Product Structures and Product Configuration

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Product Structures and Product Configuration

A Comparing Study

Frida Sandstrom

Luleå University of Technology MSc Programmes in Engineering Industrial Business Administration

Department of Applied Physics and Mechanical Engineering Division of Division of Manufacturing Systems Engineering

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delivery times. This demand can be satisfied with configurable products, which can be easily customized according to customer specifications.

The purpose of the thesis is to perform a comparing study of how Ericsson GSM Systems, and few other companies have structured their products and how they are handling the product configuration process. The focus areas are the sales structure, which is how the customer views the product, the configuration from customer requirements to orderable products, and the support systems used for handling the configuration.

In this comparing study, a few things that can be of interest for GSM Systems have been found. Examples of this are to place a configuration sale tool on Internet, and to have country or customer specific configurable products for some large customers or markets.

There are not many observations that could be directly translated and useful for GSM Systems, but it is still of great interest to get knowledge of how other companies are working, and how far GSM Systems have reached in their work with configurable product packages.

In my view, GSM Systems have reached reasonably far. The company still has some problem areas, but they are aware of, and working on most of them.

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Preface

This master thesis has been carried out at GSM Systems, Ericsson Radio Systems AB in Stockholm, Sweden. The thesis is the final part of my Master in Industrial Engineering and Management at Lulea University of Technology, and involves 20 weeks of work. The thesis work was started in February and was finalized in the middle of the warm and beautiful month of July.

First of all I would like to express my gratitude to my supervisor at GSM Systems, Ulrika Ekstom, for her support and encouragement. I am also grateful to all the people at GSM Systems for making my stay at Ericsson an interesting and valuable experience.

I would like to thank Thomas Gustavsson at Volvo Trucks Engine Production, Thomas Rundin at Dell Computers Sweden, and Jon Sintorn at ABB Distribution for their co-operation for the company comparing studies.

In addition, I would also like to thank my supervisor at Lulea University of Technology, Ulf Eriksson, for sharing his ideas and views for this thesis work.

Stockholm, July 14, 1999

Frida Sandstrom

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TABLE OF CONTENTS

1 INTRODUCTION ... 5

1.1 BACKGROUND...6

1.2 PROBLEM DISCUSSION...6

1.3 RESEARCH METHODOLOGY...8

1.4 RESEARCH LIMITATIONS...8

2 THEORY... 9

2.1 CUSTOMIZATION...9

2.2 CONFIGURABLE PRODUCTS...11

2.3 THE PRODUCT CONFIGURATION PROCESS...12

2.4 PRODUCT CONFIGURATION SYSTEMS...13

2.5 PROBLEM AREAS IN PRODUCT CONFIGURATION...16

3 STRUCTURE OF THE COMPARING STUDY ... 21

3.1 COMPANY OVERVIEW...21

3.2 PRODUCTS AND PRODUCT STRUCTURES...21

3.3 SALES VIEW...21

3.4 THE PRODUCT CONFIGURATION- AND ORDER PROCESS...21

3.5 SUPPORT SYSTEMS...22

3.6 STRENGTH AND WEAKNESSES...22

4 STUDY VOLVO TRUCKS ENGINE PRODUCTION ... 23

4.3 SALES VIEW...26

4.4 PRODUCT CONFIGURATION- AND ORDER PROCESS...28

4.6 STRENGTHS AND WEAKNESSES...32

5 STUDY DELL COMPUTER CORPORATION... 34

5.3 SALES VIEW...36

6 STUDY ABB DISTRIBUTION ... 44

6.3 SALES VIEW...46

7 STUDY GSM SYSTEMS ... 51

7.3 SALES VIEW...56

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8 ANALYSIS ... 66

8.1 PRODUCTS AND PRODUCT STRUCTURE...66

8.2 SALES VIEW...66

9 RECOMMENDATIONS FOR GSM SYSTEMS ... 68

9.1 PRODUCTS AND PRODUCT STRUCTURE...68

9.2 SALES VIEW...68

REFERENCES ... 70

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1 Introduction

To compete in the global market place, companies are adopting customization as a mean to be more responsive to their customers needs, and the importance of product configuration is currently increasing dramatically for a wide range of industrial companies. This is due to an increasing demand for individually tailored products with short delivery times, and due to better technological opportunities to handle the customization efforts.

In order to provide customer specific solutions a company needs to provide the possibility of choice. In small scale, variants can be implemented by catalogues of products, but when we are talking about thousands or more variants, it must be possible to adapt the product to the needs of each customer. The latter is a commercial success, and is referred to as product configuration.¹

Product configuration as an activity can be regarded as satisfying a customer’s demand by creating a product, which is composed by a number of pre-developed components. Originated from this, product configuration can also be regarded as an important focus area for manufacturing industries and as a problem area for important research issues.²

At Ericsson, who is a world-leading supplier in the telecommunications and data communications industry, customers are requiring shorter lead-times, more complete deliveries, and shorter installation time. To be able to satisfy these requirements, GSM Systems, who is part of Ericsson, are offering their customers mobile telephone systems as configurable standard packages.

This thesis includes a comparing study of how GSM Systems and a few other companies have structured their products, and are handling the product configuration process. The focus areas are the sales structure, which is how the customer views the product, the configuration from customer requirements to orderable products, and the support systems used for handling the configuration.

