in the manufacturing process was reduced from 48 days to 14 days, and the corresponding work-in-progress was also reduced by 75%. In the past, systems would travel upwards of 1.2 kilometers in the plant. Consolidation of operations into modules and the implementation of an assembly cell reduced travel to less than 100 meters. Modules are built and tested ahead of time to ensure they are working when assembled into the test system. The number of steps in the assembly process was reduced from 24 to 10, and there was much less rework. 

The reuse of components across the broad product family allowed the supply chain to be managed with forecasts and higher volume purchasing. The team established tiers of components to go along with their planned product lead times. Tier I items are high demand and closely managed to be always available with short lead times. Tier II items have slightly longer lead times that expand with high demand at a single point in time. Tier III items have the longest lead-times and are not typically held in inventory. These lowest volume components are procured to support each order, but the lead time is consistent.

A significant set of modules that was developed for the modular architecture within the load frame product platform was the integrated actuator beam.  Analysis of the functions of the components indicated that many of them could be combined into this super-sized module. This component is being built and fully tested before it is integrated into the rest of the load frame.

The standardized interfaces surrounding this set of modules allow it to be integrated in multiple configurations of the load frame. Much of the variation required in the system is accomplished with a separate, bolt-on hydraulic manifold module. Variants of the beam module are built using late differentiation. The long lead item of the casting is produced in a limited number of sizes and stored in inventory. The casting is machined per unique variant as it is demanded by customer orders.

This set of modules did not result from the work of a clever design team. It was a result of deploying the Modular Function Deployment® method to identify the location of module interfaces that would accomplish both functional and strategic objectives of the product. The significance of the design is measured by the impact to the customer and the business as a whole.

INTERVIEW

Luther Johnson tells the full MTS Systems case story.

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 Construction Equipment
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.

city air
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.

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.

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.

circular economy
INSIGHT

Circular Economy

BY MODULAR MANAGEMENT

Hot Topic

How to Design Products for the Circular Economy?

Shifting the Economic Model

Transformation maps from the World Economic Forum show where the shift away from a take, make and dispose economic model is gaining ground. So what does this mean for the design of products? How can companies design for the circular economy?​

circular economy

What is the Circular Economy?

The circular economy has over 100 definitions across academia and industry. Common to them all is an economic system that replaces the end-of-life concept with reduction, reuse, recycling and recovery of materials in production, distribution and consumption processes (Kirchherr et al., 2017).

One reason for the circular economy’s rising popularity is its coupling with other megatrends, such as digitalization. The idea is not only to reduce ecological footprint, but also boost economic growth and innovation. 

ISO 14040:2006 defines a product lifecycle as the consecutive and interlinked stages of a product system, from raw material acquisition or generation from natural resources to final disposal. A product system, according to ISO 9001, is the combination of interacting elements organised to achieve one or more stated purposes. A system may therefore be a product or the ecosystem of services it provides.

The circular economy requires us to rethink business models, product design and product lifecycles. And that’s where modular design comes in.

How to Rethink Product Design and Lifecycles?

Usage is typically the longest phase in the product lifecycle. For example, Swedish steel producer SSAB estimates that the majority of all steel ever produced is still in use. At the same time, disposed steel does not satisfy market demand for new steel.

In order to recover materials from products for recycling or remanufacturing, product owners and producers need to agree on product return. They need to rethink the costs of replacing and returning product, and aim to reduce demand for new materials by designing products for greater longevity, or even perpetual reuse. Companies basically need to rethink their business models and the evolution of the customer experience over time. And this naturally involves major risks and uncertainties.

There is significant uncertainty in how to invest, design, purchase, deliver and monitor products so they can be returned efficiently or reusable indefinitely. The degree of freedom for executives and designers to rethink business models or entire products is always limited by time, resources and risk. So how can we act on the opportunities presented by the circular economy? 

Create an Unfair Advantage With Modular Design

For example, take a look at Xerox. 

