How Commercial Vehicle OEMs Can Create Competitive Differentiation in Emerging Markets

    By: B. Vijaya Kumar on Jan 14, 2013

    How Commercial Vehicle OEMs Can Create Competitive Differentiation in Emerging Markets Through Modular Product Architecture
    By B Vijaya Kumar, Tata Consultancy Services

    Executive Summary
    Imagine the top 10 commercial vehicle original equipment manufacturers (OEMs) competing with each other with new product launches, chasing their potential customers, developing their dealer network and attracting the best talent on the earth. With the growth getting saturated in the matured markets, the focus is shifting toward the emerging economies for these commercial vehicle OEMs. No wonder that they all battle in corporate fields against each other in emerging economies for their market share.

    According to the International Organization of Motor Vehicle Manufacturers, the global bus production in the year 2011 was 0.65 million units while the truck production was 25.65 million units. The truck industry is attractive, and it is expected to grow by 33 million units by the end of 2012.  The light commercial vehicles (LCV) segment of the truck industry had seen double digits growth in the past three years in India, and it is true for most of the emerging economies. The following are the key challenges/trends seen in the global truck industry:

    • Emerging economies drive the growth engine;
    • India has become the competitive battle field for most of the truck OEMs;
    • Presence of  strong cyclicality in the markets;
    • Rising pressures in the total cost of ownership; and
    • Tightening environmental regulations.

    With the above challenges, there are key questions that every truck OEM needs to answer:

    • How do we adapt the products to the emerging economies?
    • How to segment the customer needs and satisfy their requirements in emerging economies?
    • How will business models need to adapt?

    This article highlights the need for transformation in new product development strategy for truck OEMs by embedding modular product architecture. Modular product architecture helps truck OEMs design and develop new products suited to local geographies. It will help companies satisfy product diversity, reusability of different components and bring the new products faster to the market.

    Strategies for the Truck Industry
    It is important for truck OEMs to retain and penetrate market share in emerging economies, as the market is gaining momentum and attraction. But the question remains, what strategies are needed to be a market leader in emerging economies? The following are the winning strategies to create competitive differentiation in the marketplace:

    • Adopting products and technologies to the local needs;
    • Sourcing  the components from local suppliers;
    • Realizing the economies of scope and scale;
    • Creating different brands with different utilities and at various price points;
    • Expanding/including “service” offerings in their portfolio by moving higher in the value chain;
    • Adopting design for environment philosophy in the products; and
    • Building a strong dealer network.

    It is evident from the above strategies that truck OEMs need to diversify their product portfolio with the objective of maximizing the value. Truck OEMs need to focus on their customer segments and offer tailor-based products/solutions to succeed in emerging markets. Also, they need to create different utilities in their products for different customer segments. This core value proposition will create competitive differentiation in the marketplace. Hence, the two important challenges for the decision makers in new product development domain are:

    • How can companies manage the complexity of the new products with a high level of internal carrying cost (cost of designing, developing and prototyping, maintaining variants), yet cater to the different needs of customers in local geographies?
    • How can engineers understand the high level customer needs in local geographies and translate them into new products at faster pace?

    The above challenges require transformation in the new product development strategy.  New products need to be conceptualized, designed and developed upon flexible and modular product architecture, which will help engineers face the above challenges of product diversity yet leverage on reusability and faster new product development time.
     
    Modular Product Architecture
    The modular product development architecture will become an increasingly important capability for the commercial vehicle OEMs, especially with helping the truck industry navigate through the challenges and create a competitive differentiation in the market place.

    Imagine a product in both functional and physical domains. The functional domain consists of functions and flows of a product. These are the logical modules that satisfy the functions in standalone or holistic manner. The physical domain consists of parts, subassemblies and assemblies. Product architecture is the method in which mappings of elements are carried from functional to physical domain.
    It is difficult for commercial vehicle OEMs to mix-and-match the components directly with the specific requirements of the customers in the emerging markets. This becomes highly impossible because of the complexity of the systems and subsystems present in the truck. Hence, there is a need to design architecture for the product and drive the product development process around the same. Modular product architecture addresses the dilemma faced by the commercial vehicle OEMs—external customization and internal standardization.

    Benefits of modular product architecture for the truck OEMs

    • The following are the benefits for commercial vehicle OEMs of adopting modular product architecture:
    • Co-creating the trucks with the customers. Allowing mix-and-match compatibility of components to configure the product based on specific requirements of the customer;
    • Deciding  standard and customized components;
    • Helps in easy upgrading of  the components at later stages of life cycle of the product owing to technological changes;
    • Enabling reuse of components across the platforms and product lines; and
    • Differentiating the product  in terms of value proposition, which will help to create brand positioning.


    Approach to Modular Product Architecture
    From a commercial vehicle OEM point of view, defining the modular product architecture for a truck requires the following basic steps:

    Imagine the truck divided into meaningful functional modules like engine, chassis and cab, etc. This step involves the decomposition of the overall functionality of the truck into a set of defined functions and the component parts of the truck that are going to provide those functions. The functional decomposition is the process of breaking the overall function of a product into smaller subfunctions called “modules.” An optimal modular product design is one where intramodular elements (within modules) have higher dependency, while intermodular elements (between modules) have least dependency.

