A new report from management consultancy Arthur D. Little warns that rising product portfolio complexity is quietly eroding profitability in the manufacturing sector, constraining digital growth, and limiting operational flexibility.
The study, Rise of Complexity in Manufacturing, highlights that companies must take decisive action to simplify their offerings and leverage modularisation to stay competitive.
“Unchecked complexity is a silent profitability killer,” the report states. “With resources limited and markets increasingly commoditised, companies must reduce product portfolio complexity to drive profitability and innovation.”
Manufacturers often expand product variants to meet customer demand, but without systematic portfolio pruning, these efforts generate hidden costs. Non-customer-facing complexity such as outdated products, excessive SKUs, and intricate internal processes can slow development, reduce scalability, and impede time to market.
The report identifies four key challenges for manufacturers: maintaining profitability amid market commoditisation, differentiating through digital solutions, ensuring supply chain resilience, and balancing legacy systems with emerging technologies such as new materials, battery-powered engines, or alternative fuels.
Arthur D. Little recommends a data-driven approach to complexity, starting with measuring the cost of complexity (CoC) across product lines and functions. A monetary proxy for CoC can capture inefficiencies in development, manufacturing, warehousing, and support, helping firms identify underperforming products for phaseout.
Strategic modularisation is highlighted as a crucial tool for managing complexity. By designing standardised, interchangeable product modules, manufacturers can simplify portfolios, accelerate time to market, and reduce costs while enabling cost-effective customisation.
The report cites Electrolux, which cut component numbers by 40% and reduced development time by 30% through modular design, and Siemens, which applied modularity to its industrial automation systems, reducing design time by 40% and improving scalability.
Arthur D. Little stresses that complexity reduction requires more than technical solutions: it demands cross-functional coordination, strong governance, and a cultural shift away from short-term gains. Companies must embed modular principles in product development, eliminate low-performing products, and ensure that both hardware and software systems are designed with simplicity in mind.
“Reducing product portfolio complexity is not a technical fix — it is a strategic transformation,” the report concludes. “By making complexity measurable, pruning underperforming products, and embedding modular design, manufacturers can release trapped value, improve speed to market, and build more resilient operations.”
The consultancy urges manufacturers to act decisively now, turning awareness of complexity into structured strategies for long-term profitability and innovation.
Can complexity erode manufacturing profits?
