# How Traditional Costing Methods Hinder the Development of Modular Product Architectures
## 3 Literature Review
### Economic Benefits and Effects of Modular Product Architectures  
Within the subjects of product architectures, modular-based product structures, mass customization, and product commonality are various methods, tools, and frameworks that have been developed to provide a wide array of external product variety while controlling, maintaining, or reducing internal variety [13; 34; 49]. Reducing or maintaining the complexity stemming from product variance can also be viewed as a decluttering of products and processes [13]. The list of benefits following the implementation of modularization methods found in the literature is long, as illustrated by [PERSON] et al. [15]. Their IMF is a qualitative knowledge base that systematically identifies the economic impacts of modularity across different life-cycle phases. These effects can potentially create economic savings by reducing component variety [50], increasing component reuse [51; 52], reducing lead times [53; 54; 55], creating less variety in the production process [56; 57; 55], and reducing tool investment in production [58; 55; 59]. All of these effects can be traced back to the properties of modularity [15; 23]. However, the literature primarily describes the impacts of modular-based product structures through qualitative studies. It is thus difficult to give an accurate quantitative estimate of the cost of variation following these methods [60]. Furthermore, the rising product complexity and numerous design decisions make implementing and maintaining modular architectures challenging [61]. The lack of quantitative economic models is due to the fact that implementing an integrated financial planning model is a comprehensive challenge, as it should account for all the life-cycle effects of modularization to provide accurate measures [16]. More recent studies from the MA field support this point, suggesting that existing costing methods are not suitable for decision support in modular product development from a cost accounting perspective [20; 62]. Hence, existing accounting systems and practices are not designed to accurately assess the economic benefits of modularity from a full life-cycle point of view [5; 20], and they do not support the separation of the various cost elements [27; 47]. Building on this argument, modular structures often face a disadvantage during economic assessment because existing studies typically only consider a portion of the product portfolio, limiting resource scope and utilization. The whole product program must be included when evaluating the effects of modularization, not only individual effects on a specific product but also the combination of all impacts across the entire product portfolio [20]. A recent study investigating the different modeling approaches for supporting architectural decision-making concluded that the majority of approaches do not cover all aspects of the system [63]. This means that previously conducted studies, which examine only individual cost effects, may yield statements with limited validity, asserting results that suggest a monetary disadvantage for modular product structures [9; 10; 64]. Almost no studies have quantitatively proven the economic benefits of modular product design [20; 65; 66]. However, as mentioned previously, several methods have been used to document the economic benefits of modularization qualitatively through case studies on both a short- and long-term basis [4; 21; 29] or through the reviewed literature [10; 15]. This may pose a challenge for designers in making informed product decisions on modular product architectures, as they rely on an incomplete picture of the total cost of a product variant. Design choices are typically based on direct costs, often overlooking indirect costs and their impact across the company's value chain [42]. The indirect cost, as part of the overhead costs, will often be non-transparent, meaning that it cannot be explicitly allocated to a product level or below.