Mass customization is a hot topic because customers want to configure their own, individual solutions. They don’t want a standardized package, but a solution that meets specific needs. 

Question is how companies can make that happen?

Configurability, Configuration 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 harness it for 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.


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 model 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 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.
Peab PGS

Flexible and Attractive Housing



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

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

Peab PGS

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

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


Flexible and Attractive Housing

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

The Full Story

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

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

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

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

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

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

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

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

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

Product Marketing & Management

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

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

Product Design & Engineering

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

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

Product Operations

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

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

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

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

Revenue Growth

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

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

Profitability Improvement

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

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

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

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

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

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

Product Marketing & Management

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

Product Development Engineering

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

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

Product Operations

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

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

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

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

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

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

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




Your Path to Success

Modular Management has been the global leader in product architecture consulting for more than 20 years. We have the consultancy and technology solutions needed to support your entire business transformation.

This journey enables you to reduce complexity in your business and accelerate value creation. With a global team of specialists, we’re able to support you on each and every step, and it’s not just about people and methods, since this structured approach builds an information data model that can be governed by PALMA® technology.

Welcome to the Journey. Welcome to The How Company.


Create a Competitive Advantage

Consultancy and Technology

The Journey is a tried and tested path to create a competitive advantage. It's a way to solve the executive dilemma - how to optimize operational excellence, customer intimacy and product leadership all at the same time.

Through four main phases – Formulate, Create, Implement and Govern – you can connect strategic direction to the delivery of business value. Through this structured approach, Modular Management delivers clarity, performance and customer centricity, so you can reduce complexity and accelerate value creation. 

The journey enables you to:

  • Formulate company strategy and market objectives into a business case and actionable program plan
  • Create a modular product architecture with design specifications across product families
  • Implement an information model for configurable designs throughout your entire supply chain
  • Govern configurable designs to realize the competitive benefits of a long-lasting product architecture.

Tried and Tested

After more than 20 years and 100 client programs, Modular Management combines consultancy and technology so you can deliver business value. 

Modular Function Deployment® is the foundation method, and synchronizes with a range of methods and tools to help you reduce complexity in an increasingly complex world.

PALMA® strategic software is the tool to build and govern product architectures and the information model that connects customers, products and people. The information model is integrated with CPQ, ERP and PLM solutions, and enables true enterprise digitalization.

The unique consultancy and technology solutions integrated in the journey enable you to solve the executive performance dilemma. CXOs have to optimize operational excellence, customer intimacy and product leadership all at the same time. And this dilemma can be solved. Welcome to The Journey. Welcome to Modular Management, The How Company.

How to Solve the Executive Dilemma?

executive dashboard


The Journey is a tried and tested path to business success in four phases:

  • Formulate
  • Create
  • Implement
  • Govern

Due to this structured approach, Modular Management is able to deliver clarity, performance and customer centricity, so you can accelerate value creation.

Create a Competitive Advantage

Power of Modular Design

PALMA® Software

This is the world-class solution for product management.

Standing for Product Architecture Lifecycle Management, PALMA is cloud-based strategic software for you to create, document and govern modular product architectures. With this unique structured approach, you can design, document and configure products. You can also connect enterprise systems and secure business goals.

Built on an in-memory database platform, PALMA is faster and more capable than anything else on the market, so you can create configuration rules without coding, govern product architecture life cycles and create a business advantage.


MTS Journey

MTS Systems Corporation is a global supplier of test systems and industrial position sensors.

The engagement with Modular Management began with Modular Strategy and Potential Analysis (MSAP™). A modularization program was formulated that would accomplish MTS strategic goals and provide a business case to support the investment. Complexity costs were evaluated using ValueMap™ quantifying the bottom-line benefits of modularity within the MTS value stream. A program plan addressed the creation, implementation and governance of the various product offerings within consecutive waves.

An optimized Modular Product Architecture was created using Modular Function Deployment (MFD®), and this architecture was populated with the Module Variants and rules needed to configure the full range of products. Module Finance™ supplied a model that balanced the direct and indirect cost implications of each architecture decision and the tools to analyze the profitability of the modular system. To make the modular architecture actionable, MTS inbound, outbound and production value streams were newly envisioned using Module Supply Chain Study. Plans were established for each module along with the system requirements to deliver them.

