«Abstract In this chapter, we introduce the beneﬁts and penalties of commonality (both to the customer and the manufacturer), emphasizing the need ...»
In the design phase, commonality primarily acts to reduce the number of engineering hours required to produce a variant (Ho and Li 1997; Johnson and Kirchain 2010). Intuitively, this can be understood as engineers producing fewer unique parts. However, as seen under Costs of Commonality, common parts often take more time to design, so the effort required must be carefully sized.
In addition to producing fewer parts, design hours are reduced when effort in product deﬁnition (requirements and goal setting) can be reused, when design analysis methodologies can be reapplied to slightly different parts or environments, and when challenges in the initial variant design inform design strategies for unique parts on later variants. The reduction in engineering effort is primarily measured in engineering head count or engineering hours. While these may appear to be easily applied summary measures, the realities of accounting for reduced head count on a subsequent variant as traceable to early design effort can be complex to track (Ben-Arieh and Qian 2003).
In the manufacturing phase, commonality impacts many different departments involved in coordinating manufacturing. On the physical manufacturing line, platforms can enable the ﬁrm to move to higher volume manufacturing methods, such as from operator-assisted sheet-metal bending to fully automated operations.
This is typically referred to as economies of scale, in reference to the idea that higher volumes allow new capital equipment to be amortized across higher volumes (Krishnan and Gupta 2001). This should be contrasted with learning curves on the manufacturing line, the idea that the labor portion of the manufacturing cost shrinks as assemblers ﬁnd more efﬁcient ways to complete the task and reduce quality expense when the resulting efﬁciency causes fewer defects, particularly when the platform is designed to the higher quality variant (Desai et al. 2001). Off the physical line, the purchasing department stands to gain leverage with increasing volume of common parts, and the supply chain department can stock fewer parts, as the aggregation of demand from different products for the same common parts lowers the safety stock that needs to be carried. Fixson (2006) notes that a number of supporting costs reductions are also achieved under commonality through lower product support activities, highlighting that commonality can have positive externalities on corporate overhead.
Beneﬁts in testing and commissioning result from learning curves during repeated tests, amortized capital expenditure, and the potential for direct reuse of regulatory compliance tests. In the transportation and aviation markets, these beneﬁts can be signiﬁcant—reuse of an aircraft type certiﬁcate can save years in time to market.
Beneﬁts in the operation phases are analogous to the beneﬁts in the prior four phases. Table 2.2 shows a mapping of operation beneﬁts to previous beneﬁts, with the type indicated as a general categorization of the beneﬁt.
Operations raise an important question about who beneﬁts from commonality.
For an aircraft manufacturer, which does not operate the products it produces, the beneﬁts of commonality in operations will accrue to the operating carrier.
58 B.G. Cameron and E.F. Crawley
For example, airlines that operate Airbus A319, A320, and A321 aircraft can leverage the common glass cockpit instruments for shared training savings and ¨ the corresponding ﬂexibility in pilot assignment (Bruggen and Klose 2010). While these savings will not accrue to the aircraft manufacturer directly, commonality is often used as a sales and marketing strategy. If the aircraft manufacturer can produce convincing calculations of ﬂeet savings in operations from commonality of new aircraft with the operating carrier’s existing ﬂeet, commonality can be used as a sales advantage to boost units sold.
Having now identiﬁed the beneﬁts of commonality, it is important to ask the question how big the beneﬁts are. Our research (Cameron 2011) suggests that the beneﬁts vary widely across industries, depending on the cost structure, clock-speed, and number of competitors. Well-executed commonality strategies can produce 15–50 % savings, while poorly executed platforms can add cost and overhead to products. To help understand which beneﬁts are most likely to dominate, Fig. 2.2 illustrates two broad ﬁrm cost structures.
