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Lecture 04Production Management I (Prof. Schuh)
Variant-Management L04 Page 0
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Production Management A
- Lecture 4 -
Variant-Management
Responsible person:Dipl.-Ing. M. Bartoschek
[email protected] Room 507, 53BPhone.: 80-28203
Lecture 04Production Management I (Prof. Schuh)
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Table of Content – Lecture 04:
1. Table of Content page 1
2. Summary of the lecture page 2
3. Glossary page 3 - 4
4. Highlights and learning targets page 5
5. Lecture
• Stuck in the middle page 6
• Vicious Circle of Complexity Management page 7
• Important Duties of Complexity-Management page 8
• 1. Correct balance of complexity drivers page 9
• 2. Well-directed cross-subsidisation of variants page 10
• 3. There is an optimal variant variety page 11
• 4. Ensure price quality by configuration logic page 12
• 5. Precisely match customer needs page 13
• Relative Consideration of Product Position page 14
• Quality evaluation, differences, deficits page 15
• 6. Degree of communality through modularisation page 16
• Differential vs. Integral Design page 17
• Product structuring principles page 18
• Six kinds of modularity page 19
• Control Circuit of Complexity-Management page 20
• Method and Tools for the Variant Management page 21
• Feature Based Commonality-"Road Map“ underconsideration of dynamics page 22
• Feature Based Configuration Logic for ModuleSystem Linking page 23
6. Literature page 24 - 25
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Summary of the lecture:
Today customers are much more demanding than years before. Many companies are still forced to enter into new market segments, because the competition in the markets is rising. Moreover further variants are demanded by the rising dynamic of the market. The associated over-complexity causes significant profit cuts. That’s why companies are “escaping” to further market niches to gain new customers and therefore compensate the profit cuts. These specific customer requirements are the reason for exceptional appearances in the product program. Unfortunately, they are extensive in production and only produced in low quantity. The product and process complexity is rising threateningly. The expected improvement of profit fails, so that the opposite becomes reality and profit decreases. Thus costs provoked by complexity attach great importance. These effects on processes are inadequately considered in the common cost accounting models. Usual cost accounting models show a price curve that debit standard products disproportional high (with slim processes) and exceptional products (with extensive production) in an insufficient way. The result is a cross-subsidisation from exceptional to standard products. A dangerous disadvantage of competitiveness arises compared to those companies which have a targeted cross-subsidisation. If customers buy standard products at a competitor, there is only the exceptional product market for the own company. Products, that were provided for new customers cause profit cuts and put the company to a risk. To reach the necessary flexibility for the markets and not to get caught in the variant trap, a methodically supported planning and controlling of the variant variety is the key to realise profits and therefore the base for economical survival.
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Glossary 1-2
Complexity management contains the design and the regulation of variant diversity of the business activities (products, processes and ressources) of a company and its development. With the help of complexity management the ability of controlling the variant diversity on all steps of added value is aspired so that a maximum share of customer benefit is gained by ideal profitability.
A variant is one of more (at least two) realisations of an assembly. Variants can be build as add on-, spare- or add-on-spare alternatives. Variants emerge due to different type-, optional equipment-, additional equipment- and country specific- amounts.
Integral-Part – an Integral-Part results out of two different parts by design modification. All product characteristics of the new part are the same of the former two parts.
A Standard-Part is a component which is available in all variants of a type series in the same quantity. A standard part is used in each assembly variant.
A Variant-Part is a part which is not used in each variant or type series – in contrast to the Standard-part.
Requirements are the informatorial starting base to clarify and to specify the product design.
A function describes the product criteria and their characteristics based on product requirements which should be realised. The coherence between the functions is described by the function structure.
The functional dependency describes the mechanical, electrical, electronical, information technology based, hydraulic, pneumatic and chemical interdependency bewteen functions.
An option describes a product characteristic that is not included in the scope of a base product. Options can be ordered individually by customers.
A distinction criteria is an attribute, that gives the customer a visible surplus compared to another product.
Product structure elements are different scopes in the current layers of the product structure like modules, sub modules, components, parts etc.
Variant drivers are attributes respectively characteristics, which generate the diversity of product structure elements (variants) (reduce communality).
