Folks,
Let’s look in on Ivy University Professor Patty Coleman as she chats with John Archer about Walter Isaacson’s biography of Elon Musk.
“I have to admit, reading about Musk’s ‘The Algorithm’ and ‘The Idiot Index’ was really humbling,” John shared
Figure 1. The cover of "Elon Musk."
“How so?” Patty inquired.
“After you read about them, they seem so obvious in the year 2024, yet no one ever came up with them before. I have already implemented several aspects from both of them and the results are astounding,” John began.
“Can you give me an example?” Patty asked.
“Certainly. My company makes metal castings that typically have some mechanically precise referencing points. So, after casting the parts, they require some precise machining. For one customer, we have been making the same part for over forty years. During this time, the cost has been increasing due to the increase in both materials and labor,” John began.
“That makes sense. It is hard to escape the increase in materials and labor costs,” Patty said sympathetically.
“However, this customer has been complaining about the cost. The part was sold to this customer for $20 in 1985 and is now almost $100,” he continued.
“But, $100 seems reasonable given inflation,” Patty reasoned.
“I know, but my customer was under pressure from his customers. He said I had to lower his cost to $90 or he would go offshore for the part,” John explained.
He took a breath and then said, “We managed to lower the price the customer had to pay to $85 by following Musk’s ‘Algorithm’ and ‘Idiot Index’.”
“Wow, what did you do?” Patty asked excitedly.
“We started by implementing ‘The Algorithm’s ‘Question Every Requirement’.’ First was the material: the requirement was 316L stainless steel. We asked why much cheaper 304 stainless steel could not be used instead. After some environmental testing by both the customer and us, we concluded that 304 stainless was fine,” John responded.
“How did that affect the cost?” Patty asked.
“It got it down to $92,” John answered.
“How were you able to get it to $85 after that?” Patty queried.
“We used the ‘Idiot Index.’ We found that our casting process improved over the years and we needed fewer precision machining operations. Also, the customer had specifications that required time consuming measurements that were not really needed. So we were able to charge our customer $85 and our profit actually increased by 7%,” John shared triumphantly.
“Wow, what a story! I’ll bet your customer was pleased.” Patty responded.
“Very much so, the customer even gave us new business and is working on implementing Musk’s concepts into their processes,” John finished.
Below are print outs of “The Algorithm” and “The Idiot Index” from Walter Isaacson’s Book.
This post is from my blog on iConnect. If you want to read the episodes leading up to Patty being called Professor Fatty, go to this link!
Dr. Ron comments: I think "The Algorithm" and "The Idiot Index" are profound concepts and shold be considered by all who are responsible for manufacutring and busness processes.
"The Algorithm
At any given production meeting, whether at Tesla or SpaceX, there is a nontrivial chance that Musk will intone, like a mantra, what he calls “the algorithm.” It was shaped by the lessons he learned during the production hell surges at the Nevada and Fremont factories. His executives sometimes move their lips and mouth the words, like they would chant the liturgy along with their priest. “I became a broken record on the algorithm,” Musk says. “But I think it’s helpful to say it to an annoying degree.” It had five commandments: 1. Question every requirement. Each should come with the name of the person who made it. You should never accept that a requirement came from a department, such as from “the legal department” or “the safety department.” You need to know the name of the real person who made that requirement. Then you should question it, no matter how smart that person is. Requirements from smart people are the most dangerous, because people are less likely to question them. Always do so, even if the requirement came from me. Then make the requirements less dumb. 2. Delete any part or process you can. You may have to add them back later. In fact, if you do not end up adding back at least 10% of them, then you didn’t delete enough. 3. Simplify and optimize. This should come after step two. A common mistake is to simplify and optimize a part or a process that should not exist. 4. Accelerate cycle time. Every process can be speeded up. But only do this after you have followed the first three steps. In the Tesla factory, I mistakenly spent a lot of time accelerating processes that I later realized should have been deleted. 5. Automate. That comes last. The big mistake in Nevada and at Fremont was that I began by trying to automate every step. We should have waited until all the requirements had been questioned, parts and processes deleted, and the bugs were shaken out."
Isaacson, Walter. Elon Musk (pp. 284-285). Simon & Schuster. Kindle Edition.
"The Idiot Index
Ever since he flew back from Russia and calculated the costs of building his own rockets, Musk had deployed what he called the “idiot index.” That was the ratio of the total cost of a component to the cost of its raw materials. Something with a high idiot index—say, a component that cost $1,000 when the aluminum that composed it cost only $100—was likely to have a design that was too complex or a manufacturing process that was too inefficient. As Musk put it, “If the ratio is high, you’re an idiot.” “What are the best parts in Raptor as judged by the idiot index?” Musk asked. “I’m not sure,” Hughes responded. “I will find out.” This was not good. Musk’s face hardened, and Shotwell shot me a worried glance. “You better be fucking sure in the future you know these things off the top of your head,” Musk said. “If you ever come into a meeting and do not know what are the idiot parts, then your resignation will be accepted immediately.” He spoke in a monotone and showed no emotion. “How can you fucking not know what the best and worst parts are?” “I know the cost chart down to the smallest part,” Hughes said quietly. “I just don’t know the cost of the raw materials of those parts.” “What are the worst five parts?” Musk demanded. Hughes looked at his computer to see if he could calculate an answer. “NO! Don’t look at your screen,” Musk said. “Just name one. You should know the problematic parts.” “There’s the half nozzle jacket,” Hughes offered tentatively. “I think it costs thirteen thousand dollars.” “It’s made of a single piece of steel,” Musk said, now quizzing him. “How much does that material cost?” “I think a few thousand dollars?” replied Hughes. Musk knew the answer. “No. It’s just steel. It’s about two hundred bucks. You have very badly failed. If you don’t improve, your resignation will be accepted. This meeting is over. Done.” When Hughes came into the conference room the next day for a follow-up presentation, Musk showed no sign that he remembered reaming him out. “We are looking at the twenty worst ‘idiot index’ parts,” Hughes began as he pulled up a slide. “There’s definitely some themes.” Other than wringing a pencil, he was able to hide his nervousness. Musk listened quietly and nodded. “It’s mainly the parts that require a lot of high-precision machining, like pumps and fairings,” Hughes continued. “We need to cut out as much of the machining as possible.” Musk started smiling. This had been one of his themes. He asked a few specific questions about the use of copper and the best way to do stamping and hole-punching. It was no longer a quiz or a confrontation. Musk was interested in figuring out the answers. “We are looking at some of the techniques that automakers use to keep these costs down,” Hughes continued. He also had a slide that showed how they were applying Musk’s algorithm to each of the parts. There were columns that showed what requirements had been questioned, what parts had been deleted, and the name of the specific person in charge of each component. “We should ask each of them to see if they can get the cost of their part down by eighty percent,” Musk suggested, “and if they can’t, we should consider asking them to step aside if someone else might be able to do so.” By the end of the meeting, they had a roadmap to get the cost of each engine down from $2 million to $200,000 in twelve months.
Isaacson, Walter. Elon Musk (pp. 363-365). Simon & Schuster. Kindle Edition.