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Understanding the Magic of Lean Product Development
JAOO 2010Århus, DanmarkOctober 4, 2010
Donald G. ReinertsenReinertsen & Associates
600 Via Monte D’OroRedondo Beach, CA 90277 U.S.A.
(310)-373-5332Internet: [email protected]
www.ReinertsenAssociates.com
No part of this presentation may be reproduced
without the written permission of the author.
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Any sufficiently advanced technologyis indistinguishable from magic.
– Arthur C. Clarke
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Lean Manufacturing
• Lean Manufacturing is a best practice.
• Best practices lead to superiorperformance.
• Why not adopt these best practices inproduct development?
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The TPS Emergency Room
• We desire to rigorouslyimitate the practices ofToyota.
• All arriving patientswill be processed on aFIFO basis.
• We will stop admittingwork when we reachour preset WIP limit.
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Thus, since the Toyota ProductionSystem has been created from actualpractices in the factories of Toyota, ithas a strong feature of emphasizingpractical effects, and actual practice andimplementation over theoreticalanalysis.
– Taiichi Ohno
From Foreword to 1983 FirstEdition of Toyota ProductionSystem by Yasuhiro Monden,
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Turning Magic into Technology
LPD1 LPD2
• Repetitive Tasks• Low Variability• Homogenous Flows
Queueing Theory
Traffic Flow Theory
Computer OS Design
Maneuver Warfare
The Internet
Lean Manufacturing
Toyota
• Non-Repetitive Tasks• High Variability• Non-Homogenous Flows
DOMAIN
Use Some Ideas ofLean Manufacturing
Add Concepts and Sciencefrom other Domains+
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Queueing Theory
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Hvem er jeg?
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Alle har mødt Erlang meningen ved rigtig hvem har er!Det skyldes, at de berømtefircifrede logaritmetabeller,som fleste har brugt iskolerne, baerer Erlangsnavn.
Det, han virkelig blevverdensberømt for, varteletrafik-teorier.
– Bjarne Kousholt
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Traffic at rush hourillustrates the classiccharacteristics of aqueueing system.
Ph
oto
Co
pyri
gh
t 2
00
0 C
om
sto
ck, In
c.
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The Effect of Capacity Utilization
Note: Assumes M/M/1/Infinite Queue
Queue Size vs. Capacity Utilization
0
5
10
15
20
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Capacity Utilization
Qu
eue
Siz
e
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Total Cost
Cost of Delay
Cost of E
xcess Capacity
Economics of Queues
Excess Product Development Resource
Dollars
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Batch Size
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Setting Batch SizeEconomic Batch Size
0
5
10
15
20
25
1 2 3 4 5 6 7 8 9 10
Items per Batch
Cost
Transaction Cost Holding Cost Total Cost
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CheaperCorrection
CheaperDebug
Lower CostChanges
BetterEconomics
Fewer StatusReports
Faster CycleTime
EarlyFeedback
Faster Learning
Less RequirementsChange
Less DebugComplexity
More EfficientDebug
CheaperTesting
Less Non-Value-Added
BetterCode
FewerOpenBugs
More Uptime
Higher Validity
SmallerChanges
Benefits of Small Batch Testing
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WIP Constraints
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Little’s Famous Formula
λ
λ
=
=
=
=
Rate Departure Average
Queue in Customers of Number Average
Queue in TimeWait Average
q
q
q
q
L
W
LW
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Visual WIP Boards
ReadyQueue Coding
Readyto Test Testing
TestComplete
A D
E
C
B
WIP Constraint = 10 units
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Arrivals
Departures
Time in Queue
Quantityin Queue
QueueTime
CumulativeQuantity
Cumulative Flow Diagram
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1 6 11 16 21 26 31 36 41
Arrivals Departures
Time 21: 400Passengers Arrive,
Queue up 5xby Time 22 Time 41:
Cycle Timeup 2x
CumulativeQuantity
• Queues give instant indication of a problem.• This is very important when problems age poorly and when fastresponse times matter.
