A New Lens with Balaji Reddie (Part 7)

What did Dr. Deming really mean when he said to "cease dependence on mass inspection"? 

 

In this episode, Balaji Reddie and host Andrew Stotz unpack why one Ford manager's decision to fire his inspection team missed the point entirely. They explain how inspection can help leaders understand and improve the process, rather than simply sort good from bad. 

 

They also explore why Deming's 14 Points must be understood as a system, including his evolving call for cooperation and win-win thinking among employees, customers, suppliers, and even competitors. Whether you are new to Deming or have studied his work for years, this conversation offers a sharper way to think about quality, systems, and improvement.

 

TRANSCRIPT

0:00:02.0 Andrew Stotz: My name is Andrew Stotz and I'll be your host as we dive deeper into the teachings of Dr. W. Edwards Deming. Today I'm continuing my discussion with Balaji Reddie, an educator and trainer in the teachings of Dr. Deming and quality management generally. Balaji, how are you doing today?

 

0:00:25.1 Balaji Reddie: Oh, I'm doing good. We're meeting after a small little gap, and in the interim I think a few things happened. One of the major things, I think you and I were really happy to see that Bill Scherkenbach sent us a lovely photo. So Bill, if you're listening to this, thank you so much, of course we thank you for the photo. We mentioned the last time or rather when we were speaking that I said that there used to be a group of people that used to meet over the weekend. I don't know what the actual protocol was, but all of the so-called core Deming people, you know, like Gipsie Ranney and Nida Backaitis, I hope I'm getting the names right, Barbara Lawton. And I remember Henry Neave saying he was a part of that. So I didn't see that in the photo. So, maybe one of the weekends he was there over in America and so he was there because he mentioned this. And so Bill very kindly said what it was christened. It was christened the Cosmos Club. And then he shared a photo. So Bill, thank you so much. And also helping us identify most of the people in that photograph. If sometime we could share it with the Deming Institute, if they could show it as part of the... If ever we convert this into some kind of video later on with some slides and things like that, they could add that in.

 

0:01:53.0 Andrew Stotz: Yeah, it's still wonderful.

 

0:01:53.7 Balaji Reddie: That was wonderful. Yes.

 

0:01:54.9 Andrew Stotz: It's a great picture. In fact, I'm gonna just make sure that I download it for today's episode.

 

0:02:00.9 Balaji Reddie: Yes, yes.

 

0:02:01.7 Andrew Stotz: Because I'll supply it to the Institute and ask Bill if we can use it. Let's see.

 

0:02:08.4 Balaji Reddie: Yeah, I mean, I presume that he would want us to ask, but he is very big-hearted. I think he wouldn't mind at all.

 

0:02:14.7 Andrew Stotz: He looks like a spring chicken in that picture. [laughter]

 

0:02:17.2 Balaji Reddie: Oh, yeah, all of them. There was Joyce Orsini too there. It was nice to see the whole jing-bang gang, as they call them, [laughter] the Cosmos Club. But wonderful. So, yes, so last time we were discussing point number one and we saw his interpretation in the broadest sense of constancy of purpose. I shared also what he was saying towards the end of his life that he said, "Create and publish the statement of the aims and purposes of the company or other organization." So he was envisioning that it's no longer one company. It's a family of companies working together. And so there has to be something that binds all these companies together because today's business is very complex. The family is actually globally dispersed. And so there has to be a common thread that links all of these organizations together and that has to be the statement of purpose. Why do we exist? Each could have their own, you know. Because that's what Deming said in the word interdependent components of a system. And interdependent means being independent and mutually dependent simultaneously. So independent does not mean isolated. It means autonomous, that means you go by yourself. You could have your own purpose, but you need to align it with the purpose of the companies you're actually contributing to, which is amazing. So he asks us to look at it that way. And he said that the purpose should be to impact people in the broadest sense of the term. And you, in fact, brought that up, that quality, and we saw what he meant by quality. And then I think we discussed the purpose of educational institutions, et cetera, et cetera. What should they be?