2 Crafting Platform Strategy Based on Anticipated Beneﬁts and Costs 59
Fig. 2.2 Illustration of conceptual model of commonality beneﬁts 2.3.1 Industries Dominated by Development Cost Two criteria emerge in industries with large development cost (and typically low production volumes). The ﬁrst criterion is that the saved development labor can either be productively placed elsewhere or it can be cut. It is typical to employ large-salaried workforces in several of the industries studied (e.g., Aerospace, Heavy Equipment). If the reduced head count required for later variants is not productively redeployed, the ﬁrm will not save any money. Challenges redeploying were found in organizations with high product-to-product walls and those with very dissimilar product lines.
The second criterion is that the business model does not depend on cost-plus (or similar) contracts. A number of Aerospace and Transport ﬁrms operate, or have historically operated, under design-for-fee contracts, which make it difﬁcult to charge higher margins on later designs. This contract structure is often coupled with the practice of modifying scope or requirements (as previously discussed), which also inhibits development cost savings.
2.3.2 Industries Dominated by Manufacturing Cost
We propose the following three possible criteria, each of which can individually create a ﬁnancially beneﬁcial platform, although there are many possible strategies targeting individual beneﬁts.
• Criteria 1—Signiﬁcant learning curves are possible. This typically implies direct labor is a signiﬁcant fraction of total lifecycle cost and also that volumes are sufﬁciently large to reach these learning curves. Platforms where only 1–2 % 60 B.G. Cameron and E.F. Crawley learning curves from aggregating volumes can be achieved are unlikely to merit platform investment. Similarly, industries where conﬁguration complexity is likely to swamp learning beneﬁts are unlikely to retain beneﬁts.
• Criteria 2—Strong bulk purchasing discounts are available. In industries that purchase a large fraction of product cost, as in Automotive, platforming will only be beneﬁcial if there is a strong potential for a discount. If the ﬁrm cannot aggregate over sufﬁciently large volumes, or the suppliers have monopolies, it will be difﬁcult to achieve a meaningful discount. In an Automotive case we conducted, several subsystems did not have sufﬁcient visibility into their supplier’s cost structure in order to assess whether a discount could be achieved.
• Criteria 3—Investments in economies of scale and capital equipment will outlast the platform. Particularly in industries that are capital intensive, if the industry clock-speed dictates new manufacturing methods on short cycles, it will be challenging to invest. This is potentially the situation in semiconductor manufacturing, although Boas (2008) illustrates how, from the perspective of the manufacturer of the capital equipment (as opposed to the purchaser and user), there are sufﬁcient projections to merit platform investment.
2.4 Costs of Commonality
The costs of commonality are widespread and must be carefully considered before engaging in a multiproduct strategy. Fundamentally, any commonality strategy involves signiﬁcant upfront investment, in order to deﬁne the platform and create the common components. However, there are a number of costs and drawbacks that occur through the different lifecycle phases, each of which poses a risk to the successful execution of this strategy. Unrealized costs and unanticipated challenges have derailed many platforms in our experience.
We have divided the costs and drawbacks of commonality into ﬁve categories, as with the beneﬁts, and they are summarized in Table 2.3. This list includes both direct, quantiﬁable costs and broader strategic drawbacks, which are difﬁculty to indirectly cost but represent real challenges all platforms will face. Each cost and drawback is labeled as recurring or nonrecurring with respect to additional variants.
For example, the design premium is a nonrecurring cost, in that it is invested once at the beginning of the program, and can be leveraged on each variant. By contrast, the capability penalty (deﬁned as the over-performance and cost compromises of commonality with other variants) is a recurring cost, in that it affects each variant.
Not all of these costs are expected in all commonality projects—for example, commonality may reduce the labor content in assembly, rather than increase it. This is not to say that these costs are small or easily mitigated. Most execution challenges in common programs manifest as cost problems at some point, whether it be in underestimated commonality premiums in design phases or in pro-divergence arguments based on reducing the unit cost during manufacturing.
