Brent Wahba March 30, 2010 brentwahba@strategyscienceinc strategyscienceinc (585) 315-7051

1. Brent WahbaMarch 30, 2010brentwahba@strategyscienceinc.comwww.strategyscienceinc.com (585) 315-7051 Lean, IntegratedProduct & Process Development

2. Summary If only we could develop better, easier to make products in half the time…with much less stress!!! I can help you, but you will have to LEARN to THINK & ACT DIFFERENTLY! Oh thank you Lean Product Development Consulting Man! You’ve saved the day AGAIN!!!

3. Why Focus on Product Development? < 20% Of new products achieve their commercial objectives Only 1 in 3,000 ideas becomes a commercial success

4. Why Focus on Product Development?Time to Market • 1 month delay = 10% gross profit loss (average) (Sopheon) • 12 Month delay = 50% revenue loss in slow markets, 90% in fast markets (IBS) Optimal Entry Units, Revenue, or Profit è Late Entry Lost Units, Revenue, or Profit Total Units, Revenue, or Profit Introduction Growth Maturity Decline Time è

5. Are We Working on the Wrong End? Accounting Cost vs. Ability to Change Cost:

6. Why Focus on Product Development? What % of your Product Development time is typically “Value-Added?”

7. Why Focus on Product Development?

8. What Would be the Impact of*: 50% Less development lead time, 30% lower total cost, with 25% fewer resources? 75% Fewer engineers to design a car? 75% Less Production Scrap? 95 % Less prototype lead time? Knowing which 5 – 7 criteria customers buy based on? > 75% Commercial successes? *Your results may vary

9. Albert Einstein, Lean Thinker: “You can’t solve today’s problems at the same level of thinking you were at when you created them.”

10. Definition: Value Streams Production Control Mix Glaze Sales Form Fire Pack In In Acme Mug Company 2500 Per day 27 Styles 99.7% Defect-free 2 P.O. / Week Fax 1 Order / Day Phone AAA Ceramic Powder Mug-O-Rama Production Authorization 2 Coffee 1 FIFO Job Packet 1 Shipment / Day 1 Shipment / Week P/T = 15 min L/T = 600 min %C&A = 95% P/T = 5 min L/T = 120 min %C&A = 98% Phone I I I I 1 500 500 2000 I 1 P/T = 1 min L/T = 250 min %C&A = 99% P/T = 1 min L/T = 180 min %C&A = 65% P/T = 30 min L/T = 1200 min %C&A = 95% P/T = 960 min L/T = 1080 min %C&A = 85% P/T = 1 min L/T = 250 min %C&A = 65%

11. Companies are Really Quite Simple… “Make / Deliver” Operations: Operating Production Value Streams “Product Development”: Creating Production Value Streams Customers Customers Product Development • Strategy & Marketing • R&D • Design • Supplier Selection • Process Development • Value Stream Design • Tooling Implementation • Test and Validation • Continuous Improvement Make / Deliver Operations • Sales & Marketing • Manufacturing • Supply Chain • Distribution • Service • Continuous Improvement

12. Product Development • Customer Needs • Problems to solve • What customers value • What they will pay for • ”Voice of the Customer” Simple, Standardized, Efficient, Robust, Development Process Competitive, profitable, capable, optimized: Product Definition, Service Definition, Process Definition & Production Value Streams • Organizational Needs • Strategy, growth, profit • Standardized work • Internal requirements • Regulatory requirements

13. Lean is Ancient…and Often Misunderstood Scientific Method Egypt, Socrates, Bacon, Galileo 1600 BC – 1600 AD Honorē Blanc Interchangeable Parts 1780 Venetian Arsenal Standardization, Quality 1320 Meat Packing (Dis)assembly Line 1867 Ransom Olds 1st Auto Assembly Line 1901 Sakichi Toyoda, Taiiichi Ohno JIT, Defect Prevention 1920 - 1990 Ford, Highland Park Plant Linked & Paced Assembly 1913 Frederick Taylor Scientific Management 1911 Today Deming PDCA, People, Quality 1950s Eliyahu Goldratt Constraints, Systems 1984 WWII Takt Time, TWI 1940s 1991

14. Lean “Delivering the most customer value while consuming the fewest resources” • Customer focus • Respect & leverage our people • Constant reuse, learning, problem solving • → Efficiency, effectiveness, prosperity

15. What is Lean Product Development? There really is no common definition… Design For Six Sigma (DFSS) Lean Product Development (LPD) Project Management Agile, Scrum, XP Systems Engineering (SE)

16. Potential Lean Product Development Paths Lean Manufacturing / “Design Factory” Queuing Theory / Flow Fake Lean Waste Reduction Modified 6 Sigma / Problem Solving Project Management Design Tools Organic Growth Model Toyota Systems Engineering / Software Methods Al Ward • Which is best? • What problem(s) are you solving? • Do you want to change process and / or culture?

