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Reducing complexity costs by implementing a modular design

Nijmeijer, L.W.A. (2017) Reducing complexity costs by implementing a modular design.

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Abstract:Along with the raising demand in customized products, the number of product variants offered by companies has been rising significantly and continue to rise in the coming years. The higher number of products within a company leads to variety-induced complexity and consequently raising costs. In a world driven by competitiveness and profit maximization, it is evident that these variety-induced complexity costs should be as low as possible. CEOs around the world acknowledge the need to control this increase in complexity and react in order to lower the costs, whereas nearly half of them do not feel ready for it. Currently, there is no comprehending, empirically tested process that aids managers in reducing the complexity costs that their company is facing. Hence the goal of this paper. This paper introduces a process which has been tested in a medium-sized manufacturing company, and with that proven its worth regarding lowering the complexity costs significantly within the company. This process has been established through an extensive literature review and interviews with employees throughout the organization, with as a starting point using modularity as a way to reduce complexity costs. It has been found that, next to saving costs directly in the way of cutting out unprofitable or unnecessary product components, the indirect cost savings of reducing variety are higher as they occur at multiple areas in the organization: planning, production, communication, warehouse management etc. This means that money is saved constantly instead of only one time. This enhances the profitability of the company. Moreover, the process forces a company to analyse their product portfolio, consider the wishes of their customer and think about the future. Surprisingly, unexpected results were found such as discovering an unprofitable product line and a customer wish to reduce lead times. Also, a potential area for new product development has been found which can be subjected to future research.
Item Type:Essay (Master)
Clients:
Unknown organization, Enschede
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
Link to this item:http://purl.utwente.nl/essays/71843
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