 

0:04:07.5 Balaji Reddie: So that was point one. Now we get to point two. And I'll start with the original wordings which he wrote in 1986. So let me just pull that up here. He says here that, "Adopt the new philosophy. We are in a new economic age." And then he very specifically states, "Western management must awaken to the challenge, must learn their responsibilities and take on leadership for change." Now, let's look at it both ways because in 1990 he reworded this completely. But let's get back to what he meant in 1986, the new philosophy. Now, what was the new philosophy? What did he mean then? Recently I heard, or I think I saw, Dr. Joseph DeFeo, that is the current CEO of Juran Institute, release a version of the 14 points, or rather saying that these were Dr. Deming's 14 points. And I saw what he wrote there about point number two, which was his interpretation. Now, when I look deep, actually, it looked more like Dr. Juran's interpretation of the 14 points. Incidentally, talking about Dr. Juran and the 14 points, it's no secret that Dr. Juran always said that Deming did not speak much about management, he spoke only about statistics, blah, blah, blah. But there was, if you know, part of the inner circle of Dr. Deming was Dr. Myron Tribus. And Myron Tribus, if you know, was a director at MIT for some time, right? And around the time Deming was there at the Center for Advanced Engineering Study. And when... He, of course, went and met Dr. Juran to speak to him about the 14 points, and then they had a discussion for half a day on the 14 points, and Dr. Juran agreed with every single one of them. He said, "Yeah." He said, "He's spot on." But then he said that he never spoke of management then, and so he stuck to his version that he taught statistics to the Japanese. Anyway, let's leave that aside.

 

0:06:19.0 Balaji Reddie: But when he spoke about point two, and that's what Juran's interpretation was, that the new philosophy was quality should be the basis for running a business. That was the new philosophy, right? And he said that top management, of course, Deming always said that top management should be involved because unless that happens, nothing happens inside the company. So the new philosophy, what now we interpret is what Dr. Deming was trying to say in 1986, was "quality is the basis for running an organization," right? And quality, again, what we discussed last time, in the broadest sense of the term, not just of a product or a process, but the way you conduct yourself as a business, as a people. So that was the new philosophy. And he said that you should take on leadership for change, and he aimed it at Western management at that point in time, right? So that was the 1986, and he goes on to explain that, saying that we are living with commonly accepted... Because he was trying to shock the Americans at that time, right? If you try to realize when they woke up to quality in the 1980s, primarily to be... I mean, to their credit, to the American businesses, that they were doing a lot of course correction. They realized that they had done things wrong for 20 years, and a lot of course correction started happening, and they started seeing benefits. So they started interpreting that as improvement when actually it was just a correction. And I think Deming wanted to bring in that shock treatment to them, and he said improvement is not enough, right? So at that point in time, that new philosophy was basically that, okay, you're doing it right, but it's not enough. And that's why it has to come from the top. So top people have to be involved. And that was how they interpreted this.

 

0:08:12.1 Balaji Reddie: And we also looked at it that way. But in 1990, he changed the wordings of the point two, and that was in light of what he had started professing, which was a System of Profound Knowledge. So I'll just read out what he wrote in 1990. He says now, "Adopt the new philosophy of cooperation and win-win, in which everybody wins. Put it into practice and teach it to your employees, your customers, your suppliers, and" why not "your competitors." So that was, I think, the new philosophy. Much of the stuff, if you start seeing, Andrew, when I look at all the 14 points, the 14 points have to be interpreted through the 14 points.

 

0:09:06.7 Andrew Stotz: Right.

 

0:09:07.8 Balaji Reddie: You need to understand the purpose of each point. You need to understand that they're a system. And that's why you can't just read them sentence by sentence and want to implement them, if you know what I'm trying to say here. They're a system by themselves. So you need to interpret them the right way and through the 14 points... I don't know if I'm making sense to you, but that's exactly how these are. He wanted it to be that way. So you can never tell that you've understood it completely. You're getting me? You're learning something new about it every single day. And as you start looking at things around you through the lens of Profound Knowledge, you will see things differently. And sometimes you see some gaps with the sentences that Dr. Deming was uttering, and then you say, "Okay, okay, this, this, this, I understood it now. I need to make this correction." Right? And so you can never say that I've completely understood them. I mean, after all these years, still reading Out of the Crisis, still doing the series with you, has been a catharsis for me. It's revisiting these things all over again. This, despite the fact that I've been teaching this regularly to my students for the last 20-plus years, it's still new for me.

 

0:10:24.4 Andrew Stotz: And so could I describe what you just said about interpreting it within the system is that really, that's the thing about systems thinking, is that you can no longer look at an individual part. Every time you get a deeper meaning or understanding of an individual part, that changes the way you view the overall system and the interconnectedness of everything.

 

0:10:48.6 Balaji Reddie: Exactly.

 

0:10:48.9 Andrew Stotz: Where life would be much more easy if we could just, "Okay, I understand that one thing deeper and deeper. I can make a control chart better and better and better."