Module Design™ was used to implement standardized interfaces while managing development streams, priorities and module requirements. With these enabling concepts, the MTS approach to documentation was reimagined with process and tools and applied to the existing CAD/PDM systems. A new end-to-end, integrated Configure-to-Order system was also implemented and production was transformed from time-station assembly to a production line. MTS began to manufacture and maintain a product families with dramatically fewer unique part numbers while greatly decreasing lead times and inventory.

Modular Transformation™ established needed changes for a new way of working to ensure the benefits of modularity would be a lasting and profitable foundation for MTS. Processes in and around the value stream were enhanced with decision metrics and tools to sustain the improved business performance. New roles, such as Chief Architect and Module System Product Manager, were created with the mandate to sustain and leverage the architecture.


MTS Case Story

MFD by Modular Management



Modular Function Deployment

Apply Modular Function Deployment (MFD) to create product architectures that meet customer needs, strategic targets and functional requirements.

MFD enables you to balance stakeholder perspectives and create a product architecture that reduces complexity and accelerates value creation. With MFD and the accompanying information model, end customers can configure their own solutions and you can build a competitive advantage.

And that’s when the fun really starts.


How to Balance Stakeholder Perspectives?

The objective of Modular Function Deployment® (MFD) is to create a modular product architecture that integrates and balances stakeholder perspectives. With this architecture in place you can enable the mass customization of products and services, reduce complexity and accelerate value creation.

With MFD, stakeholders are represented by one of the following voices: 

  • Voice of Customer
  • Voice of Engineering
  • Voice of Business
  • Voice of Modularity.

Voice of Customer represents the marketing, sales and service functions of the organization as they strive to satisfy customer needs. 

Voice of Engineering represents the engineering and design functions as they strive to develop and choose technical solutions that are combined into products and services.

Voice of Business represents company strategy, operations and finance. These functions work together to guide decision making and make and supply products as specified in the product development process.

The power of the modular product architecture itself is integrated as an additional voice, the Voice of Modularity.

MFD by Modular Management

MFD has five steps to discover, capture, quantify and document the unique perspective of each stakeholder voice. Activities are supported by established methods and tools. The method is iterative and progresses through each step so the modular product architecture can be built and refined. Analysis and a clear governance model balances all stakeholder perspectives to connect your customers, products, services and people.



Modular Function Deployment® (MFD) is a method to create product architectures. Combined with PALMA® Strategic Software you can link the architecture to a universal information model that enables the mass customization of products and services and connects your organization.


  • Reduce complexity
  • Accelerate value creation


Five-step process:

  1. Clarify Customer Needs
  2. Identify Functions and Solutions
  3. Propose Modules and Interfaces
  4. Define Variants and Configurations
  5. Confirm Architecture Feasibility

Tried and Tested

Modular Management has 20 years of experience creating product architectures. We provide technology and consulting so you can reduce complexity and accelerate value creation.



This is the world-class solution for product management.

Standing for Product Architecture Lifecycle Management, PALMA is cloud-based strategic software for how to create, document and govern modular product architectures. With this unique structured approach and strategic software you can design, document and configure products. You can also connect enterprise systems and secure business goals.

Built on an in-memory database platform, PALMA is faster and more capable than anything else on the market, so you can create configuration rules without coding, govern product architecture life cycles and create a business advantage.


The Quietest Heat Pump




Bosch Thermotechnology (TT) is a division of the Bosch Group. The company is a leading supplier of building heating products and hot water solutions.

Electric heat pumps are most commonly used in Scandinavia and Northern Europe including the UK. Tranås, Sweden is the location of Bosch TT’s competence center and manufacturing of electric heat pumps (TT-HP). In 2005, the original Swedish company, IVT, was acquired. Today, new heat pump concepts based on various technologies are being developed and manufactured under several different brands, most well-known: Bosch, IVT, Junkers and Buderus. Product brands were deployed regionally and differentiation was primarily limited to look and feel.

