Minnesota-based mechanical test equipment manufacturer MTS Systems Corporation once required 11,000 unique part numbers to build 150 product variations of its servohydraulic load frames. Now, it uses just 800 unique part numbers – 90% fewer – to build more than 100,000 product variants.
In Helsinki, Wärtsilä used to spend 10 years developing a single new medium-speed engine for its marine customers. Since reducing the number of unique parts from nearly 7,000 to fewer than 4,000, it has developed a series of engines that can be adapted for different fuels depending on customer requirements – in half the time at half the cost.
MTS Systems and Wärtsilä are among a growing number of industrial equipment (IE) manufacturers that have mastered the art of fulfilling diverse customer requests for customized products without increasing costs and production time, or decreasing quality. Their secret? Modularization.
MINIMAL PARTS, MULTIPLE VARIANTS
Pioneered by truck and bus manufacturer Scania in Södertälje, Sweden, in the 1960s, modularization breaks complex products into a collection of standardized components that can be mixed and matched to quickly create a wide range of products without the usual costs of customization.
“Whole product families can be formed based on the same limited number of modules, and the internal complexity can be kept to a viable level,” said Jana Golfmann, senior consultant of Ernst & Young’s Advisory Practice. “Modularization is the most efficient way for IE manufacturers to develop varied product line assemblies and achieve mass customization with economies of scale.”
Modularization comes with a long list of benefits.
“Modularization can cut part numbers by 50%-60%, thereby reducing the cost of materials by 10%-15% and decreasing assembly and manufacturing times by at least 25%-35% – and that’s before manufacturers have even looked at the product itself,” said Sam Burman, managing director for SPJ Consulting, which helps companies develop modularization concepts.
“One truck company I worked at reduced its part numbers from 45,000 to 15,000 but created billions of product variant possibilities for one customer. Ultimately, fewer parts and less manufacturing time increases revenue.”
China-based Chongqing Yinhe Experimental Equipment Company (CQYH), which builds environmental testing machinery for the military, aerospace and automotive sectors, provides more proof for the power of modularization. CQYH inputs customer requirements directly into its modular architecture solution, allowing customers to quickly approve 3D models and eliminate physical prototypes.
“MODULARIZATION IS THE MOST EFFICIENT WAY FOR IE MANUFACTURERS TO DEVELOP VARIED PRODUCT LINE ASSEMBLIES AND ACHIEVE MASS CUSTOMIZATION WITH ECONOMIES OF SCALE.”JANA GOLFMANN
SENIOR CONSULTANT, ADVISORY PRACTICE, ERNST & YOUNG
“With our modular architecture solution, we accelerated order fulfillment and reduced design errors by 50%,” CQYH CEO Zhixian Zhang said. “Moreover, our R&D activities have become better organized and, although the number of newly developed parts is falling, the number of orders keeps going up. We’ve increased our turnover from RMB40 million (US$58 million) to RMB150 million-180 million (US$218 million-$261 million).”
MASS CUSTOMIZATION MADE AFFORDABLE
Modularization represents a tectonic shift from manufacturers’ traditional product development and business processes, where they design, stock and sell fully assembled products from a standard inventory. Operating in reverse, modularized companies fulfill a customer’s specific order by assembling select components from a library of mass-produced modules.
“IE manufacturers can use modularization to separate the definition of product components/modules from the definition of the rules that govern how they’re assembled,” said Jordan Reynolds, senior manager of innovation consultancy firm Kalypso. “Hence, they can offer the highly personalized industrial products traditionally developed with engineered-to-order processes, but with mass production efficiency that keeps assembly times fast, prices low and profits high.”
Assembling existing modules to create new products also eliminates the need for manufacturers to redevelop, retest and revalidate the design of core components each time they modify individual modules.
“Modularization requires upfront investment and effort, but there’s a big payoff because engineers can rapidly pull together custom-designed products as new orders come in,” said Jim Brown, president of independent manufacturing research firm Tech-Clarity. “A Tech-Clarity survey found that top-performing industrial equipment companies are 49% more likely to use modular design techniques than poorer performing competitors. This allows them to quickly give customers a compelling quote and win the business.”
MOVING TO MODULARITY
Modularization goes way beyond simply standardizing existing modules and processes, SJP Consulting’s Burman said. For long-term success, manufacturers must audit their customers’ needs and redesign the interfaces between product components so they can be combined in different, but viable, ways.
“The interfaces remain the same, allowing manufacturers to install, replace or remove individual components when they need to create entirely new products – all without changing the associated components,” Burman said. “Next, companies must modularize all the products in their portfolio in parallel for at least the first half of the development phase, before going into detail for separate products. This can be a nightmare, but projects will fail if products are modularized one by one in separate silos.”
Successful modular product architectures must be supported by robust product lifecycle management (PLM) systems.
“PLM platforms are essential for configuring products out of standardized, reusable components and connecting their master bill of materials across the product lifecycle,” Golfmann said. “A product architect is also critical for governing the diverse modularization requirements and ensuring that the components fit together.”
PLM systems are particularly effective when integrated with 3D design and visualization software, Burman said. “3D visualization technology allows manufacturers to show customers digital mock-ups of the different options, rather than multiple paper drawings and physical prototypes.”
Meanwhile, the cloud, Internet of Things (IoT) and machine learning – a specialized form of artificial intelligence (AI) – can help manufacturers better predict the likely demand for specific modules and product configurations.
“IoT solutions interpret data from smart products to understand how customers use them, while machine learning algorithms can extrapolate customer demand insights from historical sales datasets,” Reynolds said. “Algorithms can also learn what factors lead to compatible product configurations and set rules for module assembly options. This is significantly more reliable than the current expert-based systems.”
Before launching a modularization initiative, experts recommend that the senior leadership team spearhead change-management initiatives to achieve employee buy-in.
“Complete modularization is an ambitious transformation and a fundamentally different way of working that requires the full coordination of all departments across the value chain,” said Mart Tiismann, partner and board director at Modular Management, a Stockholm-based consulting firm that helps companies adopt modularization. “Such a journey must be mapped in a way that ensures early wins and the gradual buildup of momentum and understanding. Most importantly, it requires a new set of governance and support tools.”
Seeking external assistance from modularization experts can also be beneficial, CQYH’s Zhang said. “Think big, but execute step by step,” he advised. “First, get a team of modularity consultants to restructure the product architecture, and then choose a business platform, instead of an IT platform, to support the implementation of the strategy.”
A MODULAR FUTURE
As customers step up their demand for highly personalized products at competitive prices in short timeframes, IE manufacturers must adapt their current mass production processes to remain competitive.
“We used to do a lot of missionary work explaining the benefits of modularity,” Modular Management’s Tiismann said. “With Industry 4.0 and digitalization, we’ve reached an inflexion point where almost all IE companies now recognize the need to better structure their product portfolios, but the implications of structuring information for modularization are not yet widely understood. Consequently, companies that have already implemented or started moving toward this holistic approach to manufacturing industrial equipment will have a competitive advantage for several years to come.”◆
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