The automotive industry is probably the world’s most competitive industry with extreme focus on flexibility, speed to market and cost-efficiency.
Scania is a prime example of a company that has managed these challenges successfully and been profitable continuously for over 60 years. Scania’s key success-factor can be expressed as: The modular system.
• Flexibility to customize for individual customer needs
• Speed to meet new customer and legal requirements and launch new technology
• Cost-efficiency is crucial in a mature industry with overcapacity and players with similar offering
The modular system enables Scania to provide individual product configurations for each customer with a limited number of parts. It also allows new customer needs to be fulfilled quickly without increasing the total number of parts. The modular system is based on and governed by three principles.
Standardization of interfaces means that the connection points between the modules should be the same for all variants to ensure that they fit together in different combinations. The interfaces are designed in such a way that they do not need to be changes over time. This means that they are prepared for face-lifts and changes in legal and customer requirements.
An example of the benefits – Scania was the first manufacturer to provide Euro 6 trucks to its customers. The early introduction was facilitated by the fact that the Scania had planned the engine compartment and the cab so that the cooling need and equipment for Euro 6 could fit the space available without any need for design changes on the cab structure.
Scania was first to the market with Euro 6
Some customer needs might be the same, despite different applications. Same need, identical solutions means that components fulfilling those needs should be the standardized as there is no customer value in having different ones.
One example is the windshield where all customers have the same need. In this case Scania applies the principle “same need, identical solution” and offer only one windshield variant to cover the entire product range.
The Scania windshield
The principle is also applied to technology and manufacturing concepts to reduce complexity. This also leads to that around 85% of the chassis components in Scania buses are shared with the trucks.
Customer groups have different needs related to e.g. driving distance, road condition and climate. The components fulfilling those needs have to vary and the variants are called performance steps. The number of performance steps is carefully thought through considering the demand per customer group and cost per variant. There is an important trade-off to be made. On the one hand there needs to be enough performance steps to meet each customer’s specific need. On the other hand, the performance steps should not be too many as the volume per variant then will be too low, and development and production costs will be too high.
Examples of performance steps are different cab sizes, engine output steps, frame strengths and number of axles. The truck and bus variants built are continuously evaluated, enabling Scania to have the lowest number of parts and the largest selection of variants possible in the product portfolio.
• Production can easily be moved from one factory to another, depending on capacity and demand.
• Components manufactured in South America are suitable for trucks manufactured in Europe. And vice versa.
• Designers at the Brazilian design center can support colleagues in Södertälje develop components.
Six decades of uninterrupted profitability speaks for itself. Scania’s own estimates indicate that reducing the number of components by 50% reduces the cost of product development by 30-50%, production by about 10% and about 30% in sales and service.
The former CEO, Leif Östling, once mentioned that Scania has three times the volume per component compared to Volvo, one of their competitors. Higher component volumes provide savings throughout the entire value-chain and over the years Scania’s profit margin has been almost twice as high as Volvo.
Modularization also increases the customers’ profitability. Configurability to each customer’s individual needs gives an optimized transport solution with reduced cost of ownership. Fewer parts lead to higher part quality resulting in less downtime, a limited number of spare parts and more efficient service.
Brick Strategy’s approach to implement modular products is based on our consultants’ long experience from Scania, dialogues with former Scania colleagues, combined with consulting projects with leading industrial companies in different industries for almost 20 years.
Contact Brick Strategy if you are curious to learn more about how you can use modularity to become a Scania in your business.
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