Tag: #CTO #modularity #productdevelopment #configure #engineering #valuechain

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Engineering to Order, Configure to Order, Configure to Assemble, Smart Customization … I would like to add a slogan to that: Configure to Engineering! Or Smart Engineering … or … or …

In any case: somewhere between the delivery of a rock solid standard product and the super flexible handmade special, lies the ‘sweet spot’ for many companies. Flexible enough to be able to meet the customer, but standard enough to realize healthy business operations within the golden triangle of time-money-quality.

After all, the laws of economics prescribe that the customer’s perception of product value must be greater than the effort made by the producer: otherwise it is difficult to make money … (the green area in the figure below).

Modular products enable Configure to Order and Smart Customization. Both are ways to increase the margin between customer value perception and producer value perception.

In the previous four parts I tried to clarify what modularity really is, how modular your product should be, what that means for managing all your product variants and how a product configurator can help with that.

The problem I see is that people are frantically trying to adopt concepts from major car manufacturers while …

… one is not a car manufacturer …

… and don’t want to be. Simply because they do not make a product that will be produced in quantities similar to a car (they serve a far smaller market).

And because one always wants to deliver in part a customer-specific product. Not only to satisfy the customer and outsmart the competition, but also because that is what drives their product innovation.

And make no mistake about the successes of the car industry: recalls (www.terugroepregister.rdw.nl) are the rule rather than the exception. In addition, the sale and aftercare of their products is handled by dealers. They have contact with the customer. Customer wishes never arrive directly at Volkswagen’s R&D department. That distance is sometimes nice … but a luxury that most companies cannot afford. That machine that you recently delivered to Brazil cannot be recalled, so there is no other option than to put your engineer on the plane to solve the problem on site.

The fact that car manufacturers can produce a car at a, in my opinion, ridiculously low price has everything to do with the volumes that they produce. And that has everything to do with the degree of automation in a modern car production line.

My I view on engineering is similar. It is part of your production line: starting with sales and ending with serice and maintenance. And even if you have replaced your sales people with a sales configurator and web-shop, the production and assembly is carried out by robots and all service work is outsourced to third parties …

… within the knowledge core of your company, where customer and customer market demand is translated by your engineers into a product, they still work according to traditional methods.

I have a background in software engineering. There, the aim of standardization and modular construction is to reuse solutions, concepts … knowledge. The benefit is not so much in reducing costs, but in freeing up brainpower for new ideas that drive product innovation.

If you also apply this approach to ‘physical’ technical disciplines such as electrical engineering and mechanical engineering, then the cost reduction in the material flow that goes with it is a ‘nice bonus’.

However, that does not work the other way around: if cost reduction in the material flow is the goal of modular assembly, this does not automatically go hand in hand with an improvement in engineering efficiency. Unless you can afford to take engineering completely out of the value chain and, just like your great example, the car manufacturer, are able to produce 100% Configure to Order.

If your bottleneck is no longer in the material flow, but in your engineering, and / or if the term Configure to Engineering at the top of this article has raised your interest, do not hesitate to make an appointment for further explanation.
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In the previous part we learned how, by offering more variants and applying control technology and software, the complexity of products continues to increase. Even LEGO cannot escape this: see LEGO Mindstorms (a programmable robot) in the image above this article.

It also turned out that modularity can hide this complexity, but it does not simplify it. And we learned that modularity mainly offers advantages for sales, logistics, production and service.

Engineering will always have to control complexity down to the smallest detail.

Denying complexity in the sales phase bounce back . . . up on the desk of engineering. This is the well-known ‘gap’ between sales and engineering; two worlds that don’t always seem to understand each other.

Imagine the frustration when it turns out that the LEGO box you just bought doesn’t contain the correct blocks to build the robot pictured on the front!! An expectation that cannot be met….. Or … you have to wait a longer for the delivery … because LEGO still has to find the right blocks together ….

There are several ways to prevent this. Ideally, you remove engineering entirely from the supply chain. Just like car manufacturers and IKEA do. That works fine for large volumes of products with a long innovation cycle of several years. Product development and innovation then takes place in a separate R&D department.

With smaller volumes and continuous product development, one cannot avoid having engineering to work in closely cooperation with sales, production and service. Every new customer request can initiate an innovation and contribute to the further development of the product. But how do you ensure that sales and engineering know how to find each other?

Setting up a product configurator is a good way to close the gap between sales and engineering.

After all, a few important questions need to be answered when setting up a product configurator:

1. what is the product we make? Which parts is it made up of?
2. how do we make the product? How are the parts assembled into one whole?
3. which products do we sell? Which variants do we want to offer?
4. why customers want our products? Which functionalities have added value?