1 Mannisto, T. (1998). Towards Management of Evolution in Product Configuration Data Models

2 Technical Session on Product Configuration at EDA’98: http://www.cs.hut.fi/~tso/eda98.html

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1.1 Background

GSM Systems produces mobile telephone systems. Traditionally, they have designed every customer order on a “bits and pieces” level, resulting in a lot of errors in the orders, a lot of product numbers generated and a lot of time spent on each order.

Due to the customers changing needs, and to be able to stay competitive in the global marketplace, GSM Systems is today offering customers their products as configurable standard packages, at Ericsson called Product Packages.

The new concept, with the use of configurable standard packages, can give both the customers and Ericsson a number of benefits. Some of these benefits are:

 simpler and shorter forecast and offer process

 reduced lead time

 increased delivery precision

 simplified ordering

 improved quality

 reduced cost

But for these benefits to be realized, the Product Packages have to be easy to handle in the time-to-customer flow.

The systems and processes used at GSM Systems today does not yet fulfill the needs for handling the Product Packages in a satisfying way. The structuring of the configurable product packages is not accepted in all markets, ordering can not be made on a Product package level, and support systems are not fully integrated.

This implies a need for structures, processes, and systems that supports the new Product Package concept.

As a part of the improvement process, and to get new ideas, GSM Systems are interested in how other companies have structured their products, and are handling their product configuration process.

1.2 Problem discussion

In this chapter the general problem will be discussed and end up in a research problem. To be able to solve the research problem, three research questions have been formulated.

1.2.1 General problem

The importance of product configuration is currently increasing dramatically for a wide range of industrial companies. This is due to an increasing demand for individually tailored products with short delivery times, and due to better technological opportunities to handle the customization efforts.

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process. Further, sale and production activities must match the opportunities and constraints of configurable products, and new requirements for manufacturing, assembly, planning and scheduling and developing.³

In order to provide customer specific solutions a company needs to provide the possibility of choice. In small scale, variants can be implemented by catalogues of products, but when we are talking about thousands or more variants, it must be possible to adapt the product to the needs of each customer. The latter is a vital area of research as well as a commercial success, and is referred to as product configuration.⁴

Product configuration as an activity can be regarded as satisfying a customer’s demand by creating a product, which is composed by a number of pre-developed components.⁵

1.2.2 Research problem

Originated from the previous discussion, product configuration can be regarded as an important focus area for many industries and a problem area for many research issues. The concluding research problem can be formulated as follows:

How is GSM Systems, compared to some other companies, handling the product configuration process?

1.2.3 Research questions

Based on the research problem given above, the following research questions can be formulated:

 How are the products structured from a sales perspective?

 How are customer order requirements configured to orderable products?

 What systems are supporting the product configuration process?

3 Technical Session on Product Configuration at EDA’98. http://www.cs.hut.fi/~tso/eda98.html

5 Technical Session on Product Configuration at EDA’98. http://www.cs.hut.fi/~tso/eda98.html

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1.3 Research Methodology

Information in the theory part is gathered from the Internet, literature, scientific journals, and proceedings of international conferences. Information and data for the comparing study is gathered from interviews, internal reports, and the Internet.

Companies for the comparing study have been selected together with GSM systems.

The research questions have also been formulated together with GSM systems.

1.4 Research Limitations

The comparing study will handle GSM Systems and three other companies from different markets. The comparing study will not involve companies in the same business as GSM Systems.

As the scope of the configuration process is quite wide, the comparing study will focus on the research questions stated in chapter 1.2.

This thesis is focusing on the sales- and configuration view and therefore product structures related to this will be handled.

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2 Theory

In this theory chapter fundamental theories and models that can bring clarity to the research questions have been gathered. The main goal of the theory is to give a basic understanding of the area of products structuring and configuration. The chapter is divided into five parts: Customization, Configurable Products, The Configuration Process, Product Configuration Systems, and Problem Areas in Product Configuration.

2.1 Customization

In many industries competitiveness requires efficient design and delivery of large number of product variants. One-of-a-kind products and a large number of fixed products often lead to excessive amounts of design and customer specific engineering, or problems with the management of large number of variants.⁶ This has forced many companies to move from mass production toward product customization on a large scale.

2.1.1 Operational Differences Between Mass Production and Mass Customization In mass production, pre-packaged configurations equate to individual bills-of-material in the MRP/ERP system (Material & Resource Planning). This assumes that a manufacturer can identify specific configurations best suited for specific customer needs. Usually, engineering and marketing meet and agree to restrict the choices that a customer is permitted to make.

In mass customization, there are no pre-packaged configurations and therefore no bills-of-material representing each order configuration. The probability of any two order configurations being identical, is seen as a coincidence. The customer’s order requirements are commonly derived from a configurator (see chapter 2.4), and the decisions are made based on the limits described within the configurator. The order itself (the sales order in the MRP/ERP system) captures and identifies the elements needed to satisfy the customer's requirements and subsequently transmits this information to the factory. This is accomplished without need for a unique bill-of- material describing each customer's unique order requirements.