In Sweden, IVT branded products are sold through the own wholesalers and other through independent distributors. In other countries like Germany the branded products are sold through independent distributors including specialized dealers and big box stores. Annual revenue is around 100 MEUR. Final assembly of all electric heat pumps occurs in Tranås where components and sub-assemblies are sourced globally. The site employs about 320 people in both manufacturing and product development.

Bosch TT’s heat pump businesses faced a number of challenges, including lower profitability, more low-cost competitors, complex range of product options and large inventories. 

Bosch TT implemented a modularity program supported by Modular Management and achieved dramatic results: 60% fewer part numbers, 40% reduction in inventory, and a stunning improvement in productivity – 50% reduction in assembly time and 66% less floor space. 

The simplified designs generated highest in class energy efficiencies, the quietest heat pump ever built by the company, and five new patents. The product cost was reduced by 44%, which enabled a large increase in profitability and price competitiveness, and this led to double digit market growth once the product hit the market.


Creators of the Quietest Ever Heat Pump


Bosch TT heat pump business faced a number of challenges, including lower profitability, low-cost competitors, a complex range of product options and large inventories. And then Bosch TT implemented a modularity program supported by Modular Management. 

Business Value

The simplified designs generated highest in class energy efficiencies, the quietest heat pump ever built by the company and five new patents. The program also enabled a large increase in profitability and price competitiveness, with double-digit market growth generated once the product hit the market. The division experienced a significant overall improvement in productivity.


  • 44% reduction in product cost
  • 60% fewer part numbers
  • 40% reduction in inventory
  • 50% reduction in assembly time
  • 66% less floor space.

The Full Story

In the 1970s, IVT pioneered liquid-to-water technology which integrates a liquid circuit under the ground with a heat pump in the building. This made a giant leap in efficiency that allowed consumers to easily justify a higher price. Being first to market, the company grew with high profitability for many years. As time moved on, competitors introduced similar products and the efficiency of competing technologies was improved.

In order to maintain its market leadership position, Bosch TT-HP expanded its portfolio to include products based on air-to-water and air-to-air technologies. These technologies exchange heat directly with the outside air and require fewer components and simpler installation. They are lower priced and deliver lower levels of efficiency. System components are sourced from suppliers in Asia, and the profit margins were significantly less than Liquid-to-water systems.

With expansion into new markets and at the same time declining home market Sweden overall profitability for the business unit declined. A broader portfolio coupled with the need to offer multiple brands led to a very high complexity.

In 2011, the management team decided to make significant improvements in response to the declining business situation. It would develop its own air-to-water product family in Tranås that would leverage many fewer components and unique part numbers into a similar breadth of products using a Modular Product Architecture, which would replace the two own platforms for air-to-water heat pumps (Optima and Premium Line). They planned for significantly fewer parts and less finished goods inventory. They also need to significantly reduce direct material costs.

Product Marketing & Management

The product family of air-to-water consisted of, the two own platforms complemented by OEM sourcing. The team had little ability to make changes to the products and there was virtually no difference with the products of the competitors. Consequently, the marketing team was focused primarily on the Liquid-to-water product niche.

The team was also challenged with prioritizing between tactical (short term) and strategic (long term) activities. Marketing attention and development resources were often pulled from ongoing NPD projects in reaction to competitive threats and quality problems.

Product Design & Engineering

Since the air-to-water technology was partly OEM-sourced, the technical knowledge in these products was limited. The primary area of this limited knowledge was the out-door unit of the system. A system is comprised of both an indoor and outdoor unit. There was limited control over the design of the remainder of the system. Even if marketing identified an opportunity for a new product, it was very difficult for the team to deliver a new product in the required time frame.

Before the decision was made to develop the new product family, the Tranås site began a transition to the new Bosch product development process called TTM. This provided the development team a clear process, but it added a level in learning necessary, to complete the design.

Product Operations

The indoor unit, in particular, was an operational challenge. Many indoor units had been designed to meet the range of customer needs resulting in a complex range of options and many different part numbers. It was not possible to present incoming components at point-of-use in a good way. A lot of space was required for final testing because there was no way to support the testing of sub-assemblies.