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Glossary 2-2
The differential construction is based on the decomposition of product structure elements in several mounted parts. Thereby the emerging of variety within the assembly process is limited to the process end. Otherwise a higher frequency of repeating of non-variable parts could be achieved and the cost position is strengthened.
An integrated design reduces the part diversity by merging multiple functions into one part. Manufacturing steps can often be erased by replacing multiple individual parts and their dedicated processes with one part.
Monofunctional design: a component fulfils exact one function.
Multifunctional design: a component fulfils several functions.
Variant diversity is the amount of variants which are existing for an assembly or a type series.
Modules are entities with different functions but standardised interfaces. Thereby multifarious compatibility of components and an efficient and customer individual configuration is permitted.
Modularisation means a suitable product arrangement, whereby the interdependencies between elements/ modules respectively the variety of interfaces are bounded by means of a reasonable integration of functions.
A product platform is made up of the compendium of components, interfaces and functions which are timewise stable for the whole product family.
Interfaces are connections between product structure elements.
Interface parameter define the characteristic of interfaces between modules. A change of these characteristics could cause a change of the interface or a change of the bordering module.
Releaseengineering means a timewise, organisational and structural synchronisation of all relevant product structure elements - incl. additional equipment packages, replacement packages and documentation.
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Highlights and Learning targets
Highlights and Learning Targets
� How much complexity is necessary to fulfil customer demands? How much complexity means to minimize profit?
– Fulfil market requirements
– Consider the market dynamics
– Assure sustainability
– Find and gain market potentials
� How to manage complexity concretely – and not to get caught in the complexity trap but to meet customer demands?
� What methods exist to plan and to control variety and complexity?
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Stuck in the middle
Ø Productprice
Costs nearly asspecial manufacturer
Competitor AOnly mass products
Competitor BMass and
special products
Competitor COnly special products
Profit margin
Asset
Deficit
Ø Productcosts
Ø Productprice
Ø Productcosts
Ø Productprice
Ø Productcosts
Source: Porter, 1986
The increase of over-capacities, the loss of innovation and technology head starts and a lack in differentiation in performance lead to substantial pricing pressure. In order to avoid hard price competition, enterprises try to make use of capacities by offering specialized products.
However, due to variant-induced extra costs such a strategy can lead to a decrease in sales profitability.
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Vicious Circle of Complexity Management
Stagnation of sales
Product diversity is increased by serving niche
markets
Complexity costs are increased without a significant rise of market share
Costs are rising for the whole product range
Source: Rommel u. a. 1993
� Aimed cross-subsidisation creates competitive advantage
� Competitive disadvantage due to uncontrolled cross-subsidisation of exotic models by standard models.
� Minimal variant diversity = optimal variant diversity
� Maximum net value = optimal variant diversity
Decrease in competitive ability of company
The attempt to use production facilities to full capacity and to raise the total revenue by means of betaking the company to fight in niche markets often leads to the so called vicious circle of complexity management and often results in a creeping disadvantage.
Niche products inflate the complexity costs and subvert the competitiveness of the whole product programme. The worsening of competitiveness concludes the vicious circle. Without a suitable variant oriented steering and controlling instrument there is no way out of this mess.
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1. Correct balance of complexity drivers
2. Well-directed cross-subsidisation of variants
3. There is an optimal variant variety
4. Ensure price quality by configuration logic
5. Precisely meet customer needs
6. Degree of communality through modularisation
Important Duties of Complexity-Management
Complexity Management has emerged to be the essential part of any management. Only if all drivers of complexity are well balanced, an economic optimum of variety can be achieved. To identify and establish this point is one of the most challenging tasks of each individual company. With respect to the marketplace optimised variety offers opportunities to protect markets against competitors, to meet customer needs exactly, to avoid effects of variant cannibalism and to realise high price levels. Internally, variety can be attained by an adequate commonality degree, by additional services as well as yield driven sales strategies. This lecture outlines pitfalls and requirements for Complexity-Management.
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1. Correct balance of complexity drivers
Development &value added
in partner networks
Modelvariety
Individualisationfor customer
Price policyInnovationcycles
Best business result
Procurement/SCM
Marketing Production Sales
Legend: SCM - Supply Chain Management
Productdevelopment
Complexity drivers – such as model diversity – have effect on the whole chain of economic value added. R&F efforts will rise for example when the model diversity increases. Likewise the marketing activities has to be adjusted.
