Lars Hvam and Niels Henrik Mortenson head up the Centre for Product Modeling at the Technical University of Denmark's Department of Manufacturing Engineering and Management. At the MIT Smart Customization Seminar, they presented several compelling case studies of smart customization in action among their clients. These are all major B2B manufacturers who have been applying the principles of smart customization and modular design of product lines and business processes for several years.
These cases are covered in more detail in their recently published book, Product Customization.1 One of the most detailed accounts that Lars and Niels presented included highlights from American Power Conversion.
The Importance of a Product Variant Master
Niels Henrik Mortensen and Lars Hvam described how American Power Conversion created a streamlined modular product
line by mapping out the current product assortment and processes and then simplifying
Dramatic Reduction in Lead Times by Moving from Engineering to Configuration
American Power Conversion (APC) is a multibillion dollar provider of complete power management systems for data centers, access providers, business networks, and home/small office.
It used to take APC 18 months to design, configure, and deliver the power management infrastructure for a data center for on-site assembly. Today, the company's 35,000 customers receive (or generate) a quote in less than an hour. The lead time for delivery of a complete infrastructure system for a large data center has been reduced from 400 days to 16 days! Since the systems arrive pre-assembled, on-site installation and integration has also been dramatically reduced.
Customers and technical consultants no longer engineer these complex solutions; they configure them. American Power Conversion's configuration and ordering systems are used by more than 10,000 sales engineers and dealers worldwide as well as by the majority of APC's customers.
APC manufactures standard modules in the Far East (power supply, air conditioning, cabling). All of these modules are mass produced. "The manufacturing is planned and executed based on the product and manufacturing specifications generated in the configuration systems," they explained. Most systems are then pre-assembled in one of APC's 15 assembly distribution centers around the world.
1) Lars Hvam, Niels Henrik Mortensen, Jesper Riis. Product Customization. Springer, 2008
Key: Streamline Your Processes
Over the past decade, APC has redesigned its entire product lines to be easy to configure and assemble. At the same time, they had to develop new end-to-end processes—processes that impact everyone in the organization as well as all of their partners and suppliers. Now, Niels and Lars reported, APC delivers more systems, much more profitably, with fewer errors. Here's the current breakdown:
• 80% of all systems are Configured to Order (CTO). The total system delivered is configured directly in the configuration systems.
• 15% of all orders are Integrated to Order (ITO). The total delivery can be pre-configured, but up to 15% of third-party components are not defined in the configuration system.
• 5% of systems are Engineered to Order (ETO). Parts of the delivery will have to be engineered specifically to the individual customer.
• Special Orders require approval from the CEO. These are negligible, because the CEO never approves them!
Key: Streamline the Product Modules You Offer
The key to the successful design of a modular product line that can be easily configured and assembled, according to Lars and Niels, is the way you approach the design and rationalization of your product line. This product modeling process is part of the methodology that they have perfected. As you can imagine, it involves getting all the stakeholders together from sales through manufacturing, logistics, and support to redesign the products lines to be modular. What's special about the approach that Lars and Niels take is that it's customer-driven, based on the attributes and characteristics that matter most to customers.
At the seminar, they showed examples of the large wall charts that clients developed to:
• Depict the current product assortment by creating a common overview of the product assortment across sales, engineering, and supply chain.
• Create a "Product Variant Master" to show the variance and commonality of the product assortment.
• Identify the attributes and characteristics that matter most to customers.
• This forms the basis for the identification of the starting point for modularization and configuration and a basis for decisions about what their preferred solutions should be.
• Conduct a "professional dialog" between sales, engineering, and production. Discuss it with everyone. Focus on "how can we reduce complexity."
• Standardize the product assortment into a set of modules and assembly processes that can be easily configured and delivered.
Reduce Variability; Increase Variety
The magic of this disciplined approach is that it dramatically reduces errors and results in much better quality products. On the flip side, it enables the company to create new solutions quickly and easily, based on customer demand and usage. APC introduces more than 1,000 new products to the market per year.
This is excerpted from my "Smart Customization Comes of Age" Best Practices report, January 8, 2009.