For products that have a large number of variants, it is not possible, or practical, to create a bill-of-material describing every configuration a customer might want. Yet many companies try to approach mass customization this way.⁷

However, it is important to remember that mass customization is not “right“ for all companies. In many industries it is either impossible or simply inappropriate. Alastair Ross⁸ states that the key question to ask is “Would my customer value increased

6 Tiihonen, J., et Al. (1998). Modeling Configurable Product Families

7 Gardner & Associates. http://www.gardnerandassoc.com/Configurators4MC.html

8 Alastair, R. (1998). Mass Customisation: The Dirty Reality

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customization?” It may be the right approach for some market sectors, with other requiring standard offerings.

2.1.2 The Customization Continuum

The term "mass customization", with its seemingly contradictory components, indicates that it is not simply a matter of choosing pure customization or purely standardized production. Rather, there are five different approaches to fulfilling customer needs, say Joseph Lampel and Henry Mintzberg.⁹ These five variations, which the business-school professors have organized as a "continuum" of production strategies, are based on varying degrees of customization and standardization.

• Pure Standardization represents stereotypical assembly-line production of identical items using standard parts and uniform manufacturing procedures.

Products are designed to appeal to the greatest number of buyers, and those buyers have no influence over design, production, or distribution. Some examples include pencils, paper clips, and Henry Ford's Model T automobiles.

• Segmented Standardization produces a few variations on a basic product that are targeted to the preferences of a particular group of consumers. The number of choices increases and manufacturers might customize distribution, but customers still do not exert any direct influence on product design or production. Examples include such items as bread (whole wheat, white, and rye) and shoes (high heels, flats, and mid-heel styles).

• Customized Standardization makes products to order from standard, mass- produced components. Often, the choices are limited to adding components to a single, basic unit. Buyers, therefore, may affect how the product is assembled and distributed, but not the design and production of those parts. A familiar example is the process of buying a car: Customers may choose paint and upholstery and select optional equipment to add to a uniform chassis and body design.

• Tailored Customization customizes fabrication, assembly, and distribution. The manufacturer retains control over the design, offering the buyer various options, including different kinds of materials. Depending on the product, the manufacturer may be willing to modify the design to meet the customer's needs. Common examples of tailored customization include selecting and printing wedding invitations and having a suit custom-made.

• Pure Customization. At the opposite end of the spectrum from purely standardized products are those that are customized in every aspect of design, fabrication, assembly, and distribution. Pure customization requires buyer and seller to collaborate as partners in developing the product. An example is the relationship between an architect and homeowner when designing and constructing a custom-built house. ¹⁰

9 Lampel, J., and Mintzberg, H. (1996). Customizing Customization.

10 Gooley, T. B. (1998).

http://www.manufacturing.net/magazine/logistic/archives/1998/log0401.98/04scm.htm

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2.2 Configurable Products

Configurable products offer an alternative to standard products and one-of-a-kind products, and numerous companies have turned to configurable products to increase their profitability.¹¹

According to Tiihonen¹², configurable products are pre-designed products that:

 are adapted according to the requirements of the customers for each order

 consists of (almost) only pre-designed components

 have a pre-designed product structure (generic product structure)

 are adapted by a routine, systematic product configuration process

With this quite general definition, Tiihonen tries to capture many relevant characteristics of product configuration, and covers a very broad range of problems.

According to IntelliCorp CTO Group¹³, some of the benefits with configurable products are:

 shorter sales cycles

 improved communication

 higher quality

 reduced number of errors

 lower operational costs

 increased revenues and profits

Effectively one configurable product defines a very large family of different concrete product instances.¹⁴

2.2.1 Different Views of Product Structures

Different organizational parts of a company may need different information about products. This concerns the product structure as well, says Mannisto in his licentiate thesis.¹⁵ As an example, the most appropriate product structures for sales, packaging, and manufacturing are very different. Many companies, nevertheless, try to construct master structures for their products that could be used in all parts of the organization.

Different views to the product are not only relevant with respect to the different needs within the organization. There is also a need for describing the products from different viewpoints such as functional, mechanical, electrical, financial, environmental and so on.¹⁶

11 Tiihonen, J., et Al. (1995). State-of-the-practice in Product Configuration.

12 ibid.

13 IntelliCorp CTO Group. http://198.95.16.4/serv_cto.html

15 Mannisto, T.(1998). Towards Management of Evolution in Product Configuration Data Models

16 ibid.

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This thesis is focusing on the sales- and configuration view and therefore product structures related to this will be handled.

2.2.2 Generic Product Structures

Components of a product do typically form structures, e.g., bill-of-materials, which generally are called product structures. A product structure describing a physical product is typically called a specific product structure. A specific product structure is sometimes called a configuration.¹⁷

In many companies a product can be varied according to customer requirements and therefore actually refers to a set of similar products. This set can be described with a generic product structure, also called a configuration model, which corresponds to a number of different specific product structures. Generic product structures are needed when the number of different product variants becomes too large to be modeled by a set of specific product structures.¹⁸

Generic product structures describe customer specific product variations through alternative, optional and parameterized components. A generic product structures must allow product description at different levels of abstraction (e.g., common properties of a product family and specific properties of a single product) and different points of view (e.g., design view and maintenance view).¹⁹

2.3 The Product Configuration Process

A configuration process is a process for producing a specific product structure from a generic product structure for a specific customer need.²⁰

According to a research team at Helsinki University of Technology²¹, the product configuration process is a part of the order specific delivery process (see picture 2.3).