Suppliers production as well as the own production have to be prepared technically and organisationally. Furthermore there are highly connected interdependencies between these complexity drivers.
To manage variety means to balance complexity drivers. In case an enterprise wants to reduce his part-variety, there a several approaches to do so: standardisation and product modularisation. Both approaches support the commonness to use the same parts.
On the other hand, a reduction of innovation cycles could result in a reduction of part-variety by means of discontinuing old product families.
Which method is more suitable, depends on the business model and the economic evaluation. It is not reasonable to apply both methods simultaneously.
Anyway, the complexity drivers never should positioned in extremes, but rather should be calibrated under consideration of their interdependencies.
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2. Well-directed cross-subsidisation of variants
Targeted cross-subsidising creates competitive advantage
Exotic ExoticStandard
Quantity - price - costs
Frequencyscale
Compensation of decreasing turnover with extra variants
today gesternyesterday
prices
Fair allocationof costs according to the
input involved
Competitive disadvantage due to uncontrolled cross-subsidising of exotic models by standard models
Competitivedisadvantage
Loss
Strategic mistakes in a company’s product and performance planning often leads to the following situation:
Beginning with an original simple product program which only incorporates one standard model (volume model) and few basic types, the variant variety increases drastically, i.e. the frequency distribution shifts in view of more exotic products and fewer standard products. A substantial problem is the missing transparency of the costs, which is connected to the increase in variant variety. Therefore the exotic products in the product spectrum are typically sold at prices below the costs actually caused. This (often unconscious) transverse subsidization inevitably results in a competitive disadvantage compared to companies offering a less variant-rich product spectrum.
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3. There is an optimal variant variety
Cost/ profitof variety
Cost
Variety
Non-fulfilment of customer requirements by radical prevention of variants (gross-)
profit
Degressive benefit increase due to extra variants
Net profit
Economic optimum between the extremes
Product-differentiation
Max. net profit
(Costs)Controlvariety
The maximum benefit of variety neither depends on radical avoidance of variants nor on imprudent enhancement of the product programme.
The difference of variety profit and costs constitutes the maximum net profit.
Radical avoidance of variants leads to the fact, that customer needs couldn't be fulfilled no longer. This matters significant impacts on the gross-profit, which can be achieved on the market.
The net profit decrease and contrariwise the achievable (gross-) extra-profit increases only in a digressive way along with the variety. Because of. The increase of costs in an exponential way along with the variety, the net profit will decrease.
There is an economic optimum for variety between those two extremes. The major challenge for just every business is to find the optimum between profit and cost of variety.
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4. Ensure price quality by configuration logic
Increased margin by customer-eligible individual features
Classification of requirements:� basic,� performance,� enthusiasm features
Offering of a low-priced basic version
Total Revenue[€]
Return on Sales [%]
Variety
It is essential to know and to structure customer needs especially for markets affected by variety of products. According to the Kano-Model customer needs and requirements could be structured in basic, performance and enthusiasm features.
Basic features – these are presumed by customers and in general are not the major argument to buy a product – have to be offered for a minor price.
Performance features are important to differ from competitors. For those features the pricing has to be adjusted to competitors. Enthusiasm features are impulsive, emotional product features. Especially for those features the price quality could be enhanced.
Automotive OEMs are using configuration applications to give customers the ability to configure their own customised car. A simple and staggered configuration - with special commandments and prohibitions – makes this possible.
Basic equipments are offered as cheap as possible. The OEMs margin only increases with customised extra features.
Such a configuration logic could be used to generate different scales on price-value combinations and to achieve a higher price quality.
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5. Precisely match customer needs
Total customer satisfaction due to exact matching with offered product program
Aggregation of essential customer requirements in homogeneous requirement-cluster
Internal (endogenous) Complexity
Customer demands (Demand Cluster)
Offered Product Programme (Diversity)
External (exogenous) Complexity
MatchingMatching
Internal (endogenous) Complexity
External (exogenous) Complexity
Prevention of unnecessary variants
source: i.A. Teboul (1991)
Underengineering,bad chances on market
post developmentphase out
Rightconform to
customer expectations
Overengineeringtoo high costs
expectations
offer
A company’s competitive ability is a result of its ability to satisfy current and future market needs with capable products. In order to cover market needs, the company establishesan internal diversity of parts and variants (internal complexity). This is portrayed by the market service offered, the product- and service variants and the increase in complexity in the performance-creation-process. Variant management is the interface between external complexity, defined by market needs, and the resulting internal complexity. Optimally the internal complexity is equivalent to the external complexity.
