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May 31, 2021

In our 49th Deming Lens episode, host Tripp Babbitt shares his interpretation of wide-ranging aspects and implications of Dr. Deming's System of Profound Knowledge. This month he looks at supply chain and risk management.

Deming.org article on supply chain: https://deming.org/how-people-are-using-demings-management-ideas-to-respond-to-covid-19-conditions/

Show Notes

[00:00:14]
Deming Lens - Episode 49 - Supply Chain ad Risk Management

[00:04:50]
Deming is More Than Toyota

[00:06:20]
Forgotten Lessons and No Learning

[00:08:04]
Reducing Variation

[00:13:20]
The Deming Legacy

 

 

Transcript

[00:00:14] In Episode 49 of The Deming Lens, I'll discuss supply chain and risk management through the system of profound knowledge. Hi, I'm Tripp Babbitt, host of the Deming Institute podcast, and in this Deming lens, I was looking for something around current events that are happening around the world.

 

[00:00:42] And I did come across John Hunter's article at Demnig titled How People Are Using Deming's Management Ideas to Respond to covid-19 Conditions. And obviously Supply-Chain issues have come to the forefront since this pandemic started, with manufacturers having to close and there's a shortage now. Pretty much everyone's aware in semiconductors. And John's article hits upon, you know, some of the things that are happening with the supply chain disruptions and can be looked at or targeted back to just in time types of manufacturing, which is where materials come in to a manufacturer just as they need need it so that they can produce whatever final product might be, raw materials. That could be some other product from a supplier. That's part of some broader thing, like a car. And so just in time, reduced a lot of the waste in inventory. And as John pointed out, that these problems or that just in time basically has components of making problems visible, reducing waste, reducing inventory costs and being able to adjust to market conditions. And especially if there's explosive amounts of change in the supply chain. The adjustments to the market conditions are kind of what's up in the air, at least in my mind.

 

[00:02:34] So the market conditions, obviously, or the conditions out there is you still have a demand for these products, yet you don't have all the resources available or suppliers are shut down. And therefore you have these supply chain disruptions, as I mentioned, with the semiconductors. So, John, link to a Reuters article on Toyota and business continuity. And basically it points out the article itself, the Fukushima disaster kind of got. Companies thinking a little bit about risk management in their organization and that Toyota in particular saw risk and started to have their suppliers store two to six months worth of semiconductors or the components for it. And there are a few things here that I'm going to make a comment on, which is to me, John mentions Lean quite a bit in the article. From my viewpoint, lean is an outcome of the application of Deming's thinking, and I posted on this many times in LinkedIn and other articles that I write, and Dr. Deming helped Japan get back on its feet by teaching them statistical quality control and some of the thinking associated with that developed in Japan during the 1950s, 60s and and on. And so for me, because lean is more of an outcome, it misses, I think, some things when you go back to Dr. Deming's original philosophy, and that is that his system of profound knowledge and before that, his 14 points, the system of profound knowledge made up of primarily systems thinking, theory of knowledge, knowledge of variation and psychology is kind of what he left us.

 

[00:04:50] Prior to his death in 1993, so to me, if you go back to kind of those basics, I do believe organizations would find new solutions other than trying to copy Toyota or do things associated with that. And I know I bump heads every once in a while with people from the lean community over that. So it is what it is. That's just my belief is that if you go back to Dr., a system of profound knowledge is that that's you could come up with something maybe better. So, you know, John makes a comment in here and I'll just read from the article. I'll post a link to it, which is Toyota learns from results and maintains that knowledge for decades often adapt organizations adapt in the short term and over time lapse into the same systemic recognizes that cause them problems. So a few years later, they fail in a way that would have been prevented if they just learned and kept the improvements from that hard learned lesson. Now, that's a statement packed with a lot of great information, because this is what I see in most organizations as there's no learning, there's reaction for the short term and maybe adjustments to inventories because, oh, that happened.

 

[00:06:20] But as time goes by, it's kind of like, well, you know, I it's there's no learning. Therefore, an incident may be like it, but not exactly the same thing creates a situation where organizations are not prepared because they forgot the lesson they learned before. And I think it's shocking to me how many organizations are not prepared for some of the risks that that may exist in their environment. And I think some of that needs to come from not leaving, but from, you know, the ability to look at your system, the broader systems that are out there, as Toyota did, and see that there's, you know, some risk associated with what's happening and that just in time may not be the best thing. Now, there's a lot of solutions for that. We talk about that in a minute. But before I do that, I do want to point out that point four of Dr. Deming's 14 points talks in terms of a single supplier. And the reason for this, I originally out of college, I worked for an industrial distributor. And, you know, we had 20 different vendors for, let's say, a drill drill bit. And, you know, there's a whole series things, things associated even with electronic inventory or things put into a computer system where you can easily have 20 vendors available there.

