Here is a brief excerpt from an article written by Fabian Bannasch, Volker Grüntges, Giorgio Rossi, and Florian Weig for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.
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Common architecture, standard product portfolio elements, and a systematic approach can help companies cut costs and boost top-line growth.
This article is excerpted from our 2014 compendium on product development, Product Excellence: Driving success through true product excellence.
Effectively managing complexity has become essential to business success.Whereas in the past consumers were satisfied with a handful of choices in everything from automobiles to appliances, today few companies can survive with such a basic product portfolio. The shift has been dramatic: an automotive original equipment manufacturer (OEM) that once limited its offerings to 6 compact models now lists 17 different compact-class vehicles. The same phenomenon affects industries worldwide, and things are changing more quickly than ever. For example, the number of mobile phones offered by a major electronics company exploded from 5 models in 1990 to more than 180 in 2013, with a vast range of specifications, features, and geographic variants.
Within rapidly growing product portfolios, products themselves have also become more complicated, as companies offer more features to elicit an emotional response from consumers. Add the faster innovation cycles across global markets that complicate portfolios as well as more intricate aftermarket parts management issues, and complexity begins to seem overwhelming.
Using a new model to defeat complexity
While the challenge is significant, companies in a wide variety of industries can effectively manage complexity by modularizing product architectures and introducing specific platform and module strategies, as Exhibit 1 shows. Based on hundreds of modularity engagements and major product architecture transformations across industries from automotive to machinery, from aerospace to oil and gas, and from furniture to steel mills, McKinsey has developed a unique perspective on how to support companies looking to improve in this area. (For more on how industries with lower volumes in particular can benefit, see sidebar, “Making platform and module strategies work in lower-volume industries.”) In designing common platform architectures, boosting product portfolio commonality, or mobilizing and reshaping organizations, teams must establish enduring improvements and embed modularity principles early on in new generations of products.
Platform and module strategies offer an array of potential benefits beyond the obvious material cost savings gained from increasing or bundling purchased volumes. Viewed in operational terms, benefits come from inventory reduction through standardizing parts and simplifying assembly processes, which can affect both labor hours and product quality. Companies achieve these goals by enabling greater stability and repeatability in manufacturing activities. One leading furniture manufacturer used these approaches to cut assembly and rework hours by roughly 30 percent. Firms typically capture significant one-off cost reductions by enforcing best-practice standards across the portfolio, thus replacing costly niche components with standardized ones. A leading industrial equipment manufacturer used this technique to replace more than 70 different hydraulic pumps with a new portfolio of 20 “plug and play”-like solutions.
Adopting platform and module strategies can reduce the number of product variants, enabling companies to capture R&D savings. Such strategies also help them increase the productivity of engineering resources, which can constrain growth for high-tech companies if left unaddressed. In fact, a global aerospace company reduced its engineering hours for the development of a new product by 30 percent using these methods.
Modularity can also be a powerful way to boost revenue growth. One multinational oil and gas player demonstrated this effect by modularizing the construction of deep-blue oil platforms, reducing the company’s “time to first oil” by 25 percent and generating an extra USD 1 billion in revenues in the process.
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Here is a direct link to the complete article.
Fabian Bannasch is an expert in McKinsey’s Munich office, where Volker Grüntges and Florian Weig are directors, and Giorgio Rossi is a principal in the Rome office.
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