Modular production in automotive Tier 1 suppliers can be defined as a manufacturing approach where products are divided into functional modules, completed in separate processes, and finally assembled into the finished product. For SAP implementation projects, this means that BOM design, process engineering, traceability, and OEM integration must be designed as a unified model from the outset.
While most core capabilities can be implemented using SAP S/4HANA Private Edition and SAP Manufacturing Cloud, practical experience suggests that module configuration rules and OEM-specific requirements often require extensions.
[Source: https://assimee.com/glossary/モジュール生産/]
Why Modular Production Must Be Addressed Now
Modular production is described as a manufacturing method where products are divided into functional units (modules), produced independently, and assembled at the final stage. This represents a simultaneous transformation of both product design and process design.
In the Japanese automotive industry, it is also recognized as a model where OEMs delegate entire functional units to suppliers, shifting Tier 1 suppliers from component providers to functional responsibility holders.
For SAP implementation project managers, this is not merely a manufacturing execution topic. It fundamentally impacts:
- Product architecture
- Responsibility boundaries
- Cost management
- Quality assurance
- Supply accountability
If these are not clearly defined during requirements definition, inconsistencies will emerge in:
- BOM hierarchy
- Production order granularity
- Actual data collection units
- Inventory valuation levels
[Source: https://waseda.repo.nii.ac.jp/record/25055/files/KenkyuShiryoShirizu_2_Dai4Sho.pdf]
Definition and Objectives of Modular Production
Key benefits of modular production include:
- Improved production efficiency
- Enhanced quality
- Shortened lead times
- Cost reduction
- Better maintainability
- Support for product variety
The objective is not simply faster assembly, but achieving both product variety and competitiveness through standardization and reuse.
Another perspective highlights that modularization enables common components to be reused across multiple products, leading to:
- Reduced production costs
- More efficient inventory management
This directly explains why SAP projects must design:
- Material master structures
- Standardized BOMs
- Common component governance
- Costing logic
in an integrated manner.
[Source: https://mitsu-ri.net/articles/module]
Tier 1 Application Model
Tier 1 suppliers are defined as companies that directly supply OEMs and are responsible for developing and manufacturing critical automotive components such as engines, transmissions, and electrical systems.
In a modular production context, Tier 1 suppliers deliver not just parts, but functionally guaranteed subsystems.
Typical examples include:
- Cockpit modules
- Electrical modules
- Front-end modules
- Powertrain-related units
These modules are produced independently and assembled based on OEM specifications. Therefore, SAP systems must manage:
- Finished product BOMs
- Module-level BOMs
- Manufacturing and traceability histories
[Source: https://www.peaks-media.com/9665/]
Key Considerations for SAP PMs
From a project management perspective, the following four points must be clarified early:
- What defines a module: functional unit, supply unit, or cost object?
- Where OEM-specific variations are absorbed: engineering BOM, manufacturing BOM, final assembly, or pre-shipment configuration?
- What level of traceability and quality assurance is required at the module level?
- How to synchronize design changes and supply coordination with Tier 2 and lower suppliers?
A critical insight is that modular production resembles building with blocks, implying that:
- BOM hierarchy and process hierarchy sometimes should align
- In other cases, they should be intentionally separated
In SAP template design, engineering modules and manufacturing modules do not always match. Clearly distinguishing these as business requirements is essential for project success.
[Source: https://www.jstage.jst.go.jp/article/sisj1986/2003/18/2003_18_41/_pdf/-char/ja]
Areas Well Covered by SAP Standard
Using SAP S/4HANA Private Edition and SAP Manufacturing Cloud, the following areas are typically well supported:
- Module material master
- BOM management
- Routing and production orders
- Inventory management
- Costing
- Basic production data collection
Managing modules as semi-finished goods or subassemblies and assembling them into finished products aligns naturally with modular production principles.
Additionally, producing modules in separate lines or processes fits well with SAP Manufacturing Cloud capabilities for:
- Line-level tracking
- Progress monitoring
- Defect management
From a PM perspective, standardization across four axes is key:
- Materials
- Processes
- Execution data
- Inventory
Areas Likely Requiring Extensions
The following areas often require Add-ons or SAP BTP extensions:
- Module configuration and combination rules
- OEM-specific constraints
- Detailed intra-module traceability
- Collaborative workflows with external suppliers
Modularization is also described as a tool to enable multiple configurations that enhance customer value, which goes beyond simple BOM management.
SAP architecture also indicates that S/4HANA Private Edition integrates with:
- ABAP Cloud environments
- SAP HANA Cloud
- Kubernetes-based services on SAP BTP
Therefore, planning extensions on SAP BTP is a practical and recommended approach.
PMs must clearly define the boundary between:
- Fit-to-standard scope
- Extension requirements
at an early stage.
[Source: https://www.modularmanagement.com/ja/blog/]
Recommended Approach in SAP Projects
Modular production should not be deferred in SAP projects. It should be addressed during:
- Strategy phase
- Early Explore phase
At minimum, the following must be defined before PoC:
- Module definition
- BOM hierarchy
- Manufacturing responsibility scope
- Integration points with OEM orders
- Traceability granularity
- Boundary between standard and extensions
In simple terms:
Implementing modular production in SAP is not just about manufacturing—it is about implementing product structure and responsibility architecture.
Understanding this distinction clarifies the roles of:
- SAP S/4HANA Private Edition
- SAP Manufacturing Cloud
and significantly increases the likelihood of project success.
Summary
Modular production in automotive Tier 1 fundamentally reshapes how products, processes, and responsibilities are structured. For SAP implementation PMs, success depends on treating it as a holistic design challenge across BOM, processes, costing, and supply chain integration, rather than a narrow manufacturing topic. Early alignment on module definitions, OEM integration, and extension strategy is essential to avoid downstream inconsistencies and ensure a scalable, future-ready architecture.
Reference Links
- Modular Production Overview (Assimee)
https://assimee.com/en/glossary/modular-production/ - Modular Production in Automotive Industry (Waseda University Repository)
https://waseda.repo.nii.ac.jp/en/record/25055/files/KenkyuShiryoShirizu_2_Dai4Sho.pdf - Modular Manufacturing Explained (Mitsu-ri)
https://mitsu-ri.net/en/articles/module - Tier 1 Automotive Supplier Overview (Peaks Media)
https://www.peaks-media.com/en/9665/ - Modular Design and Production Concept (J-STAGE)
https://www.jstage.jst.go.jp/en/article/sisj1986/2003/18/2003_18_41/_pdf - SAP S/4HANA Cloud, Private Edition Documentation (SAP Help Portal)
https://help.sap.com/docs/cloud-alm/setup-administration/sap-s4hana-cloud-private-edition - Modularization Strategy and Configuration Management (Modular Management)
https://www.modularmanagement.com/en/blog/what-you-need-to-know-about-modularization
Disclaimer
Parts of this article were developed with reference to generative AI suggestions and were reviewed, refined, and supplemented based on the author’s professional expertise and judgment.
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