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Zhaga gets smart - Section 2 - Zhaga aims to remove arbitrary variation

Posted on Thursday October 6 2016, by Zhaga

This article was published in the Proceedings of the 2016 LED Professional Symposium+Expo (September 2016).

Author: Dee Denteneer, Secretary General, Zhaga Consortium

Introduction and index

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Driven by customer demand, competition, and evolving technology, we have witnessed an ever-growing product variety in many industries, including lighting. While variety and choice is essential to gaining the favour of the customer, this is also a source of cost for the industry. Indeed, as shown in many empirical studies, companies reap lower benefits than expected because of the hidden costs that come with managing diversity [2].

The direct costs associated with variety are often easily quantified, and comprise factors such as capital equipment, engineering hours and new suppliers. Meanwhile, there are also many indirect costs associated with variety, such as logistics, quality assurance, set-up times, and various inventory issues [2].

One of the key tools to drive down the costs that come from the product variety is standardization. In the words of K. Ramdas [3], “… a key element of variety-creation strategy is identifying physical or augmenting features that do not drive differentiation...and reducing variety among these dimensions”.

This brings us right to the heart of the Zhaga mission. Zhaga develops interface specifications that remove arbitrary and unnecessary variation in various properties, such as physical dimensions. This can be illustrated in Figure 1. At a given point in time, the left panel shows an imaginary component, characterized by two non-differentiating parameters. The position of the dots indicates the values of the parameters for different products available in the market, while the size of the dots indicates the number of manufacturers supporting these values. Left to itself, the industry will introduce ever more variety and will drifts towards a state of increasing entropy. This is illustrated in the top right-hand panel of Figure 1. Here, we see an unguided industry that introduces arbitrary variation, and each of the variants has relatively little support in the industry.

With Zhaga on the other hand, the industry has a tool to combat this drift towards higher states of entropy. Depicted in the lower right-hand panel is a state in which Zhaga has achieved its purpose. Here, the lighting industry stakeholders have joined forces to rationalize the product portfolio by removing arbitrary variation. What is left is a state with fewer variants, each supported by a larger number of suppliers.

The benefit of standardization is different for different players in the value chain. For example, for luminaire makers, standardization will specifically target the indirect costs that go with variety as listed above; namely supplier and inventory management. Standardization also introduces options for later-stage differentiation, which is also key in managing product variety efficiently.

Component manufacturers, on the other hand, will be better able to benefit from the economies of scale that go with mass production. They can also concentrate on non-standardized parameters to differentiate themselves in the market (e.g. performance parameters, or quality and reliability) [4]. These cost reductions have been well studied in e.g. automotive [5] and printing [6] industries; published case studies for the LED industry seem missing to date.

The success of the Zhaga program hinges to a large extent on the proper selection of the parameters for standardization. Following [3], the standardized, thus restricted, parameters should not drive differentiation and should be irrelevant for the customer, whatever his position in the value chain. Therefore, standardization should not restrict parameters that are the main focus of today’s innovation drive.

For Zhaga, the implication has been that Zhaga mainly focuses on mechanical and electrical parameters, such as mechanical dimensions and contact positions. Evidently, the parameters selected for standardization reflect the state of the technology, and the selection may change over time. Additionally, specific use cases may impact the parameters selected for standardization. We will return to this topic in Section 5.

We now turn to the Zhaga mission in action and illustrate two ways in which Zhaga combats arbitrary variation. Firstly, by providing market analysis, and removing arbitrary variation. Secondly, by providing forward guidance, and preventing arbitrary variation.

Figure caption
Figure 1: Left to themselves, without standardization, industries drift towards states of high entropy, introducing arbitrary variation in many less relevant parameters. In the lighting industry, Zhaga is the force to counter this drift, leading to greater efficiencies.

[2] Design for variety: development of complexity indices and design charts by M. Martin and K Ishii, Proceedings of ASME Design Engineering Technical Conference, 1997.
[3] Managing product variety: An integrative review and research directions by K. Ramdas, Production and Operations Management, 2003.
[4] Economies of scale in theory and practice by A. Silberston, The Economic Journal, 1972.
[5] Component sharing in the management of product variety: A study of automotive braking systems by M Fisher, K Ramdas, and K Ulrich, Management Science, 1999.
[6] Mass customization at Hewlett-Packard: the power of postponement by E. Feitzinger and H. Lee, Harvard Business Review, 1997.