Facing an age of high product variety and mass customization, enterprises need to rethink product design (the source of the value chain) in order to create competitive products. In this study, we have first tried to build an analytical framework of modularity by way of a literature review including product structure; function module; product family and modularity. We also discuss the technological and organizational conditions especially in terms of the interaction between product modularity and organizational modularity. Basing on case study of three important machine tool enterprises, we identify the application of modularity in Taiwan's machine tool industry. This study finds that there are a number of characteristics in the modularity application in Taiwan's machine tool industry. (1) Modularity application focused on function module in product main structure. (2) Product family concept in development is in the beginning stage. (3) Specialized module supplier has appeared in industry. (4) Decentralized supply network is not matured yet. (5) Industry competitiveness driven with architecture has evidenced. This study finds that there are a number of correlation and dynamic changes between product modularity and organizational modularity. In addition, we also find that Taiwan's machine tool industry development direction to modularized structure is undergoing and these concepts are currently bringing a number of structural essence changes to product design and supply networks.
