Modularity and operational efficiency in engineer to order companies: a study in the machine tool industry

Engineer-to-order (ETO) firms design and manufacture products according to customers’ orders. As such, they induce a high level of variety in production, which makes the management of their operations particularly complex. This complexity, coupled with increasing competitive pressure, led many ETO firms to leverage product modularity to improve their operational efficiency. Extant literature on the impact of modularity on operational performance in ETO firms is mainly focused on construction and neglects other relevant sectors. Existing studies, however, point to a potentially positive impact of modularity on products and processes in ETO. First, although ETO companies using modularity create lower variety, they are more efficient than ETO companies that provide fully tailor-made solutions. Second, modular design may decrease the risk of misunderstanding customers’ needs, thus preventing reworks. Third, the reuse of designs among many customer orders can reduce engineering lead times and their variability. Fourth, modularity makes production activities more decoupled and allows task parallelization. Finally, modularity can improve scale economies in purchasing and production. In this paper, we choose an exploratory, inductive approach, and focus on ETO machine tools production, a highly relevant sector for the Italian economy. In particular, we deal with the question: how can modularity impact the operational performance of ETO machine tool producers? To answer this question, we conduct expert interviews in seven ETO machinery companies in Northern Italy. We integrate the key insights from the interviews into a causal map that illustrates how ETO machine tool producers can leverage modularity to improve their operational performance, in particular their delivery times. We also highlight the importance of our research for practitioners and for academics.