    The second step involves identifying the flows across the modules of the product. The flows can be of material, energy or signal. For example, the ECU module sends signal flow to engine module of the truck. This additional information on the “type of flow” will help understand the exchange mechanisms between the modules. These flows will aid to trace the product virtually by navigating through these modules based on the customer’s need.

    The third step involves definition of the interface between the components; in other words, how components are going to interact together in the truck as a system. The definition of the interface systems plays a vital role in the design of flexible architectures. This helps the truck OEMs substitute component variations within a product without having to make adjustments in other components. For example, the architecture in most personal computers allows us to easily replace an older RAM processor with a new one, because the interfaces between the RAM processor and the rest of the computer have been defined to allow a range of variations in processor. Some of the interfaces in the truck may include the engine coolant system, inlet and exhaust system, etc. For instance, the engine coolant system specifies how the engine, radiator and other cooling system accessories interact with each other. 

    Modularity is a relative property, so truck OEMs need to revisit their modules at regular intervals to refine and improve the architecture. This will help them achieve optimality in their product architecture. Organizations need to fix ownership for defining and maintaining the architecture. The use of modular product architecture will be helpful for decision makers in the high level system design/systems engineering phase of the new product development process to map the requirements to different modules, understand the tradeoffs and pick the right modules for the customer requirements so that these modules can be realized as designs and physical prototypes in the development process.

    Impact of Modular Product Architecture
    Decision makers can make the right decision at right time in the new product development process if the truck OEMs cultivate modular product architecture in their new product development strategy.  The use of modular product architecture in the engine coolant system of trucks will lead to a proprietary interface architecture in which the company alone understands the critical specifications that make the plug and play of the engine cooling accessories /components compatible. This can result in huge competitive advantage during upgradeability/service of the truck. No longer are the product design and development decisions tactical, but they form the important strategic decisions.

    From the automotive industry point of view, the use of modular architecture is not new. The technique is widely followed by most of the car manufacturers. Though the product variety in the car industry is higher than that of the truck, the truck industry needs to learn the lessons from the passenger car industry and apply precisely in the design and development of trucks. Overall, there is a need to focus on new product strategy for the design and development of trucks in emerging economies.  The product planning teams of commercial vehicle OEMs need to spend adequate time with the drawing board in deciding the architecture of the product line/platform before the actual design starts. This may require some additional process checks before the detailed design starts. In some organizations, there needs to be an additional team within product development to enforce and practice the same. The use of modular product architecture thus helps the truck OEMs share the synergies across the different brands by reusing the components at subsystems/systems level.

    Conclusion
    Product development in the truck industry is no longer about creating a truck but about creating a truck platform/truck family of products. Creating appropriate modular architectures to support new kinds of product lines will help the OEMs create competitive differentiation in the market place. The entry of different players in the emerging economies market across the different segments (LCV, MCV and HCV) of the truck industry, combined with customers changing preferences, is driving modular product architecture of the new product design and development ecosystem. A fundamental change in the new product strategy is required for truck OEMs to improve product diversity, increase cocreation opportunities, reuse the components and cut down costs. With the emergence of global design and development centers, and with a need to deliver regionalized products, no doubt that modular product architecture will help OEMs leverage their reusability, introduce right products at right time and enjoy the market share over its peers. 

    About the Author
    B Vijaya Kumar is a domain consultant in the New Product Introduction Value Engine—Innovation and Transformation Group, Manufacturing Industrial Solution Unit, of Tata Consultancy Services. He has consulting experience with a large, global base of customers with Tata Consultancy Services. Tata Consultancy Services is an IT services, consulting and business solutions organization that delivers real results to global business. All exhibits are based on Tata Consultancy Services research and consulting experience unless otherwise stated.

    Released: January 14, 2013, 10:33 am | Updated: January 21, 2013, 8:36 am
    Keywords: PDMA Blog

    Srikanth Thirumalasetti True
    By: Srikanth Thirumalasetti | Posted: January 24, 2013, 12:41 pm

    I certainly agree with you on the modular architecture for xCVs. 


    We find a similar modular approach in enterprise IT solutions, like ERP/ MES. It facilitates development of internal/ external pluggable modules to the "base"/ platform product. This modular approach not only helps "mass customize" the IT solution, but, also, makes the solution affordable by progressive licensing (where the customer can pay only for those modules being used).


    Coming to the truck industry, I see that pluggable modules to the "base"/ platform can not only facilitate mass customization of the truck, but, also with the support of co-located product design offices, these pluggable modules (or parts of) could be manufactured (and approved) nearer to the dealer location - thereby possibly reducing the costs of transporting a fully assembled xCV to the dealer.


    While you rightly mentioned that modularity is a relative property, I guess the challenge for a modular architecture in a xCV is to identify parts that can be grouped into respective modules and their final assembly delivers a product optimized across organization's KPIs.


    regards,


    Srikanth T


     


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