Creating realistic projections of these costs is a competitive advantage for ﬁrms which successfully employ commonality strategies, as these projections enable the 2 Crafting Platform Strategy Based on Anticipated Beneﬁts and Costs 61
Fig. 2.3 Arguments raised by variants that can lead to variants suboptimizing the platform ﬁrm trade investment against the potential return and also to plan for appropriate management resources in design, manufacturing, and testing.
Past research (Ulrich and Eppinger 2004; Halman et al. 2003; Cameron 2013) suggests that the upfront investment in platforms can be multiples of an individual product design effort. If a platform of three products costs $200 million compared with three individual products at $100 million each, the savings are signiﬁcant ($100 million), but the initial investment is still twice the size of a typical development program. We deﬁne this initial investment as the commonality premium—the ratio of platform development cost to a single product development cost. Ulrich and Eppinger (2004) suggest 2Â–10Â as the premium. A subsystem-level study (Cameron 2011) in the context of a 3-case study of low-volume capital-intensive manufacturing ﬁrms indicates that the system premiums ranged from 12 % to 50 % for three platform in transportation, with subsystem premiums as high as 200 % (3Â a single product subsystem development program).
These costs do accrue evenly to all products on a platform. For example, the upfront variant is likely to pay most of the commonality premium, unless the platform is explicitly structured to share investment (Meyer et al. 1997). Savings from amortized capital equipment are more likely to accrue to later variants. This imbalance implies that tensions will arise between variants—some variants will create investments that they will not be able to recover themselves. Therefore, in addition to the necessity of weighing the costs of platforming against the beneﬁts, it is important to create a platform perspective on costs. Without a platform perspective, individual variants will systematically reject the compromises and additional costs inherent in a platform strategy in favor of lower-entropy, individualized design.
Figure 2.3 illustrates how some of these costs can be projected on to individual variants, which are arranged for a vertical platform strategy (economy to luxury products).
The position of the product within the platform extent (the performance range spanned by the variants) determines which of the beneﬁts it stands to gain, as well as which of the costs it may have preferred not to shoulder. For example, the low performance variant typically aims to minimize unit cost to provide the lowest 2 Crafting Platform Strategy Based on Anticipated Beneﬁts and Costs 63 possible entry price into the market (de Weck 2006) and will therefore attempt to reject common components with heavy capability penalties or hooks for expensive options. Figure 2.3 illustrates the most common source of complaint for each variant in the platform extent.
2.5 Planning for Divergence
Despite signiﬁcant investments and planning efforts, many platforms tend to realize less commonality than intended, a phenomena we call “divergence.” This phenomenon appears to affect platforms across industries, ranging from automotive to semiconductor capital equipment as summarized in Table 2.4. There is a large body of work on developing commonality metrics (Wacker and Treleven 1986;
Siddique et al. 1998; Jiao and Tseng 2000; Thevenot and Simpson 2006), but descriptive studies tracking commonality indices over time are just beginning to emerge (Fixson 2007). A widely cited example is the Joint Strike Fighter, a military aircraft designed with three variants, which was intended to share 80–90 % parts commonality across all three variants. Through development and early production phases, commonality fell sharply to 30–40 % parts shared (Boas et al. 2012).
The magnitude of this phenomenon is not static across industries or platforms.
Some platforms see minimal erosion of targets, while others face strong pressure to move towards unique designs. Our understanding of the challenges would suggest that divergence varies much more strongly in response to a ﬁrm’s management capabilities than in response to the market in which the ﬁrm operates.
Boas et al. (2012) illustrate that divergence is not necessarily an entirely negative phenomena. For example, an optimistically scoped platform would beneﬁt by moving to more achievable commonality level, potentially seeing reductions in development budget and schedule. Likewise, beneﬁcial divergence can occur in the face of unanticipated technological progress or when market requirements change during the design process. Ramdas and Randall (2008) ﬁnd that uniquely designed components have higher component reliability, eschewing the design compromises associated with commonality.