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Since the Industrial Revolution, individuals have come to expect increasingly customized products. The speed of innovation is increasing, driven by digitalization and the fight for sustainability, while commoditization and globalization are pushing down prices faster than ever before. How can companies employ the features of agility and customization to gain a competitive advantage? How can they leverage economies of scale and reduce the cost of complexity without impeding innovation? And lastly, how can they provide customers with the seemingly opposing benefits of both customization and industrialization? Modularization is a tool to subdivide the product in a logical way that provides both economies of scale and the ability to create different configurations for increased value for customers. The Modularityof a product is a measurement of how configurable it is, meaning how many combinations you can build with a given number of building blocks. Working with a Modular System is a mindset. It can be leveraged across all industries, pushing the boundaries of what can be achieved with product platforms and shared components. Masters of the art of modularization acknowledge that it is much more than just a modular product. Modularity encompasses the whole business; Products, Operating Models, and Infrastructure. A Modular System enables the configuration of many products with a limited number of module variants. Modular Systems are not limited to product-focused industries such as cars, home appliances, or telecom. Modular Systems are also imperative for transforming project-oriented businesses from Engineer-to-Order to Configure-to-Order operating models. Modularity is also a springboard for service-producing companies to control the offering, and to transfer both knowledge and value from individuals to the organization. Modularization is a fundamental tool within software development to increase code reuse, enable parallel development, and reduce testing effort. Below we will share our thoughts on what a Modular System is, how to use modularization to enable your business strategy, how to create a system for your products, and how to improve it. We will also share how to measure modularity and what core capabilities are needed for success. What is Modularization?Modularization is the activity of dividing a product or system into interchangeable modules. The target of modularization is to create a flexible system that enables the creation of different requested configurations, while also reducing the number of unique building blocks (module variants) needed to do so. By re-using module variants across multiple configurations, volumes are consolidated on the module level, and economy of scale is reached withoutlimiting/rationalizing the product offerings. The benefits of a modularity approach are many. For example, a company can increase customer value by configuring the right product for the situation. The speed of development is increased because innovation is limited to one or a small group of modules in the system rather than a whole product. Additionally, internal complexity is reduced by limiting the number of variants to design, manufacture, and maintain the portfolio. This internal cost of complexity is often overlooked or widely underestimated in enterprises because it takes so much time, resources, and capital to maintain large numbers of parts. Modularization combines the benefits of standardization, which drives a low cost of complexity, with customization by creating the right product for each customer and their situational needs. Modularization captures the benefits of Standardization and Customization While the most obvious examples of modularization might be physical products, the technique is just as useful within software and service products. The main enabler of modularization is standardized interfaces. The interface allows one variant of a module to be interchanged with other modules to meet the required performance level and adapt to specific applications and/or functional needs of the product. What is a Modular System?A Modular System is a group of modules, interfaces, and rules that enables the
configuration of products. Success is built upon the ideas of flexibility, agility, and efficiency. A great Modular System will enable efficiency, of course, but it will also be flexible for a large scope of products and agile for future changes so the architecture can live for a long time. Read this post to gain further insight into what defines the best modular
systems. Efficiency for a Modular System means enabling an economy of scale and stability. By re-using modules across different products, volumes are consolidated. By isolating modules when changes are required, supply chains can benefit from long-term plans and commitments. For example, a battery system may include a cooling fan that can be common across all product variants. In our experience, this is the first trait of modularization that industry executives recognize. Flexibility for a Modular System means enabling mass customization for specific customer needs. As an example, a battery system may be configured to provide different energy storage capacities. For SKU-driven businesses, Modular Systems enable faster SKU creation with less effort. For customized products, modularization helps highly efficient configuration tools to make quotes faster and more accurate. In many cases, the customer can configure the product herself in an online CPQ (Configure-Price-Quote) system. Agility for a Modular System means allowing for swift and controlled changes for new requirements and/or technologies. For example, the charge control electronics may be upgraded to allow for optimized charging considering speed and green energy availability. By preparing for a change in geometry and interface specifications, changes can be isolated to specific modules, enabling the surrounding modules to remain untouched.
