Decreasing product variety-driven costs: The view point from complexity management and component commonality in batch-process context

The case company suspected it had too many products variants for its inner customers in contrast to the inflexible batch process production. Literature recognizes the negative effect of product variety on economic and operational performance in batch process industry. Component commonality is a way to decrease variety and recognized as a cost reducing method, although lacking ways to find potential targets. In contrast, complexity management is useful for reasoning what is causing product driven complexity, but too abstract for cost analysis. The objective of this study is to analyze the cost effect of product driven complexity by recognizing potential targets and ways to decrease these complexity costs. This can be achieved by combining complementary theories about complexity management and component commonality, in order to calculate the cost effect of decreasing complexity. The thesis is an interventionist case study analyzing the cost effect of component commonality. The research was an iterative process reflecting between theory and case context, in order to investigate the effect of product variety on the case company performance and consequently a potential cost effect of decreasing the variety i.e. product-driven complexity costs. Paper mill conducted research in addition provided qualitative and quantitative data about the subject throughout the process as well as other units of the company. As a result, the thesis recognized the most potential product attribute to decrease excess complexity that was not driven by customer. The decreased complexity turned into costs in following fields; longer production runs, lower inventory level and positive effect on cost driver use. More speculative cost effects supported by theory could supplement these direct cost effects. Results support the literature view on effect of increasing product variety and opposite effect of component commonality. Contribution to literature based on combining component commonality and complexity management itself and bringing these theories into a context of batch process industry and two-stage value chain. These two theories resulted not only better understanding about the cost effect, but also how complexity can be managed better in value chain. This means eliminating excess internal complexity, balancing between internal and external complexity and pushing the point of differentiation late as possible. In the end, the product design decisions are linked to the competitive advantage of the case company