The global recession has challenged virtually all business enterprises, but the off-highway industry, due to its close association with construction and certain other industries, has been particularly affected. Faced with severe circumstances, off-highway executives have moved to cut costs while seeking ways to maximize sales revenue.
One proven way to accomplish that is to meet the growing demand for optional features. This effectively segments the market into smaller fractions so that end users can purchase exactly the vehicle they envision. Variety opens the showroom door.
But that variety comes at a cost. Optional content must be designed and groups of compatible options validated, causing vehicle complexity to rise dramatically and impacting factory operations, inventory, and obsolescence. The logistical cost of supporting all those options also rises accordingly. And of course, servicing becomes much more challenging if every vehicle is different. Design complexity within a particular product can be managed, but configuration complexity caused by proliferating variants and derivatives can actually put profitability at risk.
Value of variety vs. cost of complexity
How can the value of extra sales gained from a strategy based on individually tailored products be balanced against the cost of multiple derivatives? The simpler options, such as paint colors, are easy to justify and typically have rather limited technical impact. In other cases, the decision may be influenced by the way a feature is implemented. Engineering decisions can have a profound impact on cost and other practical matters.
If the marketing department wants to offer a new electronic feature as a customer option, very likely that proposal is based purely on its customer appeal. Undoubtedly there will be costs associated with the feature, but implementation costs are not the province of the marketing group, nor are they responsible for weighing the potential impact on configuration complexity. Their job is to identify and promote features that will sell vehicles.
The engineers in the design department, though, have a different job: to design effective, reliable systems. They must make a choice, deciding whether to implement the feature using embedded software (with its relatively small configuration complexity impact) or by adding new devices such as ECUs. The latter approach has a much larger complexity impact.
Adding new hardware elements and wiring will certainly create a new physical configuration, hence will increase costs arising from configuration complexity. Neither marketing nor engineering decisions occur in a vacuum. Their interplay can be large enough to have a very tangible business impact, potentially tipping a project from profit to loss.
Small wonder, then, that automotive and off-highway executives have been looking for an expedient way to manage configuration complexity. They are beginning to perceive configuration complexity as a roadblock—one that stands in the way of recovery and growth.
The cost of complexity increases rather linearly as new features require new infrastructure, parts inventory, and so on. Marginal revenue rises fast—but then flattens—as consumers are given more configuration choices.
“Give-aways” are a common recourse as configuration complexity increases. A give-away is simply optional content included—often in disabled form—without charging the customer for it. Give-aways are a substitute for developing yet more configurations that must be validated, documented, and supported. Give-away costs decline steeply as configurations multiply because the seller is itemizing and pricing configurations containing the optional content rather than conceding the cost of the options.
But all those configurations are costly, too. After reaching a low point thanks to production efficiencies and economies of scale, total marginal cost rises sharply in step with the cost of configuration complexity.
The profitability line slices across the continuum. There is an optimal point at which the difference between marginal revenue and marginal cost is greatest.
Over the years various techniques have evolved to mitigate the cost of configuration complexity. For in-vehicle software, for example, emerging standards such as AUTOSAR2 help ensure compatibility among optional software components and diverse vendors. And for electrical systems, the concept of “composite design,” in which all configurations are managed as a unified superset, greatly simplifies design change management when configurations multiply.
As helpful as these techniques are, they address only part of the problem. Until now it has been difficult to model explicitly the ways in which marketing and engineering decisions are likely to interact. But innovative tools are now emerging to confront this challenge. The solution promises to provide a path not around but through the configuration complexity roadblock.
New software tools such as Virtual Garage from Mentor Graphics are able to capture marketing decisions about feature combinations and the relationships between options, such as permissible engine/transmission combinations. By this means, distinct vehicle configurations can be distilled into relatively abstract descriptions that can be merged into the design environment to study the interaction between marketing “wants” and engineering realities. This, in turn, allows decisions to be made collaboratively between both domains, with accurate predictability of their effect. In addition, give-away analysis is integral, taking the guesswork out of the cost/benefit equation.
Vehicle-specific service data
Even after a manufacturer’s best efforts to minimize configuration complexity, service outlets are always challenged to understand the exact specifications of a particular vehicle in the shop. All off-highway OEMs manufacture multiple vehicle configurations, and all continue to develop their product designs as time passes.
In an ideal world, vehicle-specific service data would be available so that faults can be diagnosed and rectified quickly. Off-highway manufacturers who can deliver this breakthrough will have an advantage when the construction industry and other off-highway clients begin to recover from recession.
The same marketing and engineering data that help optimize configuration complexity can be carried forward into the service domain. Furthermore, this data can be embellished with as-built (as distinguished from as-designed) information.
When this information is coupled with a user interface that enables easy navigation through vehicle-specific data and generates relevant schematic diagrams on demand, the result is a very productive infrastructure for vehicle service outlets. Here, improved customer value is combined with reduced cost due to new efficiencies in vehicle service and repair.
The recent recession has forced companies to focus on sales retention while simultaneously reducing costs. For off-highway and automotive manufacturers, this means catering to a complex mix of consumer demands while minimizing engineering and manufacturing costs that are growing along with the list of models, options, and derivatives.
Walden C. Rhines, Chairman and CEO, Mentor Graphics Corp., wrote this article for SAE Off-Highway Engineering.