Industries.
W. Edwards Deming was not simply a business consultant. He was more like a guru. For many years, he remained an obscure thinker within the United States, but he had become a major figure in Japan, where Deming helped Japanese automakers improve their factory production and build some of the strongest manufacturing companies in the world. Like Charles Koch, Deming stood apart from the mainstream thinking of America’s business community, and he wasn’t afraid to speak his mind about it.
“Deming’s passion was for making better products, or, more accurately, for creating a system that could make better products,” the journalist David Halberstam wrote. Deming wanted to overhaul American management using mathematics. He was a quality control engineer at heart, and he thought that the manufacturing process could be improved only by using hard statistics. Deming taught companies to measure what they were doing, to analyze it, and then to improve it.
Deming’s concept of continuous improvement was applied throughout Koch Industries, and the results were dramatic. One of the most successful students of continuous improvement was Phil Dubose, the oil gauger in Louisiana who had already mastered the Koch method of measuring oil. Dubose would eagerly absorb the lessons of Koch University. In doing so, he would see firsthand why Koch Industries became one of the largest companies in America even when most people had never heard of it.
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After rising through the company ranks over the years, Dubose was promoted in 1982 to oversee Koch’s marine operations around the Gulf of Mexico. This put Dubose in charge of a fleet of barges that went from terminal to terminal, collecting crude oil and then shipping it to refineries in Texas. Some of his barges even traveled north on the Mississippi River to Koch’s refinery in Pine Bend, Minnesota.
Dubose was terrified by the promotion. There had been two previous managers of the marine unit, and both of them had failed to turn a profit. “If it failed again, I was going to go down with it,” he recalled. Dubose was determined to make the shipping barges turn a profit. He knew he had one tool to help him do this: the charts of W. Edwards Deming.
The fleet Dubose oversaw initially consisted of five large barges. They each carried about 8,500 barrels of oil. Each barge had a skipper and crew who lived on the craft while it traveled from port to port. The first matter of business that Dubose focused on was keeping costs down. Fuel was the largest cost the barges incurred. Rather than let the skippers fuel up the ships when they wanted to, Dubose required them to call his office when they were running low on gas. Then he would call the local ports and find the best price for gas, sending the skipper to the best location. This helped cut costs right away.
The tools from Deming helped Dubose go even further. Of all the charts he learned to make, he found that by far the most useful was called a run chart. Even decades later, he’d talk about run charts as if he were discussing a cherished family pet. “The best chart out of all of them . . . is that old-fashioned run chart. It’ll tell you where you’ve been and where you’re going,” he said.
A run chart broke down all the costs that a barge would incur. It had a separate category for each cost: groceries, fuel, maintenance, ship damage, and supplies. The run chart allowed you to track these costs as they shifted from month to month, letting you see “where you’ve been and where you’re going.” Dubose was taught to look for cost spikes. The reason was simple: you figured out what caused costs to spike, and you avoided it. Then you figured out what caused costs to fall, and you replicated it.
The critical part came next. Dubose printed run charts for each vessel and posted them in the skippers’ cabins. Each skipper could then see for themselves where they were running up costs and where they were saving money. Dubose turned each skipper into his own manager. Skippers were free to make their own decisions based on the run chart. Then Dubose went further. He started tracking the profits and losses for each barge. This made each skipper a small-business owner and each barge a small business. The skipper had all the information he needed to boost profits and the freedom to act on that information. And Dubose had total visibility into