The picture shows the meaning accuracy of a solution. If the constitution of a product or services hits complete the expectations of a customer, the customer will be satisfied, when price and delivery time are correct. These customer will be abide by product and customer.
In the case of not conforming the expectations (underengineering) the chances on market are bad, as soon as a competitor conforms more with the expectations with his offer. Maybe the company have to mend this product or services.
Product series are not aimed for several customer, but for customer groups. Most customers will not use all attributes in full level. Some attributes conform more than his expectations. If the attributes conform more expectations for too much customers, is it a general over conforming (overengineering). The engineer had geared towards technical do-ability and not geared towards customer requirements.
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competitive product
own product
real differentiation
Source: i.A. Teboul (1991)
5. Precisely match customer needsRelative Consideration of Product Position
Quality should be consider relative and not absolute. Customers compare a product with the products of the competition. The vendor has to make a competitive comparison at his quality planning. He has to differentiate between the competition in price, time or quality. In the picture the own product differs from the competitive product only in the dark area. Attributes from this area purvey arguments. This arguments should convince the customer with more benefit.
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competitionsupply
recommen-dations
experience
requirements
presentationover
requirements
promised(guaranteed)
qualityshapedconceptquality
spez. q. requi.
1
expectations
9 8
7
6
10 conformance
defineddemandson quality
4
5
supplied quality
3perceivedquality 2
customer supplier
used quality
generatedexecution
quality
5. Precisely match customer needsQuality evaluation, differences, deficits
This model was developed for the general use of products or services. Customer requirements and their point of view show the arising quality deficits or gaps at the essential transition and interfaces. Nine gaps or deficits are count on total. Aim of the operative quality management is to make these deltas as small as possible or fetch these deltas to an optimal value. The most important delta is delta 1, that describes the quality which is noticed by the customer measured on his expectations. Delta 1 is to be determined by the customer‘s quality judgement. Customer will be satisfied or enthusiastic if delta 1 has the value of 0 or more. If Delta 1 is negative the customer will be dissatisfied.
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6. Degree of communality through modularisation
Increased reuse of components/ parts between series and product lines (communality)
Consequent reuse of components/ parts between previous and follower products (carry-over)
G200 G400time
When the optimal degree of diversity is defined, the internal variety should be implemented as efficient as possible.
Modularisation is a structural approach for variant oriented product optimisation. Parts with different degrees of variety are connected by standardised interfaces. Major target is to build up diversity with only a few parts – to concentrate variety on these parts.
Result of such a product structuring are three types of parts: standard-parts, variant-parts and customised-parts.
Modularisation could be used on each assembly level.
The cost-advantage of modularisation leads to the fact, that higher degrees of communality could be achieved. Thus modularisation risk concerning product use is reduced as well as economies of scale could be realised.
Even though higher R&D costs for developing more sophisticated product structures come along with mentioned advantages.
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B1 B2 B3
F1
B1 B2 B3
F1 F2 F3
F1 F2 F3F1 F1 F1
Parts Parts
FunctionsFunctions
FunctionsFunctions
PartsParts
Differential vs. Integral Design
Source: Rapp [1999]
1. Differential design with one or more functions
2.Integral design with same and different functions
The differential design is based on the decomposition of functional bearers in several attachment parts. Different aims could be succeeded: The main aim is to generate a non-variable part collectivity within a variant of a functional bearers. On the one hand thus benefits to pass the variety emergence into the assembling process and on the other hand to raise the usage of non-variable parts. A easier handling of parts - due to lower mass and minor dimensions compared to the integral design - is another reason for using the differential design.
Integral design is the opposite of differential design. The part variety is reduced by integrating several part and to rise the non-variable part frequency is also the aim of this design alternative. With the integral design production steps could be saved due to the omission parts - e.g. integration of part in a single die casting part.
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Product structuring principles
Kits Modules
Type seriesPackagesSource: Schuh / Schwenk [2001]
Type series are characterised by same marks of attached parts of different dimensions. Type series are used especially for products with extensive engineering or planning amounts.