It has interfaces to other parts of the delivery process and to other processes such as product development. Usually, the configuration process is not a single step within the delivery process. The actual configuration process extends from the customer- sales interaction to the logistics center, and the configuration and component orders specified by it. Other parts of the delivery process are shown for completeness.²²

2.3.1 General Description of The Configuration Process

The sales function produces in interaction with the customer the sales specification or configuration 1. It is sent to a logistics center. This function produces component orders for the required components to the production units and subcontractors.

18 Mannisto, T. et. Al. (1996). View to Product Configuration Knowledge Modelling and Evolution

19 Product Data Management Group. http://www.cs.hut.fi/~pdmg

22 ibid.

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Logistics centers may also co-ordinate the manufacturing, purchasing and/or collecting of all the required components.

Customer

Stage 1 Sales

Component Store Stage 2

Logistics Center

Manufacturing of Components Assembly and/or

installation

Configuration 2 Description of product instances Configuration 1

Sales Specification

Product

Configuration 3 Component manufacturing

specification Component Orders

Stage 3 manufacturing/

subcontracting

Component Orders

Picture 2.3 The Configuration Process

A logistics center typically receives orders from many sales units. It translates an order into configuration 2 that can be used as a basis for ordering the required components from the production and subcontractors. A configuration, or a document derived from it, can also be used as a specification when assembling the product. In some cases, the ordered components are themselves configurable products and there is a third phase in the configuration process. The manufacturing unit uses the configuration, a part of it, or a report derived from it as a specification for configuring the ordered component.²³

The goal of the configuration process is to find a suitable (valid, complete and possibly optimal) specific product structure that is among the alternatives described by a generic product structure. This process does not refer to any particular kind of configuration process, and it may be fully automatic or rely partly or entirely on decisions made by a human.²⁴

2.4 Product Configuration Systems

Product configuration systems are used to configure modular products according to customer requirements. When they are used in the sales process, they are often called sale configuration systems, or simply configurator. With the need to reduce

23 Tiihonen, J., et Al. (1995). State-of-the-practice in Product Configuration

24 Mannisto, T. et. Al. (1996). View to Product Configuration Knowledge Modelling and Evolution

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lead times, shorter product life cycles, and the increased use of third-party products, manual handling of the product configuration task is becoming a bottleneck. The cost of configuration errors alone represents several percent of company revenues. For big companies this means hundreds of millions of dollars.²⁵

Gardner & Associates²⁶ are comparing a configurator to a menu, much like a menu you find in a restaurant. Items that fall within the menu can be ordered without restriction. Items that are not on the menu must be approved and added to the menu before the customized item (configuration) can be priced, quoted and ordered.

A configurator may help the customer to quickly converge on a valid configuration within the product line's capabilities, to precisely summarize the customization, and to be the source of information transmitted to the order entry system and subsequently to the factory.

Configurators may also support the evolution of a product line's capabilities over time.

An optional, but impressive, capability is the display of what the configured product looks like using advanced graphics capabilities. Configurators can also be used to quickly and easily prepare quotations and drive forecasting.

Product configuration systems need large amount of knowledge about the mapping from requirements to components, and about technical restrictions. This knowledge is subjected to continuous change, and hard validates. For this reason, methods and technology for knowledge engineering are needed in the development and maintenance of such systems.²⁷

The actual work being done in the configuration process and the requirements on its computerized support depend largely on the persons involved. The number of the people and their level of proficiency in the technical domain of products and in computer use are critically important factors. In global companies it may be necessary to support different languages and different configuration processes in different cultures, which naturally makes the maintenance effort of configuration systems harder and makes the configuration process more complex. ²⁸

2.4.1 Configurator Development and Implementation

A configurator can either be developed from scratch, or purchased as a standalone application enabler tool kit that can be customized to reflect the company’s needs.

According to Gardner & Associates²⁹, the most successfully deployed configurator applications have been developed from scratch.

Configurators achieve their greatest value when deployed for use by your customers.

For this reason, more and more configurator applications are deployed via the Internet or extranet. Gardner & Associates encourage companies that are reluctant to

25 Product Configuration Systems. http://www.sics.se/isl/configuration/prodcon.html

26Gardner & Associates. http://www.gardnerandassoc.com/Configurators4MC.html

27Product Configuration Systems. http://www.sics.se/isl/configuration/prodcon.html

28Tiihonen, J., et Al. (1995). State-of-the-practice in Product Configuration

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expose customers to such a tool to, at a minimum, place the configurator application in the hands of your sales force. When companies implement a configurator for headquarters use only, but not the field staff, the configuration process is left to the imagination of their sales team and customers. They run the risk of disappointing customers when a company has to inform them that they cannot provide products that are already quoted or, worse, that have been accepted as orders.³⁰

Gardner & Associates³¹ states that it is critically important to develop or acquire the appropriate configurator technology based on the company's needs. Before installing a configurator, the company should carefully define current and predicted needs.

Then, make sure to get the appropriate configurator technology for the needs.

