Since high capacity utilization simultaneously raises efficiency and increases delay cost, we need to look at the combined impact of these two factors. We can only do so if we express both factors in the same unit of measure, life-cycle profits. If we do this, we will always conclude that operating a product development process near full utilization is an economic disaster.
There are two important reasons why product developers are blind to DIP. First, inventory is financially invisible in product development. We do not carry partially completed designs as assets on our balance sheet; we expense R&D costs as they are incurred. If we ask the chief financial officer how much inventory we have in product development, the answer will be, “Zero.” Second, we are blind to product development inventory because it is usually physically invisible. DIP is information, not physical objects. We do not see piles of DIP when we walk through the engineering department. In product development, our inventory is bits on a disk drive, and we have very big disk drives in product development.
Any subprocess within product development can be viewed in economic terms. The total cost of the subprocess is composed of its cost of capacity and the delay cost associated with its cycle time.
Few developers realize that queues are the single most important cause of poor product development performance. Queues cause our development process to have too much design-in-process inventory (DIP). Developers are unaware of DIP, they do not measure it, and they do not manage it. They do not even realize that DIP is a problem.
let me point out one more subtle implication of this approach towards buying information. It implies that there is an economically optimum sequence for risk-reduction activities. Low-cost activities that remove a lot of risk should occur before high-cost activities that remove very little risk.
This leads them to load their processes to dangerously high levels of utilization. How high? Executives coming to my product development classes report operating at 98.5 percent utilization in the precourse surveys. What will this do? Chapter 3 will explain why large queues form when processes with variability are operated at high levels of capacity utilization. In reality, the misguided pursuit of efficiency creates enormous costs in the unmeasured, invisible portion of the product development process, its queues.
manufacturing deals with predictable and repetitive tasks, homogeneous delay costs, and homogeneous task durations. As a result, manufacturing sequences work in a simple first-in-first-out (FIFO) order. FIFO prioritization is almost never economically optimal in product development, because product development deals with high variability, nonrepetitive, nonhomogeneous flows. Different projects almost always have different delay costs, and they present different loads on our resources.
The king was the law, and once the law was dead, chaos reigned. Nobles fastened their cloaks, pulled on their boots, and saddled up their horses. Some grabbed gold, some grabbed documents, and some even grabbed the meat and wine in the royal cellars.1 Meanwhile, as they rushed back and forth, Chilperic remained where he had fallen from his horse2 in the stable yard. The sky turned from violet to black and the shadows of the surrounding forest fell across the crumpled king, now completely alone.
If pressed, Cook will disagree, politely, with the portrait painted by some that he is a spreadsheet guy, a suit running a company built by a man who disdained suits. “Steve saw this—one of the things I loved about him was he didn’t expect innovation out of just one group in the company or creativity out of one group,” Cook says. “He expected it everywhere in the company.” Including in operations, where Cook worked: “When we were running operations, we tried to be innovative in operations and creative in operations, just like we were creative elsewhere. We fundamentally had to be in order to build the products that we were designing.”
Pot odds are the payout offered by the pot expressed in comparison to the price to call a bet. For example, if there was $100 in the pot and the player had to put in $20, the pot was offering 5-to-1 odds. These odds were then compared to the likelihood the player making the decision would win the hand, either by having the best cards or drawing to the best hand.
When I looked up at my father as a boy, I thought being a man was having control. Being the master and commander of your own destiny. How could any boy know that freedom is lost the moment you become a man. Things start to count. To press in. Constricting slowly, inevitably, creating a cage of inconveniences and duties and deadlines and failed plans and lost friends.
The Soviet regime manufactured a famine in Ukraine that would kill 3.9 million people, a tragedy of unimaginable scope that’s known today as the Holodomor, a combination of the Ukrainian words for “hunger” and “extermination.”
