Out of the Crisis

467 Pages·2000·4.19 MB·English

by  W. Edwards Deming

First MIT Press edition, 2000
Originally published in 1982 by Massachusetts Institute of Technology, Center for
Advanced Educational Services, Cambridge, Massachusetts.
©1982, 1986 The W. Edwards Deming Institute
All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical
means (including photocopying, recording, or information storage and retrieval) without permission in
writing from the publisher. Printed and bound in the United States of America.

Library of Congress Cataloging-in-Publication Data
Deming, W. Edwards (William Edwards), 1900–1993

Out of the crisis / W. Edwards Deming.

p. cm.

Originally published: Cambridge, Mass. : MIT, Center for Advanced Educational Services, 1986.
Includes bibliographical references and index.
ISBN-13: 978-0-262-54115-2 (pbk.: alk.paper)
ISBN-10: 0-262-54115-7 (pbk. : alk.paper)

1. Industrial management—United States. 2. Industrial productivity—United States. 3. Quality of

products—United States. I. Title.
HD70.U5 D45 2000
658—dc21

00-042729

10 9 8

E-book ISBN: 978-0-2622-5056-6

OUT OF

THE CRISIS

W. EDWARDS DEMING

The MIT Press

Cambridge, Massachusetts

London, England

OUT OF

THE CRISIS

Other works by W. Edwards Deming

published by MIT/CAES

THE NEW ECONOMICS

FOR INDUSTRY, GOVERNMENT, EDUCATION

THE DEMING VIDEOTAPES

Contents

Cover

Copyright

About the Author

Preface

Acknowledgments

1. Chain Reaction: Quality, Productivity, Lower Costs, Capture the Market

2. Principles for Transformation of Western Management

3. Diseases and Obstacles

4. When? How Long?

5. Questions to Help Managers

6. Quality and the Consumer

7. Quality and Productivity in Service Organizations

8. Some New Principles of Training and Leadership

9. Operational Definitions, Conformance, Performance

10. Standards and Regulations

11. Common Causes and Special Causes of Improvement. Stable System.

12. More Examples of Improvement Downstream

13. Some Disappointments in Great Ideas

14. Two Reports to Management

15. Plan for Minimum Average Total Cost for Test of Incoming Materials and

Final Product

16. Organization for Improvement of Quality and Productivity

17. Some Illustrations for Improvement of Living

18. Appendix: Transformation in Japan

Index

About the Author

W. Edwards Deming is the internationally renowned consultant whose work led
Japanese industry into new principles of management and revolutionized their
quality and productivity. The adoption of Dr. Deming’s 14 points for
management could help industry in the United States. Dr. Deming has enjoyed a
worldwide practice for 40 years.

In recognition of his contribution to the economy of Japan, the Union of

Japanese Science and Engineering (JUSE) instituted the annual Deming Prizes
for contributions to quality and dependability of product. The emperor of Japan
awarded him in 1960 the Second Order Medal of the Sacred Treasure. Dr.
Deming has received numerous other awards, including the Shewhart Medal
from the American Society for Quality Control in 1956 and the Samuel S. Wilks
Award from the American Statistical Association in 1983.

The Metropolitan section of the American Statistical Association established

in 1980 the annual Deming Prize for improvement of quality and productivity.

Dr. Deming was elected in 1983 to the National Academy of Engineering, and

has been awarded the doctorates LL.D. or Sc.D. honoris causa by the University
of Wyoming, Rivier College, Ohio State University, University of Maryland,
Clarkson College of Technology, and the George Washington University.

Preface

The aim of this book is transformation of the style of American management.
Transformation of American style of management is not a job of reconstruction,
nor is it revision. It requires a whole new structure, from foundation upward.
Mutation might be the word, except that mutation implies unordered spontaneity.
Transformation must take place with directed effort. The aim of this book is to
supply the direction. Need for transformation of governmental relations with
industry is also necessary, as will be obvious.

Failure of management to plan for the future and to foresee problems has

brought about waste of manpower, of materials, and of machine-time, all of
which raise the manufacturer’s cost and price that the purchaser must pay. The
consumer is not always willing to subsidize this waste. The inevitable result is
loss of market. Loss of market begets unemployment. Performance of
management should be measured by potential to stay in business, to protect
investment, to ensure future dividends and jobs through improvement of product
and service for the future, not by the quarterly dividend.

It is no longer socially acceptable to dump employees on to the heap of

unemployed. Loss of market, and resulting unemployment, are not foreordained.
They are not inevitable. They are man-made.

The basic cause of sickness in American industry and resulting unemployment

is failure of top management to manage. He that sells not can buy not.

The causes usually cited for failure of a company are costs of start-up,

overruns on costs, depreciation of excess inventory, competition—anything but
the actual cause, pure and simple bad management.

What must management do? Management obviously have a new job. Where

can management learn about the transformation that is necessary?