17. Key Lean Product Development Themes • Development is not a deterministic process • The output of development is reusable knowledge: • How to satisfy customers • How to perform work efficiently and effectively • Validated, lean, capable production value streams • Small batch sizes: • Knowledge, experiments, design elements • Cadence of small, fast learning cycles

18. Key Lean Product Development Themes • Pull systems: • Knowledge, customer-driven milestones • Distributed project management • Visual management • Systems Engineering framework • Explore alternatives • Increase learning • Manage high risk / high reward alternatives

19. Key Lean Product Development Themes • Integrating events instead of quality checks • Late concept selection with more knowledge • Managing organizational capacity versus demand • Project teams “own the business” • Team leadership, team design, supplier integration • Simple technology to fit team needs and processes

20. A P C D Adjust Plan Check Do A P C D A P C D A P C D A P C D A P C D A P C D A P C D A P C D P A D C Organic Growth Model: Every Organizational Level Has Problems to Solve Executives Strategies Business Objectives Financial Performance Learning / Problem Solving Cycle Goals Budgets Operations Schedules Projects Grasp the Situation Managers “Whats”, Resources, Support “Hows”, Performance Teams & Individuals Assignments Rates Quality Standards Source (modified): Lean Transformations Group, LLC

21. Organic Growth Model of Lean Development P A D C Grasp the situation, Create pull for change • Projects • Reuse • Learn first • Experiments • Failures • Product Design • Process design • Value stream design • Production validation • Production handoff Fast Learning Cycles • End customers • Production • Business Lean Product Development System Preparing for Lean Production Customer Needs • Pull • Small batch • Prioritized • Æ Overburden • Quality @ source • Visual • Project management process • Team-owned • Solution emerges • from experiments • Value stream mapping • A3 Problem solving • Simple tools • Integration & reflection Managing Work LPD System Design & Continuous Improvement

22. Customer Needs:Untested Market Hypotheses?

23. Brent & Patty’s Car-Buying Journey:Learning and Decision Loops Past brand and dealership experience Patty’s car needs service, “getting old” News stories of great rebates & deals What models? Check ads Online research, narrow consideration set Biased analysis, car selected Consider image impact where Patty works Test drive, form / verify opinions Investigate pricing and discounts Check ads, decide potential dealers Compare dealer prices, assess honesty Negotiate deal, purchase Pick up car, quality items not fixed Bad service / bad salesman experience Bad service experience, complaints

24. Linking to the Customer Journey:Integrating Constant Learning Inbound Marketing, Sales, Outbound Marketing, Service… Customer Journey (End customers, influencers, channels…) What We Can Do Strategic Planning Market Research Product Management Pricing / Placement / Promotion Selling Feedback Service / Help What Customers Need Basic R&D Feedback Specific R&D Product / Process Development Value Stream Implement Start-Up Production Service / Help Product Development Make / Deliver

25. Capturing & Communicating Customer Needs:Value Proposition Example Use Visual management to highlight gaps What are the significant attributes for customer buy decisions? Market, Customer, Program… Call out requirement used for comparison

26. And Some Needs are Better Left Un-Served… News in Brief Fork Manufacturer Introduces Fifth Tine To Accommodate Growing American Mouthfuls February 17, 2010 | ISSUE 46•07 EVANSVILLE, IN—In an effort to keep pace with the rapid growth of American mouthfuls, flatware manufacturer KitchenMaster announced yesterday the addition of a fifth tine to its line of dinner forks. "These days, a traditional four-tined fork is just not enough to handle the quantities of food people shove down their throats," said company spokesman Ken Krimstein, holding up a fork supporting six separate tortellini, two turkey sausages, and some mashed potatoes. "To stay relevant to our customer base and bring back some of those who have given up on using utensils entirely, this was an adjustment we just had to make." Krimstein added that the augmented forks would soon be followed by 25 percent deeper spoons and 3-gallon gravy boats. Source: The Onion

27. Lean Product Development System Design:Value Stream Mapping Current state: Customer value, Quality & rework, Delays & interruptions, Knowledge growth, Biases / assumptions, Prioritize problems Higher level / less detail than manufacturing mapping Customer Review Proposal Review / Approve Quote Review / Approve Design Commercial Planning Create Strategic Plan Marketing Select Markets Sales Prospect Trigger Project Finance Prepare Quote Study Business Case Future state: All customer needs, Quality at handoffs, Existing solutions, Solution experiments Product Engineering Design Study Design Design Concept Review Data Update Concept Prototype Build Concept Test Test Concept Manufacturing Engineering Process Study Process Process Concept Study Process Review Data Update Concept Tooling Study Investment Review Data Update Concept Purchasing / Supply Chain Buyer Study Supply Base Select Suppliers Quote Suppliers Review Data Manufacturing Study Mfg. Mfg. Concept Study Mfg. Cost Review Data Update Concept