Xerox is one of the leading manufacturers to design and operate circular product lifecycles for printer and photocopier solutions. The table below illustrates Xerox learnings in moving from selling printer and copier products, to office automation services (pay per use). Savings from remanufacturing a non-modular design were doubled when Xerox moved to a modular design for its copiers.

Modular design enables companies to separate and replace modules that are used intensively from variant introductions and performance upgrades. This improves maintenance services along the product lifecycle, and enables processes for module return, recovery and reuse. 

Modular design also enables companies to explore new markets and new operational models, such as remanufacturing, module by module. This reduces the time, effort and risk involved in innovation, which in turn creates a competitive advantage in time to market for new products. And some of these new products may well be the key to new service business and business paradigms for the circular economy.

Modular Design for Products, Services and Organizations

Sustainable modular designs are customer-centric. This has been true for Modular Management client engagements for more than 20 years, and designs for the circular economy are no different. 

Technology will play a key role in defining product system architecture, whether modular or integral, but technology trends are many and the rate of change is hard to predict. Architectures will not last forever, but a customer-centric modular product architecture is an asset much larger than the sum of technical architectures, and can satisfy strategic and market needs over time.

How to approach customer centricity?

First, think of the customer values provided by your product and then decouple these from current products. Second, rethink your product as the combination of interacting functional elements. With this, how might some elements be designed to perpetuate reuse, decoupled from material use, or designed for effective recovery or recycling? What services would be desirable along the lifecycle? What would this require of your organisation and company strategy? Consider the following, simplified innovation scheme.

circular economy simple innovation model

The positive correlation between modular product architectures and business performance has been researched in a number of industries, including software, computer, consumer electronic and automotive industries. 

At Modular Management we’ve seen how most leading brands, often after product platform and standardization strategies, are investing in modular design and modular architectures to increase strategic flexibility and business performance. 

One learning is crystal clear: cross-functional engagement.

Cross-functional engagement in modular design is fundamental to succeed in realizing and sustaining  business performance. This becomes especially clear when companies want to offer and deliver effective and consistent product lifecycle services for their products. The longer the product is in operation, the more critical lifecycle services become, which is extremely relevant for reuse, recovery and recycling.

Modular design companies are not only faster in time to market, and more cost-effective in design maintenance, they also tend to have more responsive/proactive sales and marketing. Modular design also enables faster assembly and more effective use of suppliers and global manufacturing assets. Modular designs are more suitable to service at near-customer locations, and this reduces tied-up capital linked to logistics. Even spare parts, upgrade and service business become more responsive and efficient.

Provided information model and design principles are aligned, modular architectures for products, services and organisations can meet changing customer needs and accelerate value creation, step by step.

Five Steps of Lifecycle Design Maturity

Rethinking product design for lifecycle services and circularity was a task for a workshop organized by Eurostep, KTH Royal Institute of Technology and Modular Management at the Dome of Visions in Stockholm, Sweden. The task was to define and exemplify levels in maturity in designing for product life cycle services. Participants represented a sample of industrial core competencies, ranging from industrial robots, to heating and power systems, steel and trucks.

Each participant had a different perspective and unique industry experience, but succeeded in defining a common set of challenges, capabilities and values in a five-step maturity model.

Each of the five steps represents a maturity level in designing for product lifecycle serices, from ‘Initial’ to ‘Optimising design’ for product lifecycle services.

This staircase model provides a foundation for Modular Management research into the circular economy. More co-developments with industry are underway, and universities, industries, students and practitioners are welcome to join.

The circular economy embraces both customer centricity and business performance and there is a manageable, step-by-step path to reduce ecological footprint while realizing significant opportunities for your business. Get in touch to find out more.