The fact is that management can not learn by experience alone what they must

do to improve quality and productivity and the competitive position of the
company.

Everyone doing his best is not the answer. It is first necessary that people

know what to do. Drastic changes are required. The first step in the
transformation is to learn how to change: that is, to understand and use the 14
points in Ch. 2, and to cure themselves of the diseases in Ch. 3.

Longterm commitment to new learning and new philosophy is required of any

management that seeks transformation. The timid and the fainthearted, and

people that expect quick results, are doomed to disappointment.

Solving problems, big problems and little problems, will not halt the decline

of American industry, nor will expansion in use of computers, gadgets, and
robotic machinery. Benefits from massive expansion of new machinery also
constitute a vain hope. Massive immediate expansion in the teaching of
statistical methods to production workers is not the answer either, nor wholesale
flashes of quality control circles (QC-Circles). All these activities make their
contribution, but they only prolong the life of the patient; they can not halt the
decline. Only transformation of the American style of management, and of
governmental relations with industry, can halt the decline and give American
industry a chance to lead the world again.

The job of management is inseparable from the welfare of the company.

Mobility, here a while and gone, from the management of one company to the
management of another, is something that American industry can no longer
afford. Management must declare a policy for the future, to stay in business and
to provide jobs for their people, and more jobs. Management must understand
design of product and of service, procurement of materials, problems of
production, process control, and barriers on the job that rob the hourly worker of
his birthright, the right to pride of workmanship.

There are conferences almost any day in this country on the subject of

productivity, mostly concerned with gadgets and measures of productivity. As
William E. Conway said, measurements of productivity are like accident
statistics. They tell you that there is a problem, but they don’t do anything about
accidents. This book is an attempt to improve productivity, not just to measure it.

The book makes no distinction between manufacturing and service industries.

The service industries include government service, among which are education
and the mail. All industries, manufacturing and service, are subject to the same
principles of management.

Anyone in management requires, for transformation, some rudimentary

knowledge about science—in particular, something about the nature of variation
and about operational definitions. Numerous examples throughout the book
illustrate how failure to appreciate the two kinds of variation, special causes of
variation and common causes, and to understand operational definitions brings
loss and demoralization.

The reader will sense the fact that not only is the style of American

management unfitted for this economic age, but that many government
regulations and the Justice Department’s Antitrust Division are out of step,
propelling American industry along the path of decline, contrary to the well-
being of the American people. For example, unfriendly takeover and leveraged

buyout are a cancer in the American system. Fear of takeover, along with
emphasis on the quarterly dividend, defeats constancy of purpose. Without
constancy of purpose to stay in business by providing product and service that
have a market, there will be further downturn and more unemployment. What is
the Securities and Exchange Commission doing about takeover?

When we size up the job ahead, it is obvious that a long thorny road lies ahead

—decades.

Dependence on protection by tariffs and laws to “buy American” only

encourages incompetence.

It would be incorrect to leave the reader with the impression that no action is

taking place. The fact is that management throughout a number of companies are
at work on the 14 points and on the diseases that afflict American industry.
Substantial results are already recorded. Some schools of business are offering
courses in the transformation of the American style of management, based on
notes for seminars conducted during the past few years.

Acknowledgments

I am thankful for unusual privileges to work as apprentice to a number of great
men, among them Walter A. Shewhart, Harold F. Dodge, George Edwards, all of
the Bell Telephone Laboratories, all now deceased. Equally valued is
apprenticeship under other esteemed colleagues, such as Morris H. Hansen,
Philip M. Hauser, Frederick Franklin Stephan, Samuel Stouffer, General Leslie
E. Simon, Eugene L. Grant, Holbrook Working, Franz J. Kallman, P.C.
Mahalanobis.

Many kind friends have contributed to my education in the subject attempted

here. Among them are Lloyd S. Nelson, William W. Scherkenbach, Myron
Tribus, Ronald P. Moen, William A. Golomski, Carolyn A. Emigh, Louis K.
Kates, Nancy R. Mann, Brian Joiner, Mervin Muller, Ez Nahouraii, James K.
Bakken, Edward M. Baker, Heero Hacquebord. Specific contributions to the text
are mentioned by name. Help in clarity has come from Kate McKeown.

I owe to Professor William G. Hunter and some of his students at the

University of Wisconsin special debt for help on difficult points, as well as for
contributions to the text.

Hundreds of people in my seminars have contributed to the river of

knowledge that has swelled deeper and wider year by year.

The careful reader may note use of the word leadership where the usual word

would be supervision. The reason is that for survival, supervision will be
replaced by leadership. I owe this observation to my friend James B. Fitzpatrick
of General Motors.

This book could never have seen print without the dedicated skill and

perseverance of my secretary Cecelia S. Kilian. She has assisted me now 32
years in a lively statistical practice, and has constructed out of scribblings on
scribblings written on my lap on aeroplanes one version after another of notes to
use as text for my seminars, and finally for this book as the reader finds it.

