Impact of Modularity Decisions on a Firm’s Economic Objectives

Abstract

Research in modularization of product families reveals numerous individual cause and effect impacts of modularity on a firm. There are clearly many interrelated positive and negative economic impacts arising from different activities of the firm impacted by the modular product structures. This makes the construction of an economic business case for modularity difficult, where often the benefits are reduced indirect costs. This paper presents a literature-based network model of how modular product structures affect firm’s economics across the design-to-manufacturing life cycle phases. It shows how (1) changes on modularity properties may lead to (2) different effects within the product’s life cycle phases that (3) have an economic impact on the firm. For instance, modularization can prolong development time of a platform, while shortening the subsequent development times of product variants and lowering manufacturing costs. To validate the proposed model, the given effect chains were compared by industrial experts against nine case study modularization projects by marking effects that were experienced and observed in their projects. The results first revealed that in design, an increase of commonality drove component reuse leading to lower development costs per unit. Second, in procurement, it was found that increased modularity caused better predictability, less purchasing orders, and better purchasing conditions that ultimately lead to lower costs. Third, in production, it was found that a smaller variety of components allowed less process variety, leading to fewer and more optimized processes and therefore lower production costs. We present these cause and effect impacts of modularity as drivers for quantifying the economic impact of modularity.