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Using Optimization to DetermineStrategic Platform Offerings*

Using Optimization to DetermineStrategic Platform Offerings*

Timothy W. SimpsonProfessor Mechanical & Industrial

Engineering and Engineering DesignThe Pennsylvania State University

University Park, PA 16802 USA

phone: (814) 863-7136email: tws8@psu.edu

http://www.mne.psu.edu/simpson/courses/me546

ME 546 - Designing Product Families - IE 546

© T. W. SIMPSON

*These slides are adapted, with permission, from Prof. Olivier de Weck at MIT.

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MarketSegmentation

Mass Customization

PlatformStrategy

Manufacturing& Supply Chain

Strategy

ProductArchitecture

Regulations & StandardsCustomers:

PerceivedValue

ProductDesign

Competition:New Products

New Technologies

What Impacts Platform Strategy?

What Impacts Platform Strategy?

Blue Factors:-mainly internal

- have control over

?

?

?

?

Red Factors:-mainly external

- uncertain, no control

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The Need for Platform Strategy

The Need for Platform Strategy

• Competition: How to preempt or react quickly to new products from competitors?

• Customers: What product features do all customers value highly? What product features are requested infrequently?

• Technology: Can a product platform be designed such that new technologies can be “easily” infused?

• Regulations and Standards: Can a platform be design to anticipate or meet future regulations (e.g. fuel economy and emission standards in cars)?

Strategy: An adaptation or complex of adaptations (as of behavior, metabolism, or structure) that serves or appears to serve an important function in achieving evolutionary success. (Merriam-Webster, 2004)

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Poor Platform Strategy

Poor Platform Strategy

Source: R. J. Matson, St. Louis Dispatch, 7/17/2008

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ProductPlatforms

ProductionPlants

(Facilities)

VariantsModels

MarketSegments(Customers)

PlatformFamily Plan

ManufacturingPlan

MarketingPlan

to

maps maps

to

assignsPlatform APlatform BPlatform C

ChevroletMalibu

Saturn SL

determines

GMC TruckSierra 1500

places

chooses

in

SUV

PICKUP

SEDANPLANT APLANT BPLANT C

CorporateStrategy

Domain of Product Platform

An Enterprise Framework*An Enterprise Framework*

* Framework proposed by Dr. Olivier de Weck at MIT based on his collaborations with GM

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Product Architecture Business StrategyProduct Architecture Business Strategy

Product Portfolioor

Collection of Products?

Open Systems? Platforms?or

Cost-optimized Products

Organized to supportarchitectural directions?

(More than just an engineering question)

Does the system architecturematch the evolution of keyemerging technologies?

(e.g., the Internet?)

Does the system architecture match the evolution of key

surround business changes?(e.g., competing on cost or function?

Changing product distribution channels?)

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Starting AssertionsStarting Assertions

• Maximize profits …how? … offer family of diverse, competitive product variants, and minimize mfg cost

• Platform strategy = program of deliberate reuse of components and processes within a family How can commonality between products be quantified? commonality indices What components should be shared between products? expensive ones with little effect on variant distinctiveness What is the optimum amount of commonality? difficult to answer in general, depends on market, firm … moving target, changes dynamically from year-to-year

• Without competition, no need for variants, no need for platforms Ford Model T (one size fits all)

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Platform StrategiesPlatform Strategies

Usually start with a market segmentation grid

Low-End

Mid-Range

High-End

Luxury

Brand A Brand B Brand C Brand D

“MarketSegment”

VerticalLeveraging

BeachheadApproach

No Leveraging

HorizontalLeveraging

Which strategy is best in a particular situation ?

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Platform Portfolio ProblemPlatform Portfolio Problem

• How many platforms (N) are optimal to support (V) variants? Optimize Ratio V/N

• What is the optimal assignment of the V variants to the N platforms? Optimize assignment

• How to deploy the V variants across M target market segments? Optimize Market Segment assignment

• Determines Platform “Extent”

Platform Portfolio

ProductFamily

A Y Z Y Z C

GM

N~20

V~100

For large product families, need more than one platform

Ref also: Seepersad, Mistree, Allen, “A quantitative approach to designing multiple product platforms for an evolving portfolio of products”, 2002 ASME Design Engineering Technical Conferences, Paper No. DETC2002/DAC-34096

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Profit MaximizationProfit Maximization

Maximize product family profit, subject to investment cost constraints, by determining the optimal

- number of platforms N- assignment vector - platform design vector set- variant design vector set