Modules are attachment parts, which allow a variegate combination of components with different functions but common interfaces. Thereby an efficient generation of variety is possible. The principle of modularisation is appropriate to enable a high external variety and simultaneously a low internal complexity due to the usage of the combinatorial effect.
Kits are characterised by one or only a few base materials on that in several steps different variant specific attachment parts will be assembled. This principle is often the basis of bill of materials structures in the plant construction. The main difference to the modular design is the interfaces. Interfaces exist mainly between attachment parts and the base material but not between the different attachment part.
Packages exist of attached parts for different options and functions that only occur in combined packages but do not occur in other packages. Packages are used in the automobile industry to constrict combinatory possibilities for options and attached parts. Therewith the effort for R&D and logistics should be shortened. The building of packages is possible with all different product structuring principles.
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Six kinds of modularity
1 2 3
1.Modularity by commonality of components
2.Modularity by adequate cutting
3.Bus-Modularity
4.Modularity by change of components
5.Mix-Modularity
6.Part-ModularitySource: Pine II. [1994]
The best possibility to minimise R&D costs and to maximise individual customer demands at the same time is to use modular products. Economies-of-scale could rather be achieved by means of single product modules than by means of generating proper products. Furthermore proximity of customers is better achieved by means of configurable products.
1. Modularity by means of commonality of components is achieved while the same constituent is used in many products. By using of commonality components economies-of-scale are achieved and costs are lowered.
2. Modularity by means of adequate cutting means, that the structure, the number of components and the interfaces are independent of the variants. The only changing occurs by dimensioning of the constituents.
3. Bus-Modularity uses the basic structure (Bus), where several constituents are attached on standardised interfaces. In a restricted sense bus modularity is an enhancement of the principle „modularity by change of components“.
4. Modularity by changing of components means only to change components to the according basic architecture.
5. The Mix-Modularity is only applicable for products which could be built of different components by using independent interfaces.
6. The Part-Modularity enables the combination for components with standardised interfaces to a construction which is preliminarily not known (c.p. Lego).
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Control Circuit of Complexity-Management
Definition offunctionsFixing of combinatorics
Attribute tree ofpredecessor
Customer/market
ProductionProduct
developmentProduct program
developmentSales
Optimisationof the assembly-order
Rating of alternativeproduction techniques
Avoid exotic models(by pre-plannedproducts)
Efficient order processing
Variant-orientatedproduct design
Evaluation of designalternatives
Variants tree
Designed conversion
Attribute tree of sucessorMarket-side product development
Following the Failure Mode and Effects Analysis (FMEA) the Variant Mode and Effects Analysis (VMEA) was developed for early detection and prevention of variants referring to the problem of variant diversity. VMEA is a systematic procedure, which contains technical and cost relevant control of variant diversity. Divisions such as product program planning, product development, production and distribution are involved at an early stage in planning and composition of product variants.
For the easy use and implementation of VMEA the variant-tree was designed to show the product-structure. It clearly displays the essential information concerning the cause of variants and number of variants of the assembly group by illustrating the variant and part diversity on the horizontal axis and the installation order on the vertical axis. This instrument allows structured and transparent mapping of the variant diversity of a product program. This permits the reduction of variants and simultaneously accounting for special customer wishes.
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Method and Tools for the Variant ManagementScenario analysis with the Complexity-Manager
Variant tree: Investigation of variantcausing components
Leistung (2)
10kW
20kW
B471
Antrieb (2)
Keilr.
Zahnr.
Kühlung (2)
Wasser
Öl
Wasser
Öl
Übersetzung (4)
3.0
3.5
3.0
3.5
3.0
3.5
4.0
4.5
3.0
3.5
4.0
4.5
Temperatur (2)
100C
100C
120C
100C
120C
100C
120C
120C
120C
120C
120C
120C
120C
120C
Typ (1)
T1
T2
T3
T4
T5
T6
T7
T8
T9
T10
T11
T12
T13
T14
Attribute tree: Investigation of types per kind and quantity
Optimisation, business games:Systematic deduction of action
alternatives
G1
T01, T02, T03
S1
T01, T02, T03
S2
T04, T05, T06
KH1 KH2
T01, T02, T03 T04, T05, T06 T07, T08, T09
The IT-Tool is presented in the exercise lesson
The „Complexity Manager“ is a modular designed IT-System for description, analysis and solution of complex problems in variant and complexity management.
