The problem is not the portfolio expansion, but the extra complexity. Expanding the portfolio, without additional complexity, will always give higher margins. A critical complexity indicator is the level of reuse and switchability of components within the bills of materials (BOMs) that form the offering. We call this critical KPI the BOM similarity index or SI for short.
A low or degrading SI is a strong indication that costs are going up due to the component’s proliferation. A high SI points to superior levels of reuse and switchability, which is conducive to efficient supply chains and lower material costs. Elevated BOM similarity is also an indication of superior, modular product architecture.
Luzio helps companies define and understand product line complexity to reduce part count and maintain consistency among the different iterations of a product or service across any given number of applications and markets. It means that companies can sell different variations of the product or service without making extensive changes to fewer basic designs. It also means fewer vendors and ease of manufacturing and assembly.
BOM Similarity Index
Direct Material Optimization
Supply Chain Rationalization
Design for Manufacturing & Assembly (DFMA)