Control Queues Not Cycle Time
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SynchronizedCadence
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Fixed
Variable
Interval
Train Length
Variable
Fixed
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Cadenced Purchasing Availability
BEFORE
• One buyer willsupport you with 10percent of his time.
AFTER
• Buyer will be at deskin team area from 8:00AM to 9:00 AM daily.
• During this period hishighest priority issupporting yourproject.
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Asynchronous Processing
1 2 3 4 5 6 7
THE THEORY
• With the new IT system we can tell exactly who has eachECR at any point in time.
• Work could be done instantly instead of waiting for ameeting.
• 40 day Processing Time• Low First Pass Yield• High Processing Cost
THE REALITY
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Variability
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Taking Rational Risks
Stakes Payoff Probability EMV Bet?
$15,000 $100,000 50% $35,000 ?
$15,000 $20,000 90% $3,000 ?
$15,000 $16,000 100% $1,000 ?
We cannot maximize economic value byeliminating all bets with uncertain outcomes.
Choice
A
B
C
EMV=Expected Monetary Value
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Payoff vs. Price
Price
Pay
off
Expected Price
Price
Pro
bab
ilty
Asymmetric Payoffs and Option Pricing
Strike Price
Expected Payoff
Price
Exp
ecte
d
Pay
off Strike
Price
x
=
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Sequencing
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Queueing Disciplines
• FIFO
• Highest Profit (or ROI/IRR/EVA) First(HPF)
• SJF (FCFS)
• High Cost of Delay First (HDCF)
• Minimum Slack Time First (MSTF)
• Weighted Shortest Job First (WSJF)
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Fast Feedback
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Front-Loaded Two Digits at Same Time
Buy Second Digit After Receiving Feedback
Pay $2
Make Nothing
Make $200
99%
1%
ExpectedPayoff: Zero
Pay $1Make Nothing
Pay $1
90%
10%
ExpectedPayoff: $0.90
Make Nothing
Make $200
9%
1%
The Value of Feedback
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The Importance of Math
• There are underlying mechanisms ofaction behind lean methods.
• These mechanisms can be used in LPD.
• These methods affect more than onemeasure of performance, so tradeoffs arenecessary.
• This requires that you use a common unitof measure for your decisions.
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Economics
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Making Economic Decisions
Waste
Cycle Time
Variability
Efficiency
Unit Cost
Value-Added
Revenue
Life CycleProfits
Economic SpaceProxy Variable Space
Transformations
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The Modeling Process
Create Baseline Model
Determine Total Profit Impact of Missing a MOP
Calculate Sensitivity Factors
ModelExpenseOverrun
ModelSchedule
Delay
ModelValue
Shortfall
ModelCost
Overrun
ModelRisk
Change
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The Model Output
Life-Cycle Profit Impact
-$80,000
-$500,000
-$100,000-$150,000
-$40,000
1 PercentExpenseOverrun
1 PercentProduct Cost
Overrun1 Percent Value
Shortfall 1 Month Delay1 Percent
Increase in Risk
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Range of Cost of Delay Estimates
Poor Intuition
Average Intuition
Best Case Intuition
Average Analysis
Quality Analysis
Any Analysis Beats Intuition
200:1
50:1
10:1
2:1
1.2:1
Source: Reinertsen & Associates Clients
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Example: The Goal of Conformance
Performance
Target
Actual 101%
90%
FeatureA
FeatureB
Correct thePerformance Gap
Actual
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Marginal Economics
Value Value
CostCost
PerformancePerformance
$ $
Feature A Feature B
Target Actual Target Actual
?
Should our goal be to optimize conformance,or to make good economic choices?
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Decentralizing Control
Engineer Supervisor ProgramManager
Boeing 777 Weight Reduction Decision Authority
$300
$2,500
$600
Dollars per Pound
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1991 / 1997 1997 2009
Going Further
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Seminars in Scandinavia
Copenhagen: November 29-30, 2010
Stockholm:December 2-3, 2010