What is Modularity?Modularity is a measurement of how well a system performs given the business strategy and targets set. Those targets can generally be defined as efficiency, flexibility, and agility. Thus, the measurement of modularity will vary with what is most important to the specific business. Some measurements will be more important than others given the targets set for the modularization program. To measure efficiency we can create a measurement of how many different building blocks are needed in the system. The fewer, the better. An excellent proxy for efficiency is part number count (PNC). By controlling part number counts, managers can ensure that complexity is not added over time unintentionally. It also becomes much easier to measure the impact of any new parts that are added intentionally to expand share or improve the offering. In many companies today, PNC expansion/reduction and its impact are poorly understood, leading to margin decline. To measure flexibility we can use a measurement of how many configurable products are available to sell given a fixed set of module variants. This measure is often called configurability and defines as the number of possible products divided by the number of components (PNC) needed. To measure agility we can measure the number of new components required to increase the product offerings. This is typically measured over a period to get an average reading, for example annually. The definition of the metric is the number of introduced components divided by the number of enabled product variants. Chart illustrating how modularity is creating flexibility while reducing complexity Leif Östling, former CEO of Scania, has said: “Control and limitation of part numbers is one of the most important factors to optimize profitability over time.” The History of Modularization and Modular SystemsWhile proof of Modularization can be traced as far back as the Terracotta Army (200 BCE), modern industrial use of modularization was pioneered by leaders in different industries such as Scania, Toyota, Nippondenso, Dell, and Sony. These companies managed to take clear market leadership using modularization, governing, and improving their Modular Systems over time. In Germany, modular systems are often called Baukasten, a term literally translated to construction set. Volkswagen, for example, calls their modular systems Baukasten, e.g., Volkswagen MQB, which stands for Modularer QuerBaukasten, roughly translated to Transversal Engine Modular System. Baukasten was frequently used as a term in the 1930s for do-it-yourself kits, such as model railways, modular radios, and electronics toolkits for kids. These toys have much in common with industrial modular product platforms. They have the same target to create flexibility and the same means - standardizing interfaces. Sony utilized modularization in a structured way for both the Handycam and Walkman product lines to continuously stay ahead of the competition throughout the 1980s. As soon as competitors caught up, Sony could immediately launch the next version and again be the product leader. Scania, on the other hand, understood that modularity was the way to enable mass customization. By creating a modular system for the truck on different levels, an almost infinite number of variants could be configured and manufactured on the same assembly lines without costly changeovers. For decades Scania’s unique focus on modularity enabled them to outperform the competition in profitability (2X to 5X), even though their volumes were lower than some competitors. By optimizing variance and customization, Scania successfully reached an excellent economy of scale while simultaneously providing individual drivers with the exact truck they desired. In today’s modern economy, successful companies are champions of modularity in hardware, software, products, and services. With the birth of Web 2.0, modularity reaches across company barriers. Today, micro-services, web apps, and open APIs enable a whole new set of customization possibilities. And as more functionality transitions from hardware to software, traditional hardware companies can also benefit from adopting new ways of thinking and working. Improve Quality, Time-To-Market, and Enable Scaling with Software ModularizationMany companies suffer from complex software development such as:
Three typical root causes for software architecture problems are “Developed by me” software, highly coupled software structures, and multiple overlapping software platforms. Even companies that traditionally have been focused on mechanics are becoming software companies whether they like it or not. CTOs of “hardware companies” are realizing that they often have more software engineers than hardware engineers. By making software modules independent, reusable, and interchangeable, development can be much more efficient and truly agile. Independent modules make development teams autonomous for improved efficiency and time to market. Read more about Strategic Software Modularization and download our template for documentation of a strategic software module. Terms to KnowRegarding Modularization and Modular SystemsModuleA Module is a functional building block with specified interfaces driven by company-specific strategies. Modular SystemA modular system is a collection of building blocks that can be configured in different ways, adapting to different customer needs. Modular Systems can be hierarchical because modular sub-systems can be shared across more than one modular product architecture. Modular Systems can have one or more architectures which are the structures that describe how products are built with the modules. Modular Product ArchitectureA Modular Product Architecture is a geometrical and logical structure for building a type of product based on a Modular System. For example, a company can use one Modular System for both washers and dryers. However, the washers and dryers have different Modular Product Architectures. ModularizationModularization is the activity of subdividing a system of products into modules. Modularization can act on any combination of hardware, electronics, software, and services. Module VariantA Module Variant is the realization of a Module, fulfilling its interfaces and strategic intention. For hardware and electronics, it is a physical part. In software, it is an encapsulated piece of code. Software modules typically have only one realization that is flexible for all use cases. For hardware and electronics, each module will have one or more variants. Module InterfaceA Module Interface defines how a Module interacts with its surroundings. The interface can be with other modules, but also with the external world. An interface can be physical, attaching one module to another. It can specify how information, media, or power is transferred between two modules. It can also be geometrical, defining the space reserved for the module. ConfigurationA Configuration is a specific combination of module variants according to a Modular Product Architecture that fulfills a set of configuration rules.
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