It was also difficult to run small batches of a product variant, even though a business model with multiple brands, required it. This problem was further compounded by the fact that the brand variant was determined at the beginning of the value chain. The result, huge finished goods inventory and obsolescent products in the worst case.

Before creating the Modular Product Architecture for the Air-to-water product family, the management team at Bosch TT-HP formulated plans to turn their company strategy and market objectives into a program plan with a supporting business case.

Revenue Growth

Bosch TT recognized the opportunity to gain market share by offering an Air-to-water system with increased efficiency. No significant efficiency gains had been made with this technology in recent years and a product leadership position would be achieved to whoever accomplished this. They also needed the ability to offer lower priced variants to better defend against new competitors.

Profitability Improvement

The air-to-water product line delivered the second lowest profitability of the three heat pump technologies. Significantly improved profitability would be achieved by having lower complexity. Without a reduction in the number of product variants available for the market, the goal in a part number count reduction was at 50%. Fewer parts mean more reuse of parts and more time to design for lower cost. A 50% reduction of direct material cost was planned across the product family.

A significant reduction of inventory was also planned by the management team. With less variety of parts and higher volumes, the components in stock could be reduced by 30%. Finished goods inventory would also be reduced.

In 2014, the new AirX heat pump product family was introduced to the market as the most efficient air-to-water system in the Nordic market. This was confirmed in by an independent Danish test institute. It was also, at normal speed, the quietest Air-water heat pump ever built by Bosch. The result of being the most effective heat pump in the market resulted in double digit market share growth immediately after the product launch.

The new product family also achieved almost all of the profitability goals including an overall part number count reduction of 60% when compared to the old Air Optima product family. Part number reduction for the outdoor unit have been from 650 to 213 parts, achieving a 67% reduction. Indoor unit part numbers have been reduced with 40% (240 to 145 parts). Consequently, they expect component inventory to be reduced by 40%.

Overall, counting all part numbers for all heat pump products, Bosch TT-HP is now at 19% modularity. They are currently working to launch two new modular platforms, partly based on the first AirX platform. The long term goal is to have all products in a Modular Product Architecture.

The planned product cost (PPC) for the outdoor unit was significant better, 44% better. About 10% of the saving was attributed to a doubling the volume of components giving a larger scale to Bosch TT-HP suppliers. The other 90% of the saving was due to smarter design and new production methods. The original target cost reduction was reached, and the team was very pleased to achieve this kind of reduction and on the same time significantly increasing the performance level of the heat pump.

Product Marketing & Management

Between 2011 and 2014 Bosch TT-HP experienced saturation of the liquid-to-water heat pump market and a shift in product mix to lower margin products, resulting in less sales and profit.

However, the team responded by planning and developing a new and efficient product family to addressed many of these challenges. They invested to increase the market knowledge and develop product roadmaps to fill the existing assortment gaps. They have now acquired the know-how and lots of success to build upon.

During this period, the belief in modularity as the way forward for the heat pump products is actively supported by the marketing team and top management.

Product Development Engineering

A total of five innovations have been patented for the AirX modular heat pump. They team implemented variable speed compressor technology to control and minimize energy use. The team has also change the approach to accomplishing a range of system capacities.

Depending of the heat pump capacity, different sizes of heat exchangers are needed. This normally means a lot of different evaporator variants. In the AirX modular system, a common frame to hold the coil and fin packages was developed with standardized interfaces to the surrounding systems.

Product Operations

The launch of the AirX modular system was coupled with a revolution in the approach to the production system. The system was planned and implemented in parallel with the product development and overall costs have been greatly reduced. Compared to the previous system, the number of operators has been reduced by 75% and the throughput times have been reduced by 90%. Furthermore, the overall floor space has been reduced by 66% (see Figure 1): 70% for the outdoor unit product line and 40% for the indoor unit product line.

Modules are now sourced as sub-assemblies from suppliers based on their strategic intent. Some common modules are sourced for lowest cost and some are sourced locally. By focusing on the assembly of modules, the module variants to be assembled are presented to the line in Kanban systems. This in addition to clean and simple fixtures, has resulted in a dramatic improvement in productivity with shorter change over’s, short assembly time and very high quality.

