Understanding the Magic of Lean Product Development JAOO 2010 Århus, Danmark October 4, 2010 Donald G. Reinertsen Reinertsen & Associates 600 Via Monte D’Oro Redondo Beach, CA 90277 U.S.A. (310)-373-5332 Internet: [email protected]www.ReinertsenAssociates.com No part of this presentation may be reproduced without the written permission of the author.
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Understanding the Magic of Lean Product Development
Any sufficiently advanced technologyis indistinguishable from magic.
– Arthur C. Clarke
3
Lean Manufacturing
• Lean Manufacturing is a best practice.
• Best practices lead to superiorperformance.
• Why not adopt these best practices inproduct development?
4
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.
5
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,
• Non-Repetitive Tasks• High Variability• Non-Homogenous Flows
DOMAIN
Use Some Ideas ofLean Manufacturing
Add Concepts and Sciencefrom other Domains+
7
Queueing Theory
8
Hvem er jeg?
9
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
10
Traffic at rush hourillustrates the classiccharacteristics of aqueueing system.
Ph
oto
Co
pyri
gh
t 2
00
0 C
om
sto
ck, In
c.
11
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
12
Total Cost
Cost of Delay
Cost of E
xcess Capacity
Economics of Queues
Excess Product Development Resource
Dollars
13
Batch Size
14
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
15
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
16
WIP Constraints
17
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
18
Visual WIP Boards
ReadyQueue Coding
Readyto Test Testing
TestComplete
A D
E
C
B
WIP Constraint = 10 units
19
Arrivals
Departures
Time in Queue
Quantityin Queue
QueueTime
CumulativeQuantity
Cumulative Flow Diagram
20
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
21
SynchronizedCadence
22
Fixed
Variable
Interval
Train Length
Variable
Fixed
23
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.
24
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
25
Variability
26
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
27
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
=
28
Sequencing
29
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)
30
Fast Feedback
31
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
32
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.
33
Economics
34
Making Economic Decisions
Waste
Cycle Time
Variability
Efficiency
Unit Cost
Value-Added
Revenue
Life CycleProfits
Economic SpaceProxy Variable Space
Transformations
35
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
36
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
37
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
38
Example: The Goal of Conformance
Performance
Target
Actual 101%
90%
FeatureA
FeatureB
Correct thePerformance Gap
Actual
39
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?