Configurator software can be used as a means of getting these questions answered. Questions 1 and 2 can be answered by your engineers and questions 3 and 4 by your sales people.

Product configurators are on the rise because product suppliers want to satisfy the customer and still want to keep the number of product variants under control. All (technically) possible and (business-economically) desirable combinations are defined within the product configurator.

You don’t have a product configurator for your product? Then you might wonder; how and by whom, and at what point in your value chain, it is determined which product variants are possible and permitted?

Try playing with an IKEA kitchen configurator, already picking out your new car or order a T-shirt with your own print. Most applications of product configurators are to support the sales process.

Perhaps that is the reason that in practice, despite the use of a product configurator, the gap with engineering is still not closed. In such a case I see things go wrong on a number of points:

1. the output of the sales configurator leaves room for interpretation; the level of detail is insufficient (modularity index <100%) and leaves room for ‘creative’ interpretation by engineering or production departments.
2. the modularity is good enough to cover the variants in the sales brochure, but does not correspond to the actual product structure.
3. the output of the sales configurator is incomplete; for example, produces the mechanical Bill of Materials only. Software and electrical parts are not taken into consideration.

In all cases we see a mismatch here between the product model as seen by sales and the product model as seen by engineering. Because of this, something goes wrong in the information transfer … and someone will have to fix that.

Some companies are already a bit further and have managed to link their sales configurator to the product configurator of the engineering. In this way a seamless transfer of information can be achieved.

In the next part I will try to come to a nice conclusion … because we can write 100 more articles about modularization!
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In Part II, we discovered that products are becoming increasingly complex, regardless of the number of modules. This time we’re going to talk about the manageability of that complexity.

Let’s see what the relationship is between an option offered, a product variant, its complexity and modularity.

Suppose your product does not have any options and is available in all colors as long as it is black. It probably won’t be long until you meet a potential buyer who loves the product … but … only in yellow. And like any salesperson, you want to ‘please’ the customer and say ‘agree!’. And with that the first option and choice is born.

The sales brochure now contains the following options and variants:

Your product develops further in response to market demands.

With a 2nd option the number of variants doubles from 2 to 4. With the 3rd option it doubles again.

Well, I’ve kept it simple: each option is an ‘either-or’ choice from 2 options. And all options can be combined with each other. In practice, this is often not the case: for example, there is a choice of several colors and some options cannot be combined. But this example makes it clear that the number of variants quickly explodes to a number that can hardly be calculated.

How does a modular product structure help manage all those variants? Well … actually…it doesn’t

… because any way you slice it, an option will work through on to the level of detail at which engineers work. For example, it may happen that what started as a simple customer request, and appeared to be only a small variation on a previous embodiment, turns out to have a significant impact on the design. And with that also on production, logistics and service, lead time, price, etc. ‘The devil is in the detail’ certainly applies to even the simplest looking technical products.

The fact that people are sometimes surprised by this is because the actual, complex product structure has not been mapped out at most companies. All LEGO bricks are, just like in the past, in our living room, scattered across the various departments. They are in 3D CAD designs, electrical schematics and software code.

But because these blocks are not tangible (just chunks of information), no one will be annoyed by the clutter or trip over it. Until … people do stumble over it.

“But doesn’t a modular product structure offer advantages?” Yes, but those benefits are different for everyone:

• Sales: modules for providing choices to the customer
• Logistics: modules for simplifying the material flow
• Production: modules for parallel production and production outsourcing
• Engineering: modules for reuse of solutions (and knowledge)
• Service and maintenance: modules for fast interchangeability

A modular construction can hide the complexity, but it cannot reduce it.

Your engineers still need to know in detail how each module is structured and how they relate to each other. Only your most experienced employees will know what inter-dependencies there are and how these blocks can be combined; they are the master builders (in every company you will find a number of these heroes).

The only way to manage complexity is to make it transparent.

And that requires a multi-disciplinary, integrated approach. Call it Systems Engineering, Integrated Project Delivery, BIM, PLM … but you will have to describe what your product is, how it is built, which variants you sell or plan to sell.

To what level of detail should this be done? That depends on your ambitions: do you want to reuse knowledge and engineering solutions or are you satisfied with logistical advantages? Up to component level or are coarse modules sufficient? Modularity index 100% or 1%?

And don’t underestimate it: the product you have been making and selling for years turns out to be more complicated than you thought!