The production has been further decoupled from the specific brands using extremely late-point differentiation. From the Tranås plant, a generic heat pump is sent to the customer together with a branded design kit. This eliminates the finished goods inventory of branded heat pumps which was a huge problem before. In addition, market volumes can now be better forecasted than before, reducing lead times, inventory and cost.

The fan is key component in the outdoor unit moving air through the heat exchanger. In the past, fans were mounted in the product using many different styles of fabricated brackets. The fan must also be insulated, but this was mostly done as an afterthought in the design. It was placed wherever open space existed.

During the process of creating and optimizing the Modular Product Architecture, the team closely examined the technical solutions interacting with the fan. They discovered that the functions of supporting and insulating the fan could be accomplished with a single set of modules. These modules would have a standardized interface to the fan and to the rest of the structure in the unit. A single design to the module set could be used and scaled for the different sized units.

With this higher level of part commonality, the team determined that they could produce it with techniques reserved for higher volume components. It became a molded part that was constructed of expanded polypropylene (EPP). 30 parts have been reduced to 2 parts and corresponding resulting the complexity cost has been reduced to 1/15.

The same concept was used to hold and insulate the indoor unit’s water tank, saving numerous components, cost and heating energy.


Lean and Modularity


How to Find the Winning Synergy?

Go Lean and Modular to Minimize Waste

Minimizing waste is the focus of both lean and modularity. In many ways, they’re the perfect match to accelerate value creation.


The core idea of lean is to maximize customer value while minimizing waste. This is accomplished through the application of a structured way-of-working that eliminates or minimizes waste. A lean organization understands customer value and focuses key processes to continuously increase it. The ultimate goal is to provide perfect value to the customer through a perfect, zero-waste value creation process.

Lean thinking changes the focus of management from optimizing separate technologies, assets and vertical departments, to optimizing the flow of products and services through entire value streams. These value streams flow horizontally across technologies, assets and departments to customers.


A modular product architecture also addresses waste in a company. This approach to waste comes from an understanding that each part number adds cost along the entire value chain. A modular product architecture define modules that carry market-driven variance with standardized interfaces, and enables the configuration of many different products from a limited number of module variants.

Winning Synergy

Both lean and modularity are often dependent on a cultural change in the company to be successful, and both require a clear strategy. 

Does the product require cost reduction? Is the objective to expand the product range or do we need to reduce time to market for new products? Lean and a modular product architecture can address these strategic questions if they are clear and communicated to key stakeholders.

How to Avoid the Complexity Waste Trap?

Lean and Standardization

Companies often face a situation where their product structure has become complex, after acquisitions and new product offers expansions. There can also be a significant old product legacy, if old products are not phased out to. Market expectations also drive complexity, with companies responding by expanding their offering without understanding the full consequences. 

When profit starts to drop, cost reduction projects kick in and the product structure tends to get a quick fix by standardization. Lean manufacturing is also pointed out as part of the remedy, but this approach may improve efficiency – but not effectiveness.

What can be done according to true lean thinking, for example the Toyota Production System (TPS)? TPS is about being effective, doing the right things first, and then doing them efficiently. And here’s a way to make it happen.

Lean and Modularity

Business often starts with development of products, where market needs provide the cornerstone, and the product structure must be flexible and effective. 

A modular product structure is effective since it starts with customer needs and configurability. It is easy to expand within the platform limitations, reduces internal complexity, requires less resources and is relatively future proof. Other benefits are faster time to market for new products, a wider product offering, reduced lead times, reduced manufacturing costs and higher quality.

How do we recommend implementing lean and modularity?

Step 1, Analyze Waste and Complexity

There are many lean tools a company can use to find and eliminate waste with a product, e.g. 5S and continuous improvement. But it is important to first understand how complex is the product structure and whether it has been expanding over the years without update or rationalization. An overly complex product structure will typically have many part numbers that are difficult to maintain. The reuse of existing parts numbers will be difficult, and it may include the situation where a designer is making a new part rather than trying to reuse an existing part. Quality problems will also be prevalent with purchased or manufactured parts. If the product structure has indications of being very complex, it is a good idea to investigate how big this unnecessary complexity is and then define an action plan how to reduce the complexity.