2.4.2 Web-based Product Configuration

In product-oriented companies, product design is largely a collaborative effort between sales, marketing, engineering, manufacturing, and finance. Each of these units plays its unique part in bringing the product to market, says the Hurwitz Group, Inc, in an article about Web- Product Configuration.³² From a pure engineering standpoint, collaboration is even more important. Designers and engineers need to work together seamlessly to design a product to proper specifications. Packaged CAD applications have facilitated parts of this process for many years and are now beginning to open up to the Web for more effective collaboration and communication between users. In addition, a newer breed of packaged applications, called the product configurator, is starting to find a home on the Web. Web-based product configurators are extending the level of collaboration beyond internal product designers and engineers to actual customers, so that they too can create, and consequently buy, unique products over the Web.

As discussed before, product configurators allow application users to assemble product components into finished goods. Depending on the level of technical abstraction, users typically do not need to know how the components fit together or even that they can fit together. These rules are programmed into the configuration application and are often abstracted from the user. Product configurators are particularly apt for the web because they allow users to assemble complex products themselves, generally without technical wherewithal, and from anywhere in the world.

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Product configurators are currently available from a number of companies, including Trilogy, Calico Technology, Concentra (recently acquired by Oracle), and Exactium.

Today, these solutions offer varying degrees of web functionality.³⁴

30 Gardner & Associates. http://www.gardnerandassoc.com/Configurators4MC.html

31 ibid.

32 Hurwitz Group, Inc. http://www.erpsupersite.com/analysts/hurtzwitz/tw19990122.html

33 ibid.

34 Ibid.

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2.4.3 Configurations Solve Real Business Challenges

A very good example of Web-based product configuration is Dell Computer.

Consumers and businesses can access Dell's web site and build their own personalized computer from distinct components. Based on the component selections, a price is dynamically returned to the user, which makes the product configurator a good tool for web-based sales as well.³⁵ At Dell, mass customization has been a tremendous source of competitive advantage, company growth and high margins.

Apple Computer, a company that has lost significant market share in recent years, recently shifted from mass production to mass customization. Apple has adopted a business model that looks more like Dell's, i.e., selling mass customized units directly to end-users at higher margins than it was able to realize selling pre-packaged configurations through authorized resellers. Apple developed a configurator to make this transition. After switching to mass customization, Apple was recently rewarded with its first profitable quarter in several years.

As of early 1997, Cisco Systems was selling its configurable networking products with an extranet configurator tool at a rate of $200 million annually. Cisco plans to increase sales to $2 billion over the next couple of years using this technology. Cisco only offers this capability to its existing customers who are familiar with its products.

Boeing is facing significant challenges as its order rate has grown and as it responds to increased competition from Airbus Industries. In response, Boeing is trying to make a transition from an "engineer-to-order" process for each plane ordered to mass customized aircraft. In an "engineer-to-order" product, each order is managed as a separate product. In a mass customized product, each order is managed as an individualized configuration of a given product. This change will help reduce costs and cycle times while improving margins through greater operating efficiency. While at first glance it would seem that Boeing is taking choice and flexibility away from its customers, Boeing will need to reward its customers with more competitive pricing and on-time deliveries while maintaining very high quality levels.³⁶

2.5 Problem Areas in Product Configuration

This chapter characterizes the problem areas of product configuration. The problem areas discussed are:

 kinds of components used

 required subtasks performed

 distance from customer requirements to orderable products

 modularity of the product

 changes and errors

 long term management

 interfaces to other systems and processes

 other process related factors

35Hurwitz Group, Inc. http://www.erpsupersite.com/analysts/hurtzwitz/tw19990122.html

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2.5.1 Kinds of Components Used

A component may correspond to a single component or an assembly of components.

In a study made by Tiihonen, J. Et. Al.³⁷, components have been grouped into three classes.

Standard components are specified by their identification code. Once the component is specified, it can be manufactured without any additional information from the configuration system. Modifiable standard components are manufactured as standard components but they can be configured at assembly time, for instance, by means of settings, jumpers, dipswitches, etc. Parametric components have parameters whose values must be determined before the component can be manufactured. Typical parameters specify physical dimensions, surface material, color, etc.

According to the research group³⁸, the complexity of configuration tasks increases when moving from standard components to modifiable standard components or parametric components. This occurs, because the products that include parametric or modifiable standard components typically have more possibilities of variation.

2.5.2 Required Subtasks Performed

The tasks performed during and after a configuration process may include:

 component selection

 parameter value determination

 layout design

 determination of component connections

 determination of the price of the product based on the configuration

 determination of the delivery time

 preparing a bid

 preparing a technical specification

 completeness checks

 consistency checks

Configuration design typically includes at least component selection, determination of the price of the product, preparing a bid and a technical specification, and checking the completeness and consistency of the configuration. In a survey conducted at Helsinki University of Technology³⁹ it is stated that the complexity of the configuration design increases, if some of the remaining tasks are included, especially in the case of layout and component connection design.

37Tiihonen, J., et Al. (1995). State-of-the-practice in Product Configuration

39 ibid.

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2.5.3 Distance from Customer Requirements to Orderable Products

The difficulty of mapping customer requirements to a sales specification (used inside the company to specify the product a customer has ordered) depends on the difference, i.e. distance, in the level of abstraction between the customer requirements and the sales specification. Customers vary in their level of technical sophistication. Tiihonen, J., et Al⁴⁰ states that the complexity of translating customer requirements to sales specification increases with increasing distance from the requirements to the specification.