OUT OF

THE CRISIS

1

Chain Reaction: Quality, Productivity, Lower Costs, Capture

the Market

Who is it that darkeneth counsel by words without knowledge?—Job 38:2.

Aim of this chapter. The aim of this chapter is to illustrate a stable system of

trouble in a manufacturing plant, and to explain that because the system is stable,
improvement of quality is the responsibility of the management. Further
examples will appear in later chapters.

Some folklore. Folklore has it in America that quality and production are

incompatible: that you can not have both. A plant manager will usually tell you
that it is either or. In his experience, if he pushes quality, he falls behind in
production. If he pushes production, his quality suffers. This will be his
experience when he knows not what quality is nor how to achieve it.1

A clear, concise answer came forth in a meeting with 22 production workers,

all union representatives, in response to my question: “Why is it that
productivity increases as quality improves?”

Less rework.

There is no better answer. Another version often comes forth:

Not so much waste.

Quality to the production worker means that his performance satisfies him,

provides to him pride of workmanship.

Improvement of quality transfers waste of man-hours and of machine-time

into the manufacture of good product and better service. The result is a chain
reaction—lower costs, better competitive position, happier people on the job,
jobs, and more jobs.

A clear statement of the relationship between quality and productivity comes

from my friend Dr. Yoshikasu Tsuda of Rikkyo University in Tokyo, who wrote
to me from San Francisco as follows, dated 23 March 1980:

I have just spent a year in the northern hemisphere, in 23 countries, in

which I visited many industrial plants, and talked with many industrialists.

In Europe and in America, people are now more interested in cost of

quality and in systems of quality-audit. But in Japan, we are keeping very
strong interest to improve quality by use of methods which you started. …

when we improve quality we also improve productivity, just as you told us
in 1950 would happen.

Dr. Tsuda is saying that Western industry is satisfied to improve quality to a

level where visible figures may shed doubt about the economic benefit of further
improvement. As someone enquired, “How low may we go in quality without
losing customers?” This question packs a mountain of misunderstanding into a
few choice words. It is typical of management’s misunderstanding in America.
In contrast, the Japanese go right ahead and improve the process without regard
to figures. They thus improve productivity, decrease costs, and capture the
market.

Awakening in Japan. Management in some companies in Japan observed in

1948 and 1949 that improvement of quality begets naturally and inevitably
improvement of productivity. This observation came from the work of a number
of Japanese engineers who studied literature on quality control supplied by
engineers from the Bell Laboratories then working on General MacArthur’s
staff. The literature included Walter A. Shewhart’s book Economic Control of
Quality of Manufactured Product (Van Nostrand, 1931; repr. ed., American
Society for Quality Control, 1980). The results were exciting, showing that
productivity does indeed improve as variation is reduced, just as prophesied by
the methods and logic of Shewhart’s book. As a result of a foreign expert’s visit
in the summer of 1950, the following chain reaction became engraved in Japan
as a way of life.2 This chain reaction was on the blackboard of every meeting
with top management in Japan from July 1950 onward; also Fig. 1.

The production worker in Japan, as anywhere else in the world, always knew

about this chain reaction; also that defects and faults that get into the hands of

the customer lose the market and cost him his job.

Once management in Japan adopted the chain reaction, everyone there from

1950 onward had one common aim, namely, quality.

With no lenders nor stockholders to press for dividends, this effort became an

undivided bond between management and production workers. An unfriendly
takeover or a leveraged buyout does not take place in Japan. Managers are not
sensitive to the price: earnings ratio of their stock. The Japanese manager may
adopt constancy of purpose (see Point 1 in Ch. 2, p. 23). (The quotations from
articles by Tsurumi and Kaus on pp. 99, 100, and 146 are relevant here.)

Fig. 1. Production viewed as a system. Improvement of quality envelops the entire production line,
from incoming materials to the consumer, and redesign of product and service for the future. This
chart was first used in August 1950 at a conference with top management at the Hotel de Yama on
Mount Hakone in Japan. In a service organization, the sources A, B, C, etc., could be sources of data,
or work from preceding operations, such as charges (as in a department store), calculation of charges,
deposits, withdrawals, inventories in and out, transcriptions, shipping orders, and the like.

Flow diagram (Fig. 1). Mere talk about quality accomplishes little. It was

necessary to go into action. The flow diagram in Fig. 1 provided a start.
Materials and equipment come in at the left. It would be necessary, I explained,
to improve incoming materials. Work with your vendor as a partner on a
longterm relationship of loyalty and trust to improve the quality of incoming
materials and to decrease costs.

The consumer is the most important part of the production line. Quality

should be aimed at the needs of the consumer, present and future.

Quality begins with the intent, which is fixed by management. The intent must

be translated by engineers and others into plans, specifications, tests, production.
The principles explained here, along with the chain reaction displayed on page 3,