This internal complexity translates to extra work in most departments of a company. The driver for this extra work is each part number that is created in the design department. Each number represents a part that has to be developed, tested as a prototype, detailed in a drawing, manufactured, procured, transported, stocked in a warehouse, quality checked, picked from the warehouse, transported to assembly, and assembled into the final product, just to mention a few. All these steps mean more time for a product that has many part numbers and a low volume of each compared to a product where there are few part numbers and high volume of each.

Step 2, Build an Effective Product Structure

The entire cost structure is affected when decreasing the internal complexity of the product. Typical results from mechanical industries, both business to business and consumer products are a part number count reduction of 50% and a cost reduction of 10% in the total value chain.

Modular product architectures address internal complexity by enabling a company to configure a range of products by combining different module variants with standardized interfaces. It is important to create an efficient product structure before applying lean directly on the existing product structure. If lean is applied on a bad product structure limited results will be achieved because the negative effects of too many part numbers in the product architecture will still exist. It will not be possible to gain the leverage of increased purchase volumes if too many different part numbers are being used. 

In terms of money this increased purchase volume will generate a substantial reduction of direct material cost (dM), often in the range of a few % up to 10% reduction. What cost reduction project can achieve these savings at the same time as quality is improved?

It is important to understand that neither lean nor modular product architecture is in any conflict with one another. They are both striving in the same direction – minimizing the waste defined as non-value added activities for the customer that will buy the product. modular product architecture and lean are not primarily aiming at the level of individual processes, but target the entire value chain of a company.

Many lean-thinking organizations are doing the wrong things more right. Making things efficient that shouldn’t be done in the first place. Doing a lot of efficient things but not effective things.

Step 3, Implement Lean

Modularity is how to be effective. Lean is how to be efficient. 

This is what Toyota built on with TPS, following the work of Taguchi: ‘Let’s do the right thing first, then make them efficient.’ This encourages you to start with an effective modular product structure and then implement it efficiently throughout your organization.

Modularity and lean create powerful synergies in a company. After more than 20 years of experience of developing modular product architectures with lean implementation, we’ve seen a reduction in client product costs, decreased lead times and reduced tied-up capital. All at the same time as the product offering has expanded. 

On top of cost reductions, there are also important increases of revenue due to offering more customizable products to the market. One common question is which to start with, modularity or lean? Or can both initiatives be run in parallel? Our experience is that it’s best to start with an effective product structure and then apply lean efficiency. This will give you a competitive advantage, with lean putting the turbo on modularity.

Anders Leine
Anders Leine


Lean and Modularity

Modularity and lean create powerful synergies in a company. Both strategies focus on minimizing waste and in many ways they’re the perfect match. 

After more than 20 years of developing modular product architectures with lean implementation, Modular Management has seen a reduction in client product costs, decreased lead times and reduced tied-up capital. And all at the same time as the product offering has expanded.

How to Implement Lean and Modularity?

One natural question is which comes first? One size doesn’t fit all, but experience leads us to recommend a three-step implementation program: 

1) Analyze Waste and Complexity

2) Build an Effective Product Structure

3) Implement Lean and Continuously Improve.

"Modularity is how to be effective. Lean is how to be efficient."

Anders Leine, Modular Management

Power of Modular Design


How to Design for Agile Line Production?


Agile production and mass customization are powerful concepts that line producers often find hard to realize. But it is possible.


How to Guide - Agile Line Production

Agile production and mass customization are powerful concepts that line producers often find hard to realize.

Many struggle to simultaneously: 

  • Ensure lean, operational excellence.
  • Innovate and renew products fast enough to stay at the forefront of global competition.
  • Offer the product variance and uniqueness needed to appeal to many customers.

So, how can you make mass customized products and secure business fundamentals? How can you design for agile line production? Download our comprehensive guide and learn from real cases.

Alex Ginsburg


Magnus Gyllenskepp

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.


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