Optimizing module upgrade decisions to maximize profits

Abstract

With rising market competition, organizations unceasingly strive to improve product offerings by adopting a modular product architecture. Modular product development (PD) is concerned with decisions to upgrade product modules that improve product value by enhancing one or several critical-to-value (CTV) attributes. CTV attributes are, in turn, controlled by the (technical) design decisions made at the module level. Here, an optimization model is presented to help PD managers choose the optimal subset of module upgrades from a large set of potential upgrades to maximize profits. The model is unique in considering the influences of the product architecture and product value on the selection of optimal modular upgrades. While some CTV attributes are discrete in nature, signifying the existence or absence of a product feature, others are continuous over a given range so that the level of desired improvement needs to be specified. The model can be used for both types (discrete and continuous) of attributes. The model is validated using a case study of a small-sized solar water-heating manufacturer. The case study demonstrates the complexity of modular PD decisions, regardless of the size of the investment project, and the effectiveness of the proposed model in the realization of potential profits. © 2020, Springer-Verlag London Ltd., part of Springer Nature.