«Abstract In this chapter, we introduce the beneﬁts and penalties of commonality (both to the customer and the manufacturer), emphasizing the need ...»
However, there are also negative implications from divergence. Any movement to lower commonality levels implies more unique content, which will require design work, manufacturing planning, and operational constraints. In addition to the incremental work implied, divergence reduces the extent of the cost synergies on which many platforms were founded (Cameron 2011).
Divergence results from a number of imbalances that recur in most platforms.
These imbalances occur in time, resources, volumes, and markets. Almost all platforms contain some degree of time offset, where one variant is designed and manufactured before others. This lead variant has a strong inﬂuence on the platform, often shouldering the design of many of the common parts. Difﬁculty understanding the future needs of latter variants can cause the lead to skew the common design closer to its needs, thus creating an opportunity for divergence when latter variants inherit the skewed parts. Similar imbalance in development
budgets, expected production volumes, and perceived customer importance also creates opportunities for divergence.
Making strong decisions in the face of divergence is the result of understanding the differential impact on the beneﬁts and costs of commonality. We’ve already established that all divergence has a near-term cost, due to implied unique design work, and a long-term cost, due to reduced synergies. However, the downstream positive revenue implications may dwarf the near- and long-term cost of divergence.
For example, consider a rail manufacturer attempting to produce a platform locomotive, spanning three national operating voltages. If one of those national markets changes voltages to double its existing speciﬁcation, the rail manufacturer should weight the relevant implications on costs and beneﬁts. Modifying the platform to include new operating voltage may signiﬁcantly increase the commonality premium, as the design may need to be reworked. Additionally, it may raise the cost of manufacturing for all locomotives due to the capability penalty. By contrast, the manufacturer can consider diverging, creating a new locomotive targeted at one market, and reducing the existing platform speciﬁcation to two voltages. This implies that there will be a lower bulk purchasing effect for the platform, because common components will not be spread across three national markets. This decision would create additional design work for the new locomotive, but it may also reduce the commonality premium for the platform, as fewer design constraints are levied. The rail manufacturer will need to weigh these costs and beneﬁts against the revenue implications of the decision. They may in fact sell more locomotives in the remaining two national markets if they can pass the reduced commonality capability penalty on to the consumer in the form of a lower price.
Our research suggests that the ﬁrm’s ability to weigh the options in a divergence decision represents a key competitive advantage for ﬁrms. Cameron (2011) illustrates the mechanisms by which divergence led to failed investment returns on large platforms. By contrast, ﬁrms like Volkswagen, which has pursued multiple product platforms, are continuing to achieve cost savings on the order of 30 % and lead time reductions on the order of 50 % (Pander 2012).
Having now illustrated that divergence opportunities need to be carefully weighed, we must ask the question of whether upfront planning should anticipate divergence. We have already illustrated that commonality planners should include sizeable commonality premiums in design phases, and we have identiﬁed downstream potential savings in supply chain, manufacturing, testing, and operations.
Our research suggests that estimating realistic commonality beneﬁts is a ﬁrm competence. One Automotive ﬁrm we worked with kept detailed variant cost estimation models, which would project the design work required to produce a derivative (such as a long wheelbase model), as a function of the binned magnitude of changes and the complexity of the host platform.
Should platform managers actively slash projected savings and inﬂate commonality premiums to account for divergence? Should they assume an “average divergence” factor? We have not seen evidence in industry that this is an effective practice, beyond the standard practices of planning for program manager reserves 66 B.G. Cameron and E.F. Crawley and estimating schedule risk. Rather, the approach followed by successful ﬁrms has been to keenly question commonality plans, attempting to pare the design down to retain feasible commonality levels. Recast in another light, stretch goals are an important practice, but they should be used incrementally rather than radically as applied to platforms.
2.6 Choosing a Platform Strategy
The choice of what to make common is at the heart of any platform strategy.
Fundamentally, this choice must be grounded in technical reality. For example, it must be feasible to use the same water valve in three different radiators. However, the choice of platform strategy must be grounded in, and clearly traceable to, a set of ﬁnancial advantages. This implies some degree of coordination between technical and ﬁnancial decisions. For example, aggregating water valve purchasing across the ﬁrm to establish supplier orders of 10,000 rather than orders of 1,000 may enable a strong bulk purchasing discount.
In this section, we identify some of the canonical commonality strategies, and we compare them against the associated beneﬁts. In parallel with this analysis, it is important to conduct the market research and planning to establish differentiation across the product family, but for the purpose of linearity, this is not discussed in detail here.
Table 2.5 lists a subset of the available platforming strategies, arranged from low commonality planning effort at the top to high commonality planning effort at the bottom.
For alternative categorizations of commonality strategies, see Robertson and Ulrich (1998) and Park and Simpson (2005).
We can see from this list that pervasive commonality strategies tend to target development beneﬁts but invest signiﬁcantly up front in order to achieve this beneﬁt. Lower-order strategies, which tend to be organization-wide rather than platform-wide (Labro 2004), are more likely to cite bulk purchasing and inventory charges. Separate from the question of whether commonality is technically feasible, it is important that the platform manager align the ﬁrm’s commonality strategy with its cost structure. For example, if consolidating all the low-cost components from the ﬁrm’s three product lines would double the effective volume purchased from the ﬁrm’s steel supplier, the question remains whether the steel supplier would offer a discount at this volume. If the steel supplier can only make meaningful changes to cost structure based on 10Â volume, then the investment in consolidating low-cost components is unlikely to bear out. Farrell and Simpson (2010) offer a methodological step in this direction, using activity-based costing to understand how consolidation of components impacts manufacturing economies.
In terms of challenges, diffuse low-order commonality strategies clearly face greater coordination challenges and speciﬁcally are more likely to face funding challenges. Higher order commonality strategies are more likely to face “execution” challenges, in terms of holding off unplanned customization (Wortmann, et al. 1997).
These challenges will create divergence opportunities in all cases, whether they 2 Crafting Platform Strategy Based on Anticipated Beneﬁts and Costs 67
manifest as product managers lobbying for exemption from high coordination costs shared via overhead or variants attempting to shirk high integration costs by moving to unique solutions. Astute program managers will also recognize that these challenges will be increasingly back-end loaded on platform timelines for higher order commonality strategies, while lower-order strategies will face more challenges upfront in aggregating diffuse product teams into ordered component strategies.
This representation of commonality strategies does not capture the complexity of the product architecture (Baldwin and Clark 2000)—it does not represent the modularity of the platform, the intended servicing functions, or the organizational implications. However, it does showcase the necessity of matching commonality strategy to an expectation of cost and beneﬁt. Firms that attempt to commonalize as much as possible, without regard for expected beneﬁts and implied costs, will ﬁnd themselves incurring almost all of the commonality cost categories listed here and almost certainly swamping the expected beneﬁts.
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