 

0:11:01.1 Balaji Reddie: So, it's crazy. And this realization came on me way back in, I think around '98 or '99, when I was teaching this, the 14 points, for the third or fourth time. I think I mentioned this in episode one and two, where I told you that it was very easy for me to teach the works of Philip Crosby, very easy to teach the work of Dr. Juran, because they gave methods, they gave steps. But Dr. Deming didn't give anything. You just couldn't show the wording on the slide and get away with it. You had to explain what he wanted us to do. And then, I mentioned this before, you can go back and listen to that episode, but I said that it suddenly struck me, "God damn it, these points are a system." And when I was describing this and I explained this to Hazel Cannon, and she said, "We call this in Deming-speak an 'aha' moment. You had your 'aha' moment." She said, "That's the beauty." She told me once that in the middle of the night, at 3:00 in the morning, she understood what he was trying to say, and she called up Dr. Deming.

 

0:12:11.3 Balaji Reddie: And he was very, very patient. He listened to her. And she said, "I'm sorry. I..." He said, "I knew you'd understand." That's all he said. So he used to be very happy when people used to call back and suddenly say, "We realized it now, what you were trying to say then." So it's a moment of realization. So this point to... If you read some of the notes that he gave to the Japanese in 1950, and incidentally, it's they who made the notebook and then he added on to it, if you know, Elementary Principles of the Statistical Control of Quality, first edition and then the second edition. And when they made the first edition, they had actually done this without his permission. But when they told him that we made these notes, they thought that he would be a little upset because of copyrights, blah, blah. But instead he was so happy that they'd done that, he actually helped them with the second edition. And if you read those notes, a lot of things there where he was speaking about cooperation, about understanding people. So that may not have been explicitly stated by him in his lectures in Japan, they understood it. Right? And that's a very... I don't want to sound communal here, but a very Asian way of looking at it. Because our languages are very metaphorical, so we always look for different meanings to the statements being uttered. And we always look out for what has this person actually not said, which I... Or rather, yeah, has not said, which I have not heard, but I need to hear. Right?

 

0:13:46.5 Balaji Reddie: So that's amazing, how they looked at what he was saying. I'll give an instance here where he talks about the use of the control chart, and he says that you can use it for training a worker. And then if you see that before and after training, there's been no change in the control chart, well, then the worker's attained his optimum. Then use that worker somewhere else. He talks in a very positive way about understanding people. And then going back to what we spoke in our second episode about the principles of leadership, it comes back there, that choose people in the right way and optimize all of their aims, hopes, et cetera. So coming back here, the new philosophy, basically, now we can interpret it as what he intended it to be in 1990. He said, "Win-win." But the original wordings are also... You don't replace it, you add on to it, right? So we look at it this way, that he meant that quality should be the center point of running your business. People at the top should be involved. And now we talk about cooperation, win-win. And he says this, "Teach and practice this." Now, all these things are easier said than done. We know that. But we should make an attempt. So employees, your customers, your suppliers, and your competitors. Sometimes it could be funny, right? You go up to your competitor and you say, "Look, I think we've done enough of this, going at each other's throat. Let's get together to do something." And obviously the other person will say, "What's the agenda?" They'll think you have some hidden agenda. So it's gonna be difficult when you start doing this. But I think that's become... Slowly people are warming up to that idea of being close to your competitors and learning with them and from them. Right? We don't look at them as a rival in the true sense, trying to cut the other guy down and things like that. But that's the way it is. And if you say that it's a cutthroat thing, but we need to have some things in common before we decide to branch out and go our own way. Right? So there has to be some kind of a cooperation so that win-win... But main thing is to win, that is, everyone wins. He says, "Some may win less than others, but we all win just the same." So the whole purpose was that. Yeah.

 

0:16:02.4 Andrew Stotz: It's interesting because I remember hearing that when I was younger and the first thing is cooperating just within a team. The second one is cooperating maybe within a department. Another one is cooperating within a business. And then... That's already hard enough to get to. And then he talked about cooperating within an industry. And of course, there are anti-trust laws in America, which he wasn't talking about colluding on prices to take advantage of the position against the customer. But he was also... I think if we look at AI right now, the development of artificial intelligence, and to what extent could the industry work together to safeguard, for instance, or to understand the development of the energy needed to do this, you know.

 

0:16:54.4 Balaji Reddie: Yes.

 

0:16:55.3 Andrew Stotz: Or how do countries across the world work together to make sure that one doesn't have an unfair advantage with AI or with energy or that type of thing? So, yeah, it was definitely interesting when I first heard it. But as I look at it now, I get what he's saying about the industry cooperation.