Colin de Kwant

Colin de Kwant

info@modularmanagement.com

RELATED

Mobility Scenarios

A round table event, on how circular economy and industry 4.0 trends impact product lifecycle services, was organized by Eurostep and Modular Management with support from the KTH Royal Institute of Technology (School of Architecture and Built Environment and School of Industrial Engineering and Management). Held in Stockholm, industry participants came from ABB Robotics, Bosch Thermotechnology IVT, Modular Management, Siemens Industrial Turbomachinery, SSAB and Volvo Truck & Bus. And the output was a five-step maturity model in how to design for product lifecycle services.

LINKEDIN

Follow the ECO² Vehicle Design Centre

INSIGHT

How to Reduce Complexity and Accelerate Value Creation?

EXTERNAL LINK

World Economic Forum on the Circular Economy

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
HOT TOPIC

Configurability

BY MODULAR MANAGEMENT

Mass customization is a hot topic because customers, you and I, want to configure their own, individual solutions. We don’t want a standardized package, but a solution that meets our specific needs. Question is how companies can make it happen?

INSIGHTS

Configurability and Mass Customization

A modular product architecture enables you to reduce complexity and accelerate value creation. Here's more on what it is and how you can use it to achieve more with less in your business.

Configurability, Configuration and Mass Customization

Configurability is about how well a product can be configured and customized, and is primarily linked to: 

  1. How the product is designed and structured
  2. How the product is represented in IT systems
  3. How the supply chain is set up to support a configurable product. 

Configuration is the activity of arranging parts or elements in a particular form, figure or combination, and primarily linked to processes and tools, so unique customer requests can be translated into a delivered product. 

When understood together, configurability and configuration enable the mass customization of products so companies can meet specific, individual customer needs in an efficient and effective way.

Configurability

Configurable Product Design

To create configurable designs, products should be flexible enough to allow for the adding, removing or replacing of elements without impact across the product. Changes must be isolated to the directly customized element, without causing indirect changes to surrounding elements.

A modular design has exactly this ability. Why? Because functions, features and performances are encapsulated in individual modules and the modules themselves are protected from each other by interfaces. This allows one module, or variants of one module, to be changed while still fitting through the interface, without changing any other module. 

Configurability and IT Systems

A customizable product needs to be represented in IT systems so that elements can be easily added, removed or replaced. 

One important aspect of configurability is the level at which parts are documented in the customer’s bill of materials (BOM). Many companies sub-optimize the BOM in order to simplify or reduce part number count. Parts are then documented on a too high level, and above the level at which customers want to add, remove or change elements. This means that only predefined combinations of elements exist and no unplanned combinations can be made. And over time, the goal of part number count reduction becomes harder since the number of combinations needed grows exponentially with a multiplication effect. At this stage, companies are still only making predefined combinations and configurability suffers. 

Another important aspect is how to manage the total configurable product range in terms of the bill of materials. Do you have multiple super-BOMs for different products? If so, this means you can make changes inside one super-BOM, e.g. add, remove or change elements, but for other changes you have to change to another super-BOM and throw away what you just did, open up a new super-BOM and start from scratch. A truly modular BOM, on the other hand, can handle the full range of products.

Configurable Supply Chain

The supply chain can disable configurability even if the product design and IT systems are set up well.

The most common reason for this is that the manufacture or purchase of sub-assemblies is on too high a level to stock. This problem is similar to that of documenting parts on too high a level. If you buy or sub-assemble predefined combinations on too high a level, suppliers and internal sub-assemblies are unable to run new, unplanned combinations with an acceptable lead time. 

To solve this we need to delay the so-called ‘variance point’. This is the point in the production process where parts and assemblies become a unique order combination, instead of generic parts that fit into multiple combinations. By delaying the variance point, all assembly operations that make the combination order unique are not made until the order is received. At this point, the requested combination is known and assembled to order. Only generic parts up to module level are purchased or produced to stock, before the order, and are then ready to be assembled in the correct combination.