Another mapping, where the concept of distance is also applicable, takes place when the sales specification is transformed to component orders and other necessary outputs of a configuration process. These tasks are at the heart of the configuration problem, so understanding and characterizing their difficulty is essential.⁴¹

2.5.4 Modularity of The Product

The complexity of the product configuration tasks is largely determined by the degree of modularity of the product, according to Tiihonen, J., et Al.⁴²

The general configuration problem can not be solved with better models and tools alone. The flexible configuration of products must be considered already while products and components are designed. For example, components and products should have well-defined interfaces and should not place unnecessary constrains on other parts of the product structure. Therefore it is important to produce guidelines for designing products that can be configured easily; an approach also called Design for Configurablilty.⁴³

Without modular product design, product customization would be time consuming, slow and very costly, says Toby B. Gooley.⁴⁴ Products should be designed to enable, rather than inhibit, any type of customization. One example is Boeing Co., which classifies thousands of parts, components, and documents for its aircraft as standardized, configured to a finite set of options, or customized. This system has greatly streamlined ordering, engineering, and manufacturing while still giving customers exactly what they need. Dell Computers and Gateway 2000 are other companies who depend on modular product design to allow them to assemble computers from compatible parts and components purchased from a variety of domestic and international sources.⁴⁵

40 ibid.

42 ibid.

43 Product Configuration Research. http://www.cs.hut.fi/~pdmg/config/ConfigResearch_leaflet.html

44 Gooley, T. B. (1998). http://www.manufacturing.net/magazine/logistic/archives/1998/log0401.98/04scm.htm

45 ibid.

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2.5.5 Changes and Errors

The delivery and configuration processes do not operate without problems of their own. Tiihonen, J., et Al.⁴⁶ states that there are two kinds of changes to confront. First, in some industries it is a law of nature that customers change their orders. The capability to cope with them at least to a certain degree is a competitive advantage.

Second, due to the complexity of the internal delivery processes errors are committed within the company. Companies delivering customer tailored products in Finland waste 10–15% of their annual sales in inefficient delivery processes.⁴⁷

Interesting problems arise if the production of a product has started and the product must be changed. How to change the configuration and manufacturing schedule so as to accommodate the change with minimal extra costs? Is it possible to create a different, even a non-standard configuration, and yet use the order-specific components being manufactured? In order to answer these kinds of questions, a product configurator would have to contain very specific knowledge on the components, their parts and interfaces. Less deep modeling is usually adequate for configuring products if no changes occur or exceptions are taken care of manually.⁴⁸

2.5.6 Long Term Management

The issue of product evolution is complicated from many points of view. Product families evolve over time as new components and features are introduced. In some businesses the after-sales activities are becoming increasingly important emphasizing the need to know exactly what each customer has, and possibly to enhance, in other words re-configure, the particular product the customer has. These dynamic aspects raise the issues of long term management of product configuration knowledge, product configurators and delivered product instances. If the operation of the company requires that both kinds of changes must be managed, the configuration design process and the long-term management become much more complex, says the research team at Helsinki University of Technology.⁴⁹

Product evolution inevitably leads to different versions of product configuration knowledge. The corresponding product configuration models must be kept consistent with the changes in products. According to the research team⁵⁰ it is quite possible that product improvements could be delayed because of the effort required to update the configurator. With the increasing pace of changes in the operating environment of the companies, the significance of this problem will probably increase in the future.

The management of delivered products raises a series of questions. In after-sales operations products are serviced and sometimes upgraded to achieve increased new functionality. In practice, it may be impossible to support upgrades with product configurators if the configuration knowledge is distributed among different versions of product configuration models.

47 ibid.

49 ibid.

50 ibid.

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In some industries components evolve independently of the products in which they are used. In many cases the lifetime, understood as the time a component type is used in delivered products, is shorter than the life time of the whole product or a delivered product. This can apply both to purchased components and self- manufactured components.⁵¹

2.5.7 Interfaces to Other Systems and Processes

Product configuration tasks use and produce information. The product configuration process and the supporting systems are linked, for example, to product development and production management systems. Tight integration of product configurators to other systems such as production management and product data management systems with bi-directional flow of information makes the management of configuration process and related information much more complex.⁵²

A survey made by Helsinki University of Technology⁵³ shows that the integration level between applications is generally not very high. Separate islands of automation seem to be common, but companies are moving towards tighter integration to facilitate a more effective process.⁵⁴

A crucial problem is the integration of all systems that use the product data. In many companies, integration between some systems is still on the level of manual re- entering of data. The problem is made hard by the lack of uniform methods for describing exchanging product data, organizational boundaries, the fact that the producers of information are typically not the main beneficiaries, responsibilities on the pieces of information may not map nicely to the organizational structure, and so on. The problem with respect to a product configuration system is that it contains very central information about the product, but is seldom the system where the information is primarily maintained.⁵⁵

51 ibid.

53 ibid.

54 ibid.

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3 Structure of The Comparing Study

In this chapter the structure of the comparing study is presented. This structure is developed in order to answer the research questions.

The main goal of the theory part has been to bring clarity to the research questions by giving a basic understanding of the area of products structuring and configuration.

Some of this theory has been used for the comparing study. Knowledge in this area has also been gathered in the preliminary study of GSM Systems.