28. Fast Learning Cycles “If HP knew what HP knew, we would be 3 times as profitable.” Lou Platt, Former CEO, Hewlett-Packard

29. Why Learning First Works Typical Point-Based Product Development Concept #1 Perceived Customer Requirements Design Solution Selected Process Solution Selected Concept #2 Design Development Process Development Production Concept #3 Rework Rework Rework Rework Rework Concept #4 • Common causes of failure / rework: • Resources not available • Requirements change (or become known) • Validation failure or does not meet updated customer requirements • Product and process are incompatible / does not meet internal requirements • Project does not meet commercial requirements • No low risk back-up plan

30. Learning First + Controlled Narrowing Mapping the Design / Process / Customer Space Final Definition & Validation Define Narrowing Criteria Concept Narrowing And Integrating Sub-System #1 • Customer • Technology • Manufacturing • Cost • Quality • Suppliers Concept #1 #2 Concept #2 Final Concept Sub-System A # 2 & # 3 #3 Concept #3 #4 # 4 Concept #4 #1 # 1 Concept #1 • Customer • Technology • Manufacturing • Cost • Quality • Suppliers Final Concept #2 # 2 Concept #2 Sub-System B #3 Concept #3 Choose optimal intersection of sub-systems Concept #4

31. Learning First + Controlled Narrowing • Concept Narrowing While: • Increasing Knowledge • Increasing Detail & Functionality • Increasing Optimization & Robustness • Increasing Quality / Reducing Risk Learning Cycle Final Design, Process, & Value Stream in Production Detailed Design, Process, Value Stream, Validation No Rework – Only Production Continuous Improvement Fast, Standardized, No Surprises Learning, Narrowing, & Integrating Mapping the Design / Process / Customer Space Outline System Structure Workload Leveled

32. Linked Learning CyclesLeads to More Useful Knowledge A P C D Strategy Customer Needs Internal & Partner Capabilities Product Development Process

33. Learning Through Failures Swiss Federal Institute of Technology study of the causes of catastrophic structural failure: 1) Insufficient knowledge ........................................... 36% 2) Underestimation of influence ................................. 16% 3) Ignorance, carelessness, negligence .................... 14% 4) Forgetfulness, error ............................................... 13% 5) Relying upon others without sufficient control ........ 9% 6) Objectively unknown situation ................................ 7% 7) Imprecise definition of responsibilities .................... 1% 8) Choice of bad quality .............................................. 1% 9) Other ....................................................................... 3% Knowledge Management Issues Product Development Process Issues

34. Managing Work:Common Project Management Evolution • Under-defined, wasteful, inadequate development process • “Standardized” statements of work by organizational function • Gates / quality checks • Training • Major quality reviews • Automation • Training • Kaizen workshop • Training • New methodology • etc… • Every change implies a different process. Why? • What problem is each step trying to solve? • What is the real root cause?

35. Lean Project Management • Projects are the deployment of a strategy • Projects are all about creating and applying useful knowledge • What do we need to do? • What do we need to know to do it? • By when, by whom, and how? • Who is the customer of the project management process itself? Continuous Improvement Value Stream Implementation Product Development

36. Question-Based Lean Project Management No box-checking allowed: • What is the product and / or service? • What are the delivery and service value streams? • Does it meet the customers’ needs? • Will it have acceptable quality at every customer touch point? • Does it fit our strategy? • Does it represent an acceptable investment of $s and resources? • What has changed and what are our countermeasures? • What went wrong and how do we prevent it from happening again? • What have we learned and how can we reuse it?

37. Integrating Learning LoopsInto Project Management X X X X X X Strategy Target Customers Quote / Specs Prototype 1 Quote / Specs Prototype 2 Quote / Specs Approval Parts Production Parts Customers & Deliverables X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X What is the Product? What is the Process? What is the Value Stream? Do we Meet Customers’ Requirements? Do we Meet Internal Requirements? Learning / Problem Solving

38. Managing Work:Organizational Capacity vs. Requirements 2008 2008 1/2 2009 2009 1/2 2010 2010 1/2 2011 2011 1/2 2012 All Good Product 1 Market A Warning Product 2 All Good Product 3 Market B All Good Product 4 Danger! Value Stream 1 Market C All Good Value Stream 2 • Development teams are most efficient / effective at 70 - 80% capacity • Prioritize and balance workload; manage capacity versus requirements • Align organization behind the strategy & priorities

39. Visual Project Management Example ! ! ! ! • Which project is fine? Needs watching? Is in trouble and needs intervention? • Draw attention to where help is needed and do not spend too much time on items that are on-track

40. “Project Kanban” Example Current Deliverable is Late! Customer Deliverable Team Deliverable

41. Preparing for Lean Production:Creating & Validating Production Value Streams “It’s not a product if you can’t make and deliver it.”