1 2, ,...,T

V a

, ,...,T

Nx x x X

, ,...,T

P A B Vx x xX

,1

max PrV

i i PN

i

SV P C

Π Pa,X ,X

revenue cost

Sales volumeActual Sales Price

Total Cost

Sum over allV product variants

de Weck O., Suh E. S. and Chang D., ”Product Family and Platform Portfolio Optimization”, Paper DETC03/DAC-48721, Proceedings of DETC’03, 2003 ASME Design Engineering Technical Conferences, Chicago, Illinois, 2-6 September, 2003

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Product (Variant) Modeling Framework

Product (Variant) Modeling Framework

EngineeringModel

ArchitectureModel

ManufacturingModel

ValueModel

MarketModel

FinancialModel

Jperformance

Vvalue

P

Ddemand

price

Prnet profit

x

Ccost

design vector

ccomponents BOM

BOA

BOP maximize

requires 6 models

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Bi-Level Optimization MethodologyBi-Level Optimization Methodology

Variant Model

Variant Optimizer

Platform Optimizer

Platform Model

ipx iSV,X a

optimize for each N=1,2,…V

Pr

Steps

1. Create 6 models2. Split product

architecture into platform and variant components

3. Select N=1 platforms

4. Perform bi-level optimization for Pr

5. Set N=N+1 if N<V6. Repeat steps 4. and

5. until N=V

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Automotive Case Study (hypothetical)

Automotive Case Study (hypothetical)

What is the “optimal” platform strategy for a family with 7 variants ?• One product (vehicle) per market segment• Basic vehicle architecture is always BOF• Market segments operate independently• Competitors continue to offer the same• MSRP corresponds to actual sales price• Use 2001 database for North America• The platform consists of the chassis

LOWC

MDSD

LXSD

SPTR

SUV

VAN

UtilitySedans Sports

TRCK

Assumptions

low

mid

high

How many platforms?How to optimally assign variants to those platforms?

MarketSegmentationGrid

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Vehicle Data Set for Case StudyVehicle Data Set for Case Study

We are a (new) automotive manufacturer and wantto compete successfully in these market segments:

Symbol Name #vhc Size Mean PriceLOWC Compact Car 30 2,357,802 $13,427MDSD Medium Sedan 33 4,198,028 $19,844LXSD Luxury Sedan 65 1,591,438 $34,238SPTR Sports-Roadster 34 514,837 $23,424SUVC SUV 56 3,519,461 $25,146PUPT Truck 51 2,800,104 $22,805MVAN Van 24 1,589,958 $24,986 16,571,628

Total U.S. Market 2001 ca. 16.8 M/yearNew Vehicle Sales

Source: NIADA National Market Report - 2002

What is the right strategy?

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HT

body

Architecture ModelArchitecture Model

WB

WT

ED

chassis (common)

engine

TWB WT ED HTx

vehicle

Design Vector

Architecture

Chassis Engine Body

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Vehicle Design VectorVehicle Design Vector

(genotype = vehicle “DNA”)

DV=[ WB WT ED HT SF ]T

Example: DV=[ 108.2 61.3 2990 58 1.0 ]T

Platform Engine Body

PDV(k) =[ WB WT]T MDV(j) =[ ED ]

DV’ = [ k j 1400 1.0 ]

DV’’=[ 0 1 1 | 1 1 1 | 1 0 1 0 0 1 1 1 | 0 1 1 1 0 1 0 1 ]

encode decode

Units [in] [in] [ccm] [in] [-]

binary

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Engineering Model (e.g. WB to FE)

Engineering Model (e.g. WB to FE)

SUV

2000

2500

3000

3500

4000

4500

5000

5500

6000

90 100 110 120 130

Wheelbase [in]

Cu

rb W

eig

ht

[lb

s]

SUV

10

12

14

16

18

20

22

24

26

28

2000 2500 3000 3500 4000 4500 5000 5500 6000Curb Weight [lbs]

Fu

el E

con

om

y [m

pg

]

Instead of detailed CAD/CAE-simulation model:- Response Surface Modeling (RSM)- Neural Network Regression Models

x(1)=WB J(3)=FE

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Value ModelValue Model

AC - AccelerationHP - HorsePowerFE - Fuel EconomyPV - Passenger Vol.CV - Cargo Volume

LOWC MDSD LXSD SPTR SUV TRCK VAN

0.1 0.15 0.15 0.4 0.1 0.15 0.05 0.1 0.1 0.15 0.3 0.25 0.35 0.1 0.4 0.2 0.05 0.05 0.05 0.10 0.05 0.3 0.4 0.45 0.2 0.3 0.05 0.4 0.1 0.15 0.2 0.05 0.3 0.35 0.4

