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|storemode=property
|title=Market-oriented variant management
|pdfUrl=https://ceur-ws.org/Vol-1453/01_KrebsRanze_Market-OrientedVariantManagement_Confws-15_p1.pdf
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|dblpUrl=https://dblp.org/rec/conf/confws/KrebsR15
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==Market-oriented variant management==
https://ceur-ws.org/Vol-1453/01_KrebsRanze_Market-OrientedVariantManagement_Confws-15_p1.pdf
Market-oriented Variant Management
(position paper)
Dr. Thorsten Krebs and Christoph Ranze1
Abstract.1 The mega trend individualization drives product Variant management is a holistic approach to control and
manufacturers towards offering more and more variants of their optimize product diversification with respect to production costs
products. As seen in mass customization scenarios, product and market strategy (see e.g. [1]). The term variant management
configuration based on a modular strategy is an enabler for this has been around for quite some time. The key idea of variant
trend.
management is to optimize the number of product variants that can
The key idea of variant management is to optimize the number
be manufactured, i.e. outer variety, while reducing the complexity
of product variants that can be offered to a specific market
of product development and manufacturing. Production costs are
segment, i.e. outer variety, while reducing the complexity of
typically kept low by manufacturing only a small amount of
product development and manufacturing. Production costs are
different modules that are common and recurring for multiple
typically kept low by producing a small amount of modules that are
products, i.e. inner variety. These modules can then be
generic and common for multiple products within the modular
manufactured in large scales.
strategy, i.e. inner variety.
Within mass customization, product configuration is seen as the
Classic variant management is driven by the idea of reducing
key enabler for being able to communicate product variety into the
costs between the fields of product design / engineering and
market (see e.g. [2]). Product configuration describes the task of
manufacturing / logistics. Hence, we see this as efficiency. We
composing a product from a set of pre-defined modules; the
apply the same method of optimizing the interplay between outer
modular system. In this sense a product configurator is a tool for
variety and inner variety to the sales-level; i.e. between the fields
managing the interaction between the inner variety, i.e. the
of logistics processing and sales / marketing. The product variants
modules, and the outer variety, i.e. the products.
that are offered to a specific market segment should be aligned
The first occurrences of the term variant management stem from
with the market needs. Hence, we see this as effectiveness. We
the area of product design, engineering and production. The base
show how the two views on variant management complement one
idea is to separate the development and manufacturing of recurring
another and how they relate to business economics, namely the
modules from the manufacturing of products that are based on
economies of scale and the economies of scope.
these modules. In this sense the product manufacturing process is
We suggest using a combination of both efficiency and
separated into two parts. The first part is an order-neutral process:
effectiveness to assess the capability of change of product
pre-manufacturing the modules. The second part is an order-
manufacturers that are based on modular systems. Market-oriented
specific process: combining modules.
variant management involves a number of business processes. A
Defining the scope of outer variety, i.e. defining the right
management-ready presentation of the potential that changing these
amount of product variants, is one of the major activities for
processes has, can significantly influence a company’s willingness
effective sales. Optimal product diversification therefore must be
to invest in such a change.
based on the market’s demand.
This is why market-oriented variant management goes one step
1 INTRODUCTION further and uses the idea of modular strategy on another level:
between manufacturing, or: logistics in general, and sales /
The mega trend individualization is the main reason why the marketing. In this sense, optimizing product diversification for a
interest in mass customization strategies is continuously growing. given market segment is managing the outer variety (from the sales
This mega trend is supported by the fact that nowadays it is easier view). At the same time, optimizing product development and
than ever before to get information about products and to compare manufacturing is managing the inner variety (from the logistics
them. The digital product representation enables lots of services view).