Configuration

Configuration is the activity of arranging parts or elements in a particular form, figure, or combination. This concept primarily relates to the process and tools needed to translate a unique customer requests into a producible product. 

Configure Price Quote (CPQ) systems often see the quote, or customer order, as the end of the configuration process. But what would happen if you extended the configuration process to the point where you actually launch the internal production order? 

You can then accommodate for the fact that the configuration process should not only provide a correct, customer unique quote, but also a unique, producible bill of materials, including all technical and manufacturing documentation: drawings, diagrams, material specifications and instructions. 

One-Touch Configuration

One-touch configuration means that each customer order is touched only once. That personal touch is typically from a sales representative or the customer directly through an online configurator. 

The configurator needs to secure that the input is correct, complete and consistent. If so, interconnected systems can then generate all the quotes, internal and external specifications, bill of materials, documentation, production and material plans and orders.

One-touch configuration, or straight through processing, is fairly easy to achieve for standard, cataloge products. These are often not actually configured, but filtered by a search function that matches the request to a pre-defined product that is already documented and producible. 

Complex products come in too many combinations for a pre-defined cataloge assortment. Non-cataloge complex products tend to involve a unique combination that has never been sold, engineered or produced before. And this is mass customization.

How to Overcome IT Challenges

There are several technical, IT, organizational and process challenges to overcome if you want to achieve one-touch configuration for complex products. The biggest challenge is often how to connect sales to R&D, engineering and production. 

The sales organization works with customers on a high level, and tends to use a configuration model that covers the whole product assortment. One configuration model is necessary to avoid the scenario where changes in the customer request, which are not uncommon, force personnel to start from scratch in a new model. 

The output from sales configuration is usually a high-level, flat list of specifications and priced objects. At the other end of the organization, R&D, engineering and production work on a detailed level and need a hierarchical structure. 

Super BOM

One product model, often called a Super BOM, typically covers one certain size and type of product. A wide assortment, with different product sizes and types, necessitates multiple Super BOMs.

A Super BOM often lacks overview and cannot repeat parts and assemblies freely without repeating rules again and again in all positions. When it grows too big, any overview of how assemblies can be reused in multiple positions is lost and the BOM itself becomes unpractical. When this happens, complexity gets too high and control is lost. 

The main challenge is to connect two organizational areas that are using different product structures, definitions and levels of detail: sales with its typically flat, high-level structure and R&D, engineering and production with their hierarchical structure and full detail. The Super BOM approach works fine for products with rather low variance and complexity, i.e. where one Super BOM is enough. But when variance and product complexity increase, the maintenance cost for multiple Super BOM explodes and connecting sales, R&D, engineering and production systems becomes difficult, expensive and unstable. If it’s doable at all.

Modular BOM

A modular product architecture provides you with an information model that has a Modular BOM at its base.

In contrast to a Super BOM, a Modular BOM allows you to have a product model in R&D and engineering that can be connected to sales. The Modular BOM separates the actual hierarchy of the product (structure) from the parts and assemblies (content), which means you can freely reuse parts and assemblies and the complete assortment can be built into one model.

The commercial structure allows sales to work on a high level to create their flat list of specification and priced objects. The product properties with goal values serve multiple purposes, including control over how the commercial structure is populated, user input to the configurator, and control over how the Modular BOM is populated. 

A Modular BOM ensures consistency and synchronization of customer requests with sales, R&D, engineering and production. It’s flexible, customer centric and can connect your organization.

How to Approach Mass Customization?

A modular and configurable architecture is optimal for mass customization, whether you’re aiming for a CPQ sales configuration, a producible BOM configuration, or straight-through-processing in a one-touch flow. A modular product architecture is not always necessary for configuration, but enables you to more easily meet unique customer demands, and it’s cheaper and faster too.

Customers want innovative products, fast. Companies want to make customers happy and be 21st century lean. So how does all that work? Modular Management delivers clarity, performance and customer centricity so clients can reduce complexity and accelerate value creation.