Preference weight matrix 0.15

1,

ijiw

(Perceived) Value = Aggregate performance relative to the market segment leader

Value=Relative

Performance

5

, ,1 ,

ˆi

j rel j i ji ML i

JV J w

J

RelativePrice ,

,

jrel j

ML j

MSRPP

MSRP

PerformanceVector J

Attributes

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Example SegmentsExample Segments

Compact Cars -Sales vs MSRP

$0

$5,000

$10,000

$15,000

$20,000

$25,000

0 100000 200000 300000 400000

Sales Volume

MS

RP

Sales Volume vs MSRP - SUVs

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

0 100000 200000 300000 400000 500000

Sales Volume

MS

RP

Compact Cars - LOWC Sports Utility Vehicles - SUV

Who are the leaders? HondaCivic Ford Explorer

Source: AutoPro

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“Sweet Spot” - Market Model“Sweet Spot” - Market Model

Relative Position w.r.t Leader - LOWC

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

$1.60

0.800 0.900 1.000 1.100 1.200

Value = Relative Performance

Rel

ativ

e P

rice

Pre

l

I - Contender

II - OverscopedIII - Noncompetitive

IV - Underscoped

Dw,i

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Demand Sensitivity CurveDemand Sensitivity Curve

Demand Sensitivity - MDSD

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

0.00 0.20 0.40 0.60 0.80 1.00

Weighted Distance from Leader Dw

Dem

and

= S

ales

Vo

lum

e

• Using common components (e.g. platforms) reduces design freedom• Reduced design freedom increases distance from the “sweet spot”• Sales Volume (Demand) drops as we increase the sweet spot distance• Demand Sensitivity Curve quantifies penalty due to platforming

,, 1i w i

w i

SV f DD

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Cost (Manufacturing) ModelCost (Manufacturing) Model

Market LeaderMSRP

VehicleCost

Frame Engine Body

45% 25% 30%

- x%

Include Learning Curve Effect

Total Product Family Cost:

Margins x%:LOWC 5%MDSD 10%LXSD 20%SPTR 15%SUV 15%Truck 25%Van 15%

1 ln(100 / ) ln 2

B

L

C TFU N

B S

# # #

, , , , , ,1 1 1

platform engines bodiesB B B

fam p i p i e i e i b i b ii i i

C TFU N TFU N TFU N

100%

100-x%

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Simulation/Optimization Framework

Simulation/Optimization Framework

i=1,..,7

nnetopt 1

opt 2

mkt

cost

platform

# of platforms

portfolio

Vehicle Level

Family Level

profit

Bi-Level Optimization Framework

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Resulting “Optimal” Platform Strategy

Resulting “Optimal” Platform Strategy

LOWC

MDSD

LXSD

SPTR

SUV

VAN

UtilitySedans Sports

TRCK

1 1 1 1 1 1 1 2 2 2 2 2 1 2 3 3 2 3 2 1 2 4 3 2 4 2 1 24 3 2 4 2 1 5 4 3 2 6 2 1 5 4 3 7 6 2 1 5

Incr

ea

sing

# o

f pla

tform

s

LOW

C

MD

SD

LXS

D

SP

TR

SU

V

TR

CK

VA

N

“Optimal” variant-platform assignment

matrix

Horizontal/Vertical No Levering

7/3=2.3 variantsplatform

1 2 3 4 5 6 7

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

Number of Platforms

Pro

duct

Fam

ily P

rofit

[B$]

VN

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Vehicle X1

Vehicle X2

Vehicle X3

Vehicle Y1

Vehicle A4

Vehicle C2

VehiclePlatforms Engine Suspension

ei1 ei2 ei3 ev2 ev3

Platforms BOM

CurrentVehicleFamily

sfl smp srs...

Newlyproposedvehicle

What is the “best fit” existing platform for this new vehicle ?

?Platform

consolidationproposal

??

What are the consequences of consolidating a platform?