like product selection, configuration or comparison. Using this The remainder of this paper is organized as follows. Chapter 2
digital product representation it is possible to get all the relevant describes our understanding of market-oriented variant
information for deciding which products best fit the customers’ management in general as well as the distinction between the
needs; without going from one shop to another. It is this logistics view and the sales view. Chapter 3 describes work-in-
information that can also be used for market-oriented variant progress on how the capability of change of business processes
management. related to variant management can be measured and assessed in
general and applies these ideas to market-oriented variant
management. Chapter 4 discusses related work and finally, Chapter
1
5 gives a conclusion and discusses future work.
encoway GmbH, Bremen, Germany, email: { krebs | ranze }@encoway.de
1 Juha Tiihonen, Andreas Falkner and Tomas Axling, Editors
Proceedings of the 17th International Configuration Workshop
September 10-11, 2015, Vienna, Austria
means that we want to benefit from both, the economies of scale
(by producing modules in large scales) and the economies of scope
(by sharing production costs and other related resources over a
2 MARKET-ORIENTED VARIANT variety of products).
MANAGEMENT This view is the “classic” variant management approach that is
We have already explained that market-orient variant management around in literature for quite some time already. Therefore we refer
distinguishes two levels of optimizing product diversification: the the interested reader to [1] and in the following focus on the sales
logistics view and the sales view. In principle, this distinction can view.
be made on an arbitrary number of levels, e.g. between product
design and engineering, between engineering and manufacturing, 2.3 Sales view on variant management
between manufacturing and logistics, between logistics and sales.
As we will see later in Chapter 3, distinguishing between the The key aspect of the sales view on variant management is to offer
logistics view and the sales view has an important impact on exactly those product variants that a specific market segment
companies’ business strategy. This impact also affects the most desires. Not less but also not more than those. The simple case of
crucial business processes of companies that are based on modular designing the range of product variants can be described as
systems: new product development, quote generation and order portfolio management. In this sense a company aligns its product
processing. Therefore, we will focus on these two views in the portfolio according to the markets needs and has market-driven
following. product development and manufacturing processes.
Before we detail the two views on variant management, we give However, offering optimal product variety can be more complex
a short insight into relevant aspects of business economics; namely than this. European product manufacturers are currently under
the economies of scale and economies of scope. pressure in order to compete with the low-price mass production in
countries from Asia. This is why a lot of component manufacturers
that have been component vendors turn into system vendors. With
2.1 Economies of scale and economies of scope the term component we describe products that are used in larger
The economies of scale describe reducing engineering and contexts: the component itself has no direct benefit for the
production costs per unit as fixed costs are spread out over more customer’s application but a combination of components that
units of output [3]. This is the base principle of mass production: complement one another builds up functionality with extra benefit.
the price per unit decreases with larger lot sizes. The economies of Both terms product combination and system can be encountered
scope, on the other hand, are based on the common and recurrent within the business strategy of companies that manufacture
use of modules. Thus, they describe lowering average costs by components. For the purpose of this paper we treat both terms as
sharing production costs or recurring resources, for example sales synonyms and in the following stick to the term system.
or marketing activities, over a variety of products [4], [5]. When A system may consist of discrete products, configurable
economies of scope are based upon the common and recurring use products or a combination of both, possibly together with
of proprietary knowhow or specialized and indivisible physical components that are not sold independently. Discrete products are
assets, the product diversification is an efficient way of organizing non-configurable products that are described by and selected from
economic activity [6]. a set of characteristics and that do not offer customization options.
With a large outer variety of products that is based on a small Configurable products on the other hand are customizable products
inner variety of modules, the recurring modules can be pre- that are available in a large variety. Typically, configurable
produced order-neutrally in large scales. In a second step these products are based on a modular strategy and need to be configured
modules are assembled specifically for one customer order. Thus, in order to obtain a sellable product.
mass customization strategy benefits from both, the economies of The challenge of advertising, configuring and selling systems is
scale and the economies of scope. not to be underestimated. The most important part of selling
While the economies of scale do plateau in an efficient state systems is to support the customer in the buying decision process.
which delivers high-margin revenues, economies of scope may Identifying the right combination of components is even more
never reach such a state. But still, it is worth trying (see e.g. [7]). complex than configuring a single product.