 

[00:08:04] But the problem is, is there were a lot of minimums for these companies. So let's say was a 50 dollar minimum. Well, a lot different than in the 1980s. And today it might be more you had a minimum to place and somebody place a 20 dollar order. You were unable to order that drill bit or set of drill bits until they met the minimum. And having those on record are problematic because it just sits there and the customer never gets there their item. But there's a whole series of things associated with a single supplier. But most of it has to do with reduction of variation. And, you know, now I'm seeing from conversations with some executives that, you know, oh, well, we're having these supply chain disruption. Therefore, the solution should be that I carry multiple suppliers. And I think as we get into some of the solutions associated with this, that we still need to keep in mind that we're trying to reduce the amount of variation that we're getting into our products and that vendors may not necessarily be the answer. I think there may be more things associated with solutions around geographic location of where things are. And, you know, we saw with PPE the difficulties in the United States at least getting things from China during that time period because they had a need. And so if you're manufacturing something in China and they have a need for the same PPE products that they're going to keep.

 

[00:09:49] Them and maybe not honor the requests that are coming from the United States or the increased demand associated with it. So all these things, I think, are going to get looked at and hopefully not. And then just a knee jerk reaction type of thing, because there are a lot of risks out there. You know, I read a few things down here. You know, we've had geographically, we've had a chip block, the Suez Canal. We've had, you know, the government imposing tariffs on Canadian lumber, therefore increasing, helping to increase the cost of lumber here, here, at least in the United States. And so all these things have unintended consequences. The political ramifications of doing things are going to affect other things that that people didn't anticipate. And, you know, as our government, as governments get more centralized in order to control things, the free market goes away. And then the more of these unintended consequences tend to show themselves up because nothing can be completely planned from that particular standpoint. So but there are other risks that that are our potential, there are the ones that come very regularly like hurricanes and tornadoes, where we've seen power grid disruptions, we're starting to see some in the United States and as well as other countries where these things are maybe more common.

 

[00:11:28] You know, civil unrest. We've had this pandemic. You've got war. You've got civil war, I mean, and varies by country. And I would say that even the most democratic or the republics that are out there do face additional types of risks these days. For me, it's associated with what our financial institutions have done with regards to inflation. And that's a whole nother conversation, too, in this particular podcast. But we also have the risk of things that maybe are less likely but have happened before. And like the geomagnetic type of storm, like happened in 1859 that burned out all of the telegraph wires. And today, if we had all of our wires burned out, it would be a whole different type of risk associated with with bringing things to a standstill. So I think it's you know, as I look forward to maybe some of the solutions that are out there, I do hear a lot of the same old solutions that are what I would probably classify as unwise, because most of the people that are making decisions are very analytical thinkers. They they think in terms of compartments and are not synthetic thinkers or systems thinkers enough in their environment to look more broadly at the risks associated with their company. Now, one thing that has happened is covid has exposed us, you know, as humanity, and there will be other challenges in the future.

 

[00:13:20] And I think we're going to have to go back to some of Dr. Deming's original thinking that he left us with his system of profound knowledge. And again, for those that aren't familiar with Dr. Deming system, profound knowledge, it's systems thinking, it's theory of knowledge. How do we learn? And these are some of the things that Dr. Deming implemented in Japan very early and not just a Toyota, you know, almost all the manufacturing that's out there and that we have to have knowledge of variation and knowledge of psychology and some of the things that, like neuroscience, that have gained knowledge about how our psychology works, is affected by how our brain works. So as we look forward to the future, I think it'd be better for folks to go back to Dr. Deming's original system, profound knowledge to look for what the new solutions are. It's not a road map, John points out. Dr. Deming's philosophy is not prescriptive. I have a tendency to believe that Leane is more prescriptive in nature and because of it being an outcome of some of Dr. Deming's original thinking, and that Dr. Deming was wise to leave us a philosophy as opposed to a connect the dots type of environment.