The „Complexity Manager“ offers tools for optimization of product variety and complexity costs.
Product variants are clearly structured on the basis of functional product characteristic and different parameter value and displayed graphically in consideration of technical and market limitations. With the gained high level of transparency it is possible to make simulations in case of new product planning or analysis of existing products. Simulations provide information which are used to support decisions about strategic focuses in product programme. Furthermore the „Complexity Manager“allows systematic and complete technical presentation of variants.
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Feature Based Commonality-"Road Map" under consideration of dynamics
More variants
principally possible
ArchitectureDesign platform
Product platformSingle product
More variants
Speedily made possible
Basic Design
To achieve profit by using economies-of-scale (fist target to achieve the optimum) means to obtain economies-of-scale also by individualisation of products. If products or services are developed completely new, there is no possibility to achieve this goal.
The effort to create individual products or services is too high. Instead of this, individualised products based on a standard architecture have to be deduced. The so called “standard” should comprehend more than physical components. The standard solution could be made up of an architecture for example. This architecture characterises the most important design principles that are used in the different individualises products. If the market is characterised by individual products, it is most important to enable commonality not only on a physical level. The definition on platforms means to gather information's that could be interpreted and used for several product derivatives. A platform could also be a design platform, which means to develop systems and interfaces and individualised products efficiently by using already known design parameters. Companies which are able to introduce physical and non-physical platforms could realise an enormous cost advantage.
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Feature Based Configuration Logic for Module System Linking
Productstructure
Product program
ProductSequence
Product groups – comprehensive (all models)
predecessor-successor
# 4
# 6
# 2
# 3 # 6
# 3
C E
Blocking
Carry O
ver Parts
The aforementioned building of Release-Units needs to take place along three dimensions. These are the product sequence, the product programme, and the product structure. The Building of Release-Units needs to reflect the Product Structure. A Carry-Over of Parts needs to be ensured along the product sequence. The freezing of Release-Units or modules must take place across various product groups.
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Literature
� Groos, S. A. (1997): Integriertes Zielkostenmanagement: Ausrichtung der Variantenvielfalt auf die Kundenbedürfnisse durch Leistungssysteme im Business-to-Business-Markt, Dissertation an der Universität St. Gallen, Dissertation Nr. 2052, 1997.
� Kaiser, A. (1995): Integriertes Variantenmanagement mit Hilfe der Prozesskostenrechnung, Dissertation Universität St. Gallen, Dissertation Nr. 1742, 1995.
� Köster, O. (1998): Strategische Disposition – Konzept zur Bewältigung des Spannungsfeldes Kundennähe, Komplexität und Effizienz im Leistungserstellungsprozess, Dissertation an der Universität St. Gallen, Schesslitz: Rosch-Buch, 1998.
� Kühborth, W. (1986): Baureihen industrieller Erzeugnisse zur optimalen Nutzung von Kostendegression, Inaugural-Dissertation, Universität Mannheim, 1986.
� Müller, S.; Kaiser, A. (1995): Was kostet eine Produktvariante?, in: Sonderdruck Technische Rundschau, 1995, S. 31-35.
� Rapp, Th. (1999): Produktstrukturierung, Dissertation der Universität St. Gallen, 1999.
� Rathnow, P. J. (1993): Integriertes Variantenmanagement: Bestimmung, Realisierung und Sicherung der optimalen Produktvielfalt, Göttingen, Vandenhoeck & Ruprecht, 1993.
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Literature
� Sanchez, R. (1996): Managing New Interactions of Technology, Markets and Organizations, in: European Management Journal, Vol. 14, Nr. 2, April, 1996, S. 121-138.
� Schuh, G. (1994a): Strategisches Produktionsmanagement – Expansion durch Konzentration, in: NC-Gesellschaft (Hrsg.): NCG-Jahreskongress 1994: Umdenken-Wandeln-Bestehen: Führungs- und Fachkompetenz sichert Industrieproduktion, 21.-22.4.1994, München. Schuh, G. (1994b): Wettbewerbsvorteile durch Prozesskostensenkung, 28. Konferenz Normenpraxis, 21./22 Oktober, Stuttgart, 1993, in: DIN-Mitt. 73, Nr. 2, 1994, S. 99-105.
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