Managing the ongoing scope-learning process is one of the most Additionally, customers often do not know which products they
essential activities in business strategy, in particular for companies need. However, what a customer does know is the application
manufacturing products that are based on modular systems. problem for which he needs a solution. This is why we see a
While optimizing the scope of modularization belongs to the solution configuration as one of the major improvements in sales-
logistics view on variant management, finding the right scope for oriented variant management. The term solution configuration
product diversification is an activity within the sales view on describes a configuration process that is started with a problem
variant management. definition for which a solution is sought. The main difference
compared to usual product configuration is that the customer does
not decide on the product’s characteristics but enters characteristics
2.2 Logistics view on variant management of the application. Selecting the best-fitting product and inferring
the products characteristics from the application characteristics is
The logistics view on variant management focuses on an optimal hidden from the user.
interplay between outer variety and inner variety from product In order to achieve this encapsulation, the configuration model
design and engineering via manufacturing towards logistics; i.e. is separated into layers: on top of the technical layer containing
supply chain management, shipping and so on. The major activity configuration knowledge about buildability or the sales layer
within this view is optimizing the scope of modularization. This
Juha Tiihonen, Andreas Falkner and Tomas Axling, Editors 2
Proceedings of the 17th International Configuration Workshop
September 10-11, 2015, Vienna, Austria
containing configuration knowledge about sales-oriented manufacturers can be assessed and improved. The first step
customization options, an application layer containing towards this goal is being able to measure business processes. We
configuration knowledge about the product’s application domain is present first ideas on how to do that in general (Section 3.1) and
added. This application layer guides the customer during product apply these ideas to market-oriented variant management (Section
configuration. Thus, the customer can focus on describing his 3.2). The second step towards this goal is being able to define a
problem situation and is not distracted with technical details he metric which compares the current state of a business process with
does not know about. its target state (Section 3.3). Such a metric can be used to describe
the potential impact of a change in the business process and
significantly influence the willingness to invest.
2.4 Interplay between the logistics view and the
sales view
3.1 Measuring business processes in general
In the previous sections we distinguished the logistics view and the
sales view on variant management. Furthermore, we have The efficiency of a process describes how good the things are done
described their influence on optimizing the scope of right. A processes efficiency can be measured using several criteria
modularization and finding the right scope of product including but not limited to total processing time, resource
diversification, respectively. utilization per unit of output, non-value added cost, non-value
Obviously, both activities of scoping influence one another. added time, cost of quality, and so on [8]. Furthermore, any
Reducing the set of modules which are manufactured order- deficiency in training or skills of the workers or any delay from the
neutrally in order to increase the gain of the economies of scale, i.e. related processes that provide inputs for the measured process will
reducing the modular system, has impacts on the possible product also show up.
variety. Vice versa, broadening the variety of products that are The effectiveness of a process describes how the right things
offered to a specific market segment in order to increase the gain of are done. Measuring processes effectiveness begins with outlining
the economies of scope, i.e. enlarging product diversification, has the customers’ expectations and needs in detail. These expectations
impacts on the modular system. would then be converted into measurable targets. Customer
Nevertheless, it is important that both scoping activities are expectations are not readily available or clearly specified. This is
addressed individually: what makes it hard to set up a quantifiable measurement [8].
The activity of scoping modularization affects the Typical customer expectations are, among others, product quality,
efficiency of related business processes. The efficiency of frequency of new products or updates, quality of service and the
modularization and of product manufacturing in general overall customer experience.
lies in being able to provide the expected outcome, i.e. the To the current state of our work-in-progress we do not have a
products, with the least possible use of resources. Note that process to generate quantified numbers or formulae, but here are
besides low production costs this also includes fast time-to- some first thoughts:
market and delivery times. If we do exactly one thing in a perfect way, then we
The activity of scoping product diversification affects the assume to have an efficiency of 100%. If we do the same
effectiveness of related business processes. The thing with half the efficiency, then we expect to have an
effectiveness of product diversification for product efficiency of 50%.