Next time we will highlight product structure and modularity from the different perspectives of sales, engineering, production and service.
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In Part I we ended with the question “How big should the blocks be?” Just like with LEGO, there are pros and cons to large and small blocks. We also read that one large, monolithic block is nice and simple, but has its limitations in the number of variants.

Two laws of LEGO apply:

LEGO’s 1st Law states: the more blocks, the more variants you can build.

LEGO’s 2nd Law states: the bigger the blocks, the faster you can build.

It can be divided into modules in various ways. Top-down, or bottom-up. To understand this, one must view the product, the installation or machine as an assembly of separate parts.

In the most extreme top-down approach, one sees the whole motorcycle as one module (like the Part I company). In the most extreme bottom-up approach, each separate part is seen as one module.

To get an idea of how modular the product actually is, I use the modularity index. Very simply the number of modules divided by the total number of parts, expressed as a percentage.

Imagine that the motorcycle in our example is made up of 1000 separate parts. But we ‘keep it simple’ and distinguish 20 modules. The modularity index is then 20/1000 x 100% = 2%.

With a low index you have few, but more complex modules: after all, each module contains a relatively large number of parts.

With a high index you have many, but simple modules: each module contains only a limited number of parts. The complexity then lies in the mutual cohesion and dependencies. There are undoubtedly smart minds who can calculate for you how many combinations are possible with 1, 20, 100 or 1000 building blocks.

Large blocks hide a lot of complexity. That makes it tempting to stick to a rough modular layout. Life is complicated enough. Leave that to the R&D and engineering departments …

This denial of complexity comes back on your plate somewhere, downstream in the value chain.

There are also smart people who say “I make one big ‘smart’ block with all kinds of options so that I can realize all variants very quickly.” Especially popular in the software discipline. Sound like a good idea? Yes … at first, but not later. And that has to do with manageability. We will talk about that in Part III.

To keep it simple, I have limited myself to physical, tangible parts so far. Most companies that build modular only focussed on the mechanical parts. As a result their Bill of Materials (the parts list that is central in their ERP system) has become modular. In this way, they mainly achieve logistical benefits.

It is apparently assumed that the options that a customer chooses, and the product variants that result from them, can be traced back to physical parts. Often without the electrical parts, let alone parts that are not tangible. At a time when software is increasingly gaining a share in the ‘customer value’, this is of course no longer the case.

You read a lot about the increasing complexity of products. Especially because people are starting to realise the above. A Bill of Materials is still rather straight forward, compared to modular or non-modular structures in software. In addition, all those different structures appear to be interconnected and have dependencies (“Yeah dude!”). It will drive you crazy! But indeed, it can no longer be denied.

However many or few modules you have, your product is more complex than you thought!

In part three, we’re going to talk about managing complexity.
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Under pressure from the market and their competitors, machine builders, but actually every system developer, are looking for ways to stretch and compress the ‘magic triangle’. In other words: deliver higher quality in a shorter time at a lower cost price. Money-time-quality are inextricably linked in this triangle.

‘Modularity’ is a often coined as a solution that offers a way out of the entrapment of the magic triangle.

Maybe it is. But what is modularity really?

I remember a visit to a machine builder with a product portfolio of about 10 different machines. They were successful, partly thanks to the modular construction of their machines, in their opinion.

During the tour of the factory, we held still in front of one of their, rather impressive, products. Quite a complex combination of mechanical, pneumatic, hydraulic, electrical and (invisible) software parts.

When I asked how this machine was built in a modular way, after some back-and-forth-and-past-each other I came up: this was 1 (one) module! …. with many options. Ah …

In fact, their portfolio of 10 different product lines had just as much modules. Well, at least that keeps things clear and comprehensible. Such as a LEGO construction box of a pirate ship, where the content consists of 1 large LEGO block … in the shape of a pirate ship.

This is what I call monolith standardization or ‘maximum model’ standardization. A bit like Henry Ford in the early years of the automotive industry: the Model T was available in one variant, in all colors as long as it was black.

And just like Henry Ford, you can be quite successful with that.
Until the competitor starts offering your customers more variants, options.

For a while all goes well, by adding all kinds of options. But the number of variants that you can make and maintain in this way is limited.

Car manufacturers, IKEA and more and more machine builders have recognised this problem. They build ‘modular’.

Modular building means that you give your (LEGO) building blocks such a size that you can build all current (and expected future) variants by combining the blocks into a larger whole.

But how big or small should those blocks be? LEGO Duplo or Technic? It is so easy to build with large blocks. Small blocks make it so flexible. We will talk about that in Part II. Because somewhere in between lies the best solution for you.
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