Complexity Reduction
A number of studies have demonstrated a negative correlation between a company ’s complexity and its earnings performance. What applies at the overarching corporate level applies equally to product complexity and, as a result, to the interaction with suppliers.
More companies find themselves beset by the effects of increasing product complexity. The drivers of this complexity are diverse, and include the goal of meeting different customer needs, shorter product life cycles, high innovation rates, and, sometimes, a lack of discipline in development and prod¬uct management. Consequently, it is virtually impossible to obtain volume-based concessions from suppliers.
When it comes to controlling product complexity in a systematic manner, a four-step approach has proved useful:
Build variant trees: The aim is to generate transparency and help explain the complexity existing within product groups. To this end, the factors driving complexity are identified. In the case of gearboxes, for example, these factors are as follows:
Type: Manual, automatic, or double-clutch gearbox
Mode of installation: Lengthwise, transverse, or rear engine
Performance range: Torque above or below 300 Nm
In this example, around 50 complexity drivers can be found. The existing gearboxes are then depicted in a tree structure, in accordance with their complexity drivers. The variant trees are enriched with additional data (for example, prices of parts, quantities, warranty costs , and so on), so that a complete visualization is available by the end of the first step.
Develop a maximum scenario: This involves recognizing similar variants within the variant tree and identifying potential through amalgamation or elimination.
Create a business case: In this step, the cost savings potential and income effects are compared with investment and resource requirements. A fact-based decision can then be taken on the basis of the business case.
Create an action plan: Interdisciplinary discussions are held between product management, sales, R & D, production, and procurement. Decisions are taken with regard to detailed complexity reduction measures and the production of an implementation plan.
These measures enable procurement to buy fewer parts with higher volumes in the future. Savings are achieved not only by procurement, thanks to better procurement prices, but also by R & D, production, and logistics.