42. 2008 BBB Complaints Majority of auto complaints are value stream / service related

43. KFC Value Stream Debacle We are so sorry, but due to the overwhelming response to our FREE Kentucky Grilled Chicken™ meal coupon, we can no longer redeem the free coupon at this time. But we will honor our commitment to giving you a free Kentucky Grilled Chicken meal. Please visit a participating KFC restaurant for a rain check form. Complete the form, attach your original coupon , and give it to the KFC restaurant manager or postmark per the form’s instructions, by May 19, 2009, and we’ll send you a rain check for your free Kentucky Grilled Chicken meal at a later date, plus a free Pepsi with our compliments. Your participating KFC restaurant will provide you with the form you need. Please note that the redemption periods of the rain checks will vary. All other terms and conditions of the original free Kentucky Grilled Chicken coupon will apply. Thank you for your understanding, Roger EatonKFC® President

44. Creating the McCafé Value Stream • Biggest launch since Egg McMuffin • 11,000 Restaurants (just U.S.) • $100 MM in launch costs • “Cappuccinos, lattes, mochas, iced lattes and iced mochas, as well as hot and iced Premium Roast brewed coffees and hot chocolate. All McCafé Coffees start with fully-ripened Arabica coffee beans from Central and South America and Indonesia. From there, each drink is made to order with quality ingredients like flavored syrups, including caramel, hazelnut, vanilla and sugar-free vanilla, rich chocolate, frothy steamed milk and whipped cream.”

45. Process & Value Stream DesignOften Interact with Product Design What impact does paint color have on cycle time? If we localize solenoid production in Brazil to reduce duties, can we use the same solder? How is labor linearity impacted by the features we offer?

46. Process & Value Stream Design Shouldbe Treated Like a System Design Problem Production Control Mix Glaze Sales Form Fire Pack In In 2500 Per day 27 Styles 99.7% Defect-free 2 P.O. / Week Fax 1 Order / Day Phone AAA Ceramic Powder Mug-O-Rama Production Authorization 2 Coffee 1 FIFO Job Packet 1 Shipment / Day 1 Shipment / Week P/T = 15 min L/T = 600 min %C&A = 95% P/T = 5 min L/T = 120 min %C&A = 98% Phone I I I I 1 500 500 2000 I 1 P/T = 1 min L/T = 250 min %C&A = 99% P/T = 1 min L/T = 180 min %C&A = 65% P/T = 30 min L/T = 1200 min %C&A = 95% P/T = 960 min L/T = 1080 min %C&A = 85% P/T = 1 min L/T = 250 min %C&A = 65%

47. Integrating Process & Value Stream Development Mapping the Design / Process / Customer Space Final Definition & Validation Define Narrowing Criteria Concept Narrowing And Integrating Sub-System #1 • Customer • Technology • Manufacturing • Cost • Quality • Suppliers Concept #1 #2 Concept #2 Final Concept Sub-System A # 2 & # 3 #3 Concept #3 #4 # 4 Concept #4 #1 # 1 Concept #1 • Customer • Technology • Manufacturing • Cost • Quality • Suppliers Final Concept #2 # 2 Concept #2 Sub-System B #3 Concept #3 Choose optimal intersection of sub-systems Concept #4

48. Lean Product Development Example #1:Toyota Product Development System • Establish customer-driven value • Front-load design process to explore alternatives • Create level development flow • Standardization to reduce project outcome variation • Chief Engineer / Super Program Manager • Balance functional expertise and cross-functional integration • Create “Towering Technical Competence” • Integrate suppliers into development process • Built-in learning and continuous improvement • Culture to support excellence and relentless improvement • Adapt technology to fit people and process • Align organization through simple, visual communication • Tools for standardization and organizational learning Sources: The Toyota Way, The Toyota Product Development System, Lean Product and Process Development

49. Lean Product Development Example #2:Apple (?!!!) • Controlled concept narrowing • Fast cycles of learning / cadence of review • Simultaneously exploring concepts and developing detailed implementation plans • Concept is selected at the very end of the process • Strategically focused organization • Small, focused teams • Supplier partners • Market experimentation • Narrow set of must have features / functions (value focus) • Look and feel

50. Pulling It All Together Organically grow your own lean product development process: • Do not copy Toyota or Apple! (but you can learn from them) • What are your business needs? What problems do you need to solve? • Current state: What works well? Problems & gaps? • What are the real root causes? (not the symptoms) • Future state vision: What / Who / How / When? Quality measurements? • Implementation plan: • When does the business need it completed? • Does the organization have enough capacity? • What are reasonable “chunks” to work on? • What simple experiments will test your future state vision (hypotheses)? • Plan – Do – Check – Adjust • Honest reflection and improvement