The study for each company is divided into the following main parts:

 Company Overview

 Products and Product Structures

 Sales View

 The Product Configuration- and Order Process

 Support Systems

 Strengths and Weaknesses

3.1 Company Overview

Each study will be introduced with a short company description.

3.2 Products and Product Structures

This thesis is focusing on the sales- and configuration view of products, and therefore product structures related to this will be handled. To get a clear view of what products a company is offering, the product families will be shortly described.

3.3 Sales View

In order to answer the question of how products are structured from a sales perspective, the sales view will be described in terms of how the customer view the product, and also the options a customer has to make to order the product.

3.4 The Product Configuration- and Order Process

To be able to show how the customer order requirements are configured to orderable products, it is also of importance to describe the order handling process itself, as this is part of the order specific delivery process (see chapter 2.3).

For each company I will describe the process. The model I will use for the Product Configuration- and Order Process (see picture 3.3) is a variant of the model presented in the theory chapter (see chapter 2.3). In addition to the process steps,

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the support systems will also be shown. A version of this model has been used internally at GSM Systems to describe the time-to-customer flow.⁵⁶ The general model used will be structured as follow:

The Product Configuration Process

Customer options

Technical Specification

MRP- System

•product structures

•rules Sales Tool

Product Breakdown Order

preparation

Order Local Company

Order Logistic Center

Production/

Supply

Order System

Order objects ABC 123 DEF456

Technical Specification Process Steps Support systems and product configuration

Configurator

•product structures

•rules

and /or Product

Breakdown and /or

Picture 3.3 General Product Configuration Process

This is only a general description of the process and the configuration process and support systems used will vary for each company.

3.5 Support Systems

In the cases were information was available, I will shortly describe the main support systems used. The support systems will also be discussed in the Product Configuration- and Order Process part (see chapter 3.4).

3.6 Strength and Weaknesses

To be able to evaluate the companies, each company study will be summarized with the strengths and weaknesses observed. The strengths and weaknesses will be divided into the study areas discussed: Product Structures, Sales View, Product Configuration and - Order Process, and Support Systems.

In this part, many of the problem areas discussed in the theory chapter are discussed (see chapter 2.5).

56 Graufelds, Aris (1999). Pre-Study, GSN Product Structures

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4 Study Volvo Trucks Engine Production

This study is focusing on sales structures, product configuration- and order flow, and support systems for Volvo Engine Production in Skovde. An interview has been carried out with Thomas Gustavsson, at Product Documentation in Skovde.

Information to this study has also been gathered from Internet.

4.1 Company Overview

Volvo Trucks is responsible for the development, production and marketing of Volvo trucks, and is the world’s third-largest manufacturers of heavy truck. Volvo offers a complete range of products, including light duty trucks for efficient local distribution, robust trucks for demanding construction operations, and heavy-duty trucks for fast, economical long haul transports.

The Company delivered 83.280 medium-heavy and heavy-duty trucks in 1998, which is the highest volume ever.⁵⁷ Volvo Trucks had an operating income of SEK 3,061 million in 1998. In all, there are almost 23,000 employees within the company.

The base for the Company's operations is in Sweden, and in addition Volvo have facilities for product development in the USA, Belgium and Brazil. Final assembly of trucks takes place in ten Volvo owned factories in Sweden, Belgium, USA, Malaysia, Brazil, Peru, Scotland, Australia and Poland. The distribution and marketing is mostly done via Volvo’s own marketing companies, which in turn sell the products to over 800 dealerships worldwide.⁵⁸ Sales are carried out in more than 100 countries on all continents.⁵⁹

The production of Volvo engines is located in Skovde, Sweden, and in Curitiba, Brazil. In 1998 Engine Production Skovde had about 2000 employees, and the total number of engines (6-16 liters) produced in 1998 exceeded 100.000.

4.2 Products and Product Structures

The study focuses on the truck engines, as this is by far the greatest part of the engine production. Other types of engines are structured in a similar way. As the truck engine is a part of the trucks delivered from Volvo Trucks, the range of trucks will also be described. The Volvo Truck products can be divided into the Truck Line, Service and Support, and Volvo Engines (see picture 4.2).

57 Volvo Trucks Corporate Review 1998

58 Volvo Trucks Business Information. http://www.truck.volvo.se/business

59 Volvo Trucks Corporate Review 1998

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Volvo Trucks

VNM -series USA VNL-series

USA The 660

USA The 770

USA Expeditor series

USA WG-series

USA

NH-series Australia

FH-series Europe + others

FM-series Europe + others

FL-series Europe + others

NL-series Brazil Volvo Truck Products

Loan Warranties Maintenance

Volvo Engines

Bus Engines

Truck Engines

PARTS spareparts Industry &

Marine Engines Construction

Engines Service & Support

Picture 4.2 Volvo Truck Products

4.2.1 Service and Support

Example of service and support include maintenance, warranties, loans, and the delivery of spare parts for the products.

4.2.2 Truck Line

Volvo Trucks offers a complete truck line, including light duty trucks for efficient local distribution, robust trucks for demanding construction operations, and heavy-duty trucks for fast, economical long haul transports.

Each truck series has a range of cabs sizes, wheel configuration, gearboxes, engine characteristics, front and rear suspensions, applications (dumper, timber, tanker), colors, as well as all kind of options for exterior and interior accessories etc. Each chassie can be tailored down to the smallest detail to suite the customers requests.