Platform Strategy EvolutionPlatform Strategy Evolution

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Architecture Progression: 2003 to 2013

Architecture Progression: 2003 to 20132003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 DM -------------------------DM -------------------------DM -------------------------DM -------------------------DM -------------------------DM -------------------------DM -------------------------DM -------------------------DM -------------------------DM -------------------------DM 112 DT -------------------------DT -------------------------DT -------------------------DT -------------------------DT -------------------------DT -------------------------DT -------------------------DT -------------------------DT --X Punto/Gamma -------------------------Punto/Gamma 213 S-GME -------------------------S-GME --X Punto/Gamma -------------------------Punto/Gamma -------------------------Punto/Gamma -------------------------Punto/Gamma -------------------------Punto/Gamma -------------------------Punto/Gamma -------------------------Punto/Gamma DJ --X Delta 314 DJ -------------------------DJ -------------------------DJ -------------------------DJ -------------------------DJ -------------------------DJ -------------------------DJ -------------------------DJ -------------------------DJ Delta T-GME 415 Delta -------------------------Delta -------------------------Delta -------------------------Delta -------------------------Delta -------------------------Delta -------------------------Delta -------------------------Delta -------------------------Delta T-GME V200 516 T-GME -------------------------T-GME -------------------------T-GME -------------------------T-GME -------------------------T-GME -------------------------T-GME -------------------------T-GME -------------------------T-GME -------------------------T-GME V200 Epsilon 617 V200 -------------------------V200 -------------------------V200 -------------------------V200 -------------------------V200 -------------------------V200 -------------------------V200 -------------------------V200 -------------------------V200 Epsilon Premium P 718 J-GMNA -------------------------J-GMNA --X Epsilon -------------------------Epsilon -------------------------Epsilon -------------------------Epsilon -------------------------Epsilon -------------------------Epsilon -------------------------Epsilon Premium P W/MS2000 819 Epsilon -------------------------Epsilon Premium P -------------------------Premium P -------------------------Premium P -------------------------Premium P -------------------------Premium P -------------------------Premium P -------------------------Premium P W/MS2000 Sigma 91

10 N/P90 --X W/MS2000 -------------------------W/MS2000 -------------------------W/MS2000 -------------------------W/MS2000 -------------------------W/MS2000 -------------------------W/MS2000 -------------------------W/MS2000 -------------------------W/MS2000 Sigma V-GME 10111 W/MS2000 Sigma -------------------------Sigma -------------------------Sigma -------------------------Sigma -------------------------Sigma -------------------------Sigma -------------------------Sigma -------------------------Sigma V-GME Y 11112 Sigma V-GME -------------------------V-GME -------------------------V-GME -------------------------V-GME -------------------------V-GME -------------------------V-GME -------------------------V-GME -------------------------V-GME Y Theta 12113 V-GME G -------------------------G -------------------------G -------------------------G -------------------------G -------------------------G --X Y -------------------------Y Theta New S/T 13114 G Y -------------------------Y -------------------------Y -------------------------Y -------------------------Y -------------------------Y H/P -------------------------H/P --X New S/T Lambda 14115 Y H/P -------------------------H/P -------------------------H/P -------------------------H/P -------------------------H/P -------------------------H/P Theta -------------------------Theta Lambda C/K 15116 Theta -------------------------Theta -------------------------Theta -------------------------Theta -------------------------Theta -------------------------Theta -------------------------Theta New S/T -------------------------New S/T C/K Gvan 16117 Uvan -------------------------Uvan -------------------------Uvan -------------------------Uvan -------------------------Uvan -------------------------Uvan --X New S/T Lambda -------------------------Lambda Gvan118 Old S/T -------------------------Old S/T --X New S/T -------------------------New S/T -------------------------New S/T -------------------------New S/T Lambda C/K -------------------------C/K119 New S/T -------------------------New S/T C/K -------------------------C/K Lambda -------------------------Lambda C/K Gvan -------------------------Gvan120 M/L -------------------------M/L --X Gvan -------------------------Gvan C/K -------------------------C/K Gvan121 C/K -------------------------C/K Gvan -------------------------Gvan122 Gvan -------------------------Gvan1

Legend:

"-----------" = Architecture continuesBold = first use of a New Architecture"--X " = last use of an Architecture

* = Architecture not sold in the USEpsilon Does not includes the Premium [Epsilon] Platform: added as separate

V-GME includes the Holden VH

Old S/T supports the GMT-325 pickups & 330 SUVs

New S/T supports the GMT-360 & 370 SUVs, & 305 SUTs

Theta supports the GMT-315 & 318 SUVs

H/P supports the GMT-355 pickups & 345 SUVs

Kappa Cancelled; ("Blue Car")

? = Not sure of Architecture plan

Timeline is in Model Years

Reducing the number of architectures,while maintaining or increasing the number of models (variants)

Architecture “bandwidth” must increase, but how, where ?