manufacturers that are based on modular systems lies in If we do one perfectly right thing, then we assume to have
being able to provide exactly those products that the an effectiveness of 100%. If we do one thing that is half as
addressed market segment desires; at the right time and at effective, then we assume to have an effectiveness of 50%.
the right place and most importantly at the right price. If we do one perfectly right thing with half the efficiency,
Both scoping activities are carried out by different business then we assume to have an overall process performance of
units and can be initially set up, maintained, assessed or optimized 50%. Vice versa, the same holds for doing a thing with half
individually. But companies manufacturing products that are based the effectiveness, but doing it perfectly efficient.
on modular systems will only be successful when addressing both Hence, in order to measure the performance of a business
of the scoping activities. Only then it will be possible to deliver the process we need to measure both its efficiency and its effectiveness
right products at reasonable prices but also to generate high-margin and then we need to generate a reasonable overall measurement
revenues. including the input of both values.
3 CAPABILITY OF CHANGE 3.2 Measuring market-oriented variant
management
Variant management is an approach to control and optimize
product diversification. In this sense, variant management Classic variant management focuses on efficiency: optimizing the
significantly influences business processes like the new product scope of modularization. The main reason for variant management
development, quote generation and order processing. Business on the logistics level is cost reduction. Managing the sales view
processes are crucial for companies and are typically not changed focuses on effectiveness: finding the right scope for product
unless really necessary. The decision to change a business process diversification. The main reason for variant management on the
therefore needs management-ready analysis and presentation of the sales level is selling more products. While effectiveness is most
change’s potential. important from the point of view of external customers, efficiency
In the following we present work-in-progress on how the is most important internally.
capability of change for business processes of product
3 Juha Tiihonen, Andreas Falkner and Tomas Axling, Editors
Proceedings of the 17th International Configuration Workshop
September 10-11, 2015, Vienna, Austria
Efficiency and effectiveness of market-oriented variant complement one another and how they relate to business
management relate to different business processes. Efficiency is economics, namely the economies of scale and the economies of
related to new product development and setting up the required scope.
tools for logistics processing, quote generation and order Furthermore we introduced an approach that supports
processing. Effectiveness, on the other hand is related to marketing calculating the potential of changes to business processes that are
and sales strategies and their influence on a customer’s buying related to market-oriented variant management. Such a potential in
decision. a management-ready form can significantly influence the decision
of changing the company’s most crucial business processes.
It is up to future work to fully understand the relation and
3.3 The potential of a change in the business interplay between the well-established research areas product
process configuration, mass customization, variant management and
The ideal performance of a process is assumed to be 100% – we do business economics.
the right things and we do them right. But nevertheless, a desired Also, we need to research how the potential of a business
target state for a business process may be less than 100%, e.g. process can be presented in meaningful numbers. Obviously, a
when reaching the ideal status is expansive and a company wants calculated number in terms of percentage would significantly
to invest in smaller amounts. In such a case it may be viable to set improve the statement of potential. But in order to get there, we
a target state of, for example, pareto-optimal 80%. have to go some steps: defining how to measure both the efficiency
The potential, that the process optimization can raise, is the and the effectiveness of a business process, doing this for both, the
distance between the current state and the target state. A current state and a target state of the relevant processes and then
management-ready presentation of this potential can significantly defining a metric for presenting the potential of the actual change.
influence the decision whether to change the company’s business Another open topic is the influence of different products on the
process or not. Low potential will lead to low willingness to invest measurement. Perhaps it is necessary to define a weighting for the
whereas high potential may also lead to investments although there different products, for example based on sales numbers or revenue.
are risks along that way.
REFERENCES
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Juha Tiihonen, Andreas Falkner and Tomas Axling, Editors 4
Proceedings of the 17th International Configuration Workshop
September 10-11, 2015, Vienna, Austria