The ranges of trucks vary for different markets. As an example, cabs are very differently designed for most European countries compared to USA, Australia and Brazil. In USA it is also common that the customers buy different parts of the truck, such as engine, gearbox, or chassie, from different companies. Of the 17.500 Volvo trucks built in USA in 1998, approximately 25 % had a Volvo engine.

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4.2.3 Engines

Volvo Trucks deliver engines for trucks, busses, construction equipment, industry and marine. The engines for the different markets segments are very differently designed due to the different requirements, and therefore all the segments have there own ranges of engines (see picture 4.2.3).

Volvo Engines

Industrial &

Marine Engines

TD120 (old 12)

D10 D7 D6 D4

D12

D16

D12 TD120 (old 12)

D10 standing

D10 laid down

D7 bus

D12 TD120 (old 12) D10

D7 D6

D16

TD120 (old 12) D10

D7 D6

D12

D16

Off Road &

Stationary Gen Set Industrial Water Jet Aquamatiq &

Inboard Gen Set

Marine

Horizontal

Sizes Types _Spareparts

All types Construction

Engines

PARTS Engines Truck

Engines

Bus Engines

Picture 4.2.3 Volvo Engines

For the trucks, Volvo delivers seven engine families, grouped by engine volume. The seven engine families are the D4, D6, D7, D10, TD120, D12, and D16.

Each engine family has a variety of output options to provide the adequate versions for all types of trucks. Volvo produces all the engine families delivered, except for the D4, which is produced by another manufacturer.

4.2.4 Product Structure Engines

Before 1993, Volvo had a pre-defined set of engines with fixed properties. The range consisted of about three hundred engines with fixed product structures.

To become more flexible, Volvo is since 1993 using a module way of structuring the engine. This makes it possible to produce a wider variety of engines from relatively few parts. Instead of a few hundred fixed engines, Volvo is today capable of delivering thousands of different engines with different combinations of the modules.

The 100.000 engine units delivered in 1998 were delivered in about 6000 unique versions.

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The module system of 1993 has by various reasons changed by time and is today fairly complex. The system working fine for administrative tasks such as changes, purchase, material handling etc., but it is not logical out of production and function view, and it is not adapted for use in the production process.

Due to this problem, and to become even more flexible and efficient, Volvo Engine Production is in a near future changing the whole concept to a more logical production module concept. This will support the product documentation process, change notice process and production process with information in a better way.

4.2.4.1 Engine modules

As the engine modules of today are complex and will partly be taken out of use, the description of this structure will be very simplified.

There are four different types of modules, and a delivered engine unit can contain up to 60 modules. In the module system of today there is always one basic module that contains about 60 % of the number of total parts in the engine unit. To this basic module, there are a number of parts that can be added or deleted. Some modules always have to be selected, and other modules are optional. Due to production engineering reasons, there are also so called dressing unit modules, containing material considered to be chassie material, such as compressors, servo pumps and engine oil added to the engine.

4.2.4.2 Future module system

The module concept is divided into two steps. The first step is for the product documentation process and change notice process. The module in this area is almost the same as the modules of today. The next step is the modules for the production process. These modules contain parts, grouped depending on the logical way of producing the engines.

The benefits with this are that the blue-collar workers in production will see exactly what and how to produce, and the industrial engineers will more easily steer the production. With the new concept the number of modules per engine will be larger, about 200 compared to about 60 today.

The new way of structuring will be taken into use at year 2001, due to a new system called SPRINT. SPRINT is the new local product documentation and production system created by Volvo Trucks.

4.3 Sales View

As the truck engine is part of a truck order, this chapter will describe the sale view for the trucks as well as the engines.

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4.3.1 Sales Channels

The trucks are sold through sale offices around the world. Engines for the other markets/customers than trucks are sold by sale organizations for each company.

4.3.2 Sales View Trucks

As mentioned before, all truck series have a wide variety of range of cabs sizes, wheel configuration, gearboxes, engine characteristics, front and rear suspensions, applications (dumper, timber, tanker) color, as well as all kind of options for exterior and interior accessories etc.

The Sales Offices have a Sales Tool to help the customer and the sales representative to configure the truck according to the customer requirements. Only the allowed combinations are showed, and the price is updated after an option has been selected. The sales tool is in direct contact with the design system.

When buying a truck the customer generally makes about 50 choices, such as truck type, cab type, wheel configuration, engines characteristics, axes, front and rear suspensions, color, video, air bag etc. Some alternatives and options are of practical reasons only available for particular truck types, and the choices made will limit some of the future choices

4.3.3 Sales View Truck Engines

There is usually one or more engine volumes recommended for each truck type. A FM-truck can be is powered by a D7, D10 or D12 engine, an FH-truck by a D12 or a D16 engine, and so on.

Truck Engines

6 cylinder, 7.3 litre, diesel engine, turbocharger & intercooling

(Fixed for this engine family)

Power output (hp), 2 options Engine Braking Power, option

D10 D7

Sale Tool

• Truck 50-60 options

• Engine 2-3 direct options

• Options are priced D6

D4 Customer Family

Engine Families

Options

Picture 4.3.2 Sales View Truck Engine