 

0:17:15.3 Balaji Reddie: Yes, I saw this in our country, in India, where you had the rival mobile service providers getting together and realizing that the hardware needed was the same, the software would be different. So they got together and created a company, you heard that right, a company, that set up mobile communication towers. So there are no multiple towers everywhere for each mobile provider. There's one set of towers, and it was a separate company. And by the way, that company went on to win the Deming Prize.

 

0:17:48.0 Andrew Stotz: Interesting, interesting. It's interesting that the concept for point number two is... And sometimes I read it and I think, "Adopt the new philosophy." It's kind of obvious, isn't it?

 

0:18:04.1 Balaji Reddie: Yeah. [laughter]

 

0:18:05.8 Andrew Stotz: And that's where part of what you're talking about, about understanding all of it through the Deming 14 points lens.

 

0:18:13.7 Balaji Reddie: Right. Yes.

 

0:18:14.9 Andrew Stotz: But I can also think... I wanted to highlight back for those people that weren't around at that time. I graduated from university in 1989. I went to work at Pepsi. And so Out of the Crisis came out about 1986. And I remember during my years at university, the Japanese were just killing the American car manufacturers. And the motorcycle companies were killing... Honda and the others were killing Harley-Davidson.

 

0:18:43.2 Balaji Reddie: Right.

 

0:18:43.5 Andrew Stotz: Even to the extent that Harley-Davidson and others went to the government to try to get Reagan to give them tariff protection, which he did, in fact. But there was a huge debate I had in class, I remember, about protection versus competition. And it just highlights what was going on. And so Out of the Crisis, as you mentioned, the title, just the idea of shocking people to say, "We're in a crisis," I think at that time it was really apropos. And also the other part is he's talking about Western management.

 

0:19:21.1 Balaji Reddie: Yes.

 

0:19:21.4 Andrew Stotz: Western management. And now you look at... Japan was really doing great at that time. And now we have Japan and China that's also made huge strides. And so it's just so fascinating that he was directing it at Western management for sure, that we've got to fix things. And sometimes I look back and I think, "Oh yeah, Western management learned and improved," because we've got so much innovation going on in America as an example and all of that.

 

0:19:52.6 Balaji Reddie: Right. Right.

 

0:19:53.4 Andrew Stotz: But sometimes I look at the developments of the Chinese or Japan and I think, "Hmmm...Did we learn? Did we learn?" Look at the trade balance, look at the amount of debt, look at that in the US and you think, "I don't know." I'm curious, how would you score it?

 

0:20:09.5 Balaji Reddie: Yeah, I mean, that's just what I had to say. So the whole approach towards this whole thing being holistic, not just looking at it from a very narrow point of view and realizing that we need each other, we can't do without... We call them competitors, but they are also helping us do a better job. They're pushing me to look out for what I'm good at and I don't have to put somebody else down to show myself as big. And if I contribute to the industry in a very big way, not only do I gain, others gain, and if I share, then they would also share with me, right? So that realization, I think, is coming in. And if you think about this, it was very interesting, the mathematician by the name John Nash, if you remember him, he actually postulated this in terms of mathematics in 1950, and he got a PhD from Princeton for this. Now, I would give full credit to the jury listening to his dissertation, defending his thesis, that you had to do this because, interestingly, he gets a Nobel Prize for that in 1974. It took 24 years for the world to figure out what he was trying to say. And you want to go read that, he was thinking win-win.

 

0:21:41.7 Balaji Reddie: So I often wondered if Dr. Deming, John Nash, did they know each other? Obviously, they didn't, but they were thinking and saying the same thing in two different parts of the world. He was doing that here in the US and Deming was talking about this there in Japan, and he was talking about telling the Japs that Japan must see itself as a system. And so all their companies actually work together. We see them as versus; they don't see each other as versus. You're interestingly saying this about the two-wheeler companies, the bikes... In India, we had just one or two bikes before the four Japanese companies came in. It was Suzuki, Honda, Kawasaki, and Yamaha. And they tied up with different Indian companies. Now, of course, after a long time, they've all gone their separate ways. But as a teenager, I remember these. And the funny thing was all four motorcycles were different and all four sold well. All four. And they sold in different parts of the country.

 

0:22:43.8 Balaji Reddie: I can tell you this firsthand because just after I completed my engineering, I was looking for a job. So I had some time to myself and my mother's friend, she ran a market research agency and she just called up one fine day and said, "Would Balaji care to do this market research for me? It's about bikes." So I had to travel north, south, east, west and tape a conversation with bikers asking them which motorcycles they liked among these four. And these four, the plants were set up at four different places in our country. So north, south, east, west, typically, you know how vast India is in that sense. And the one... It was very interesting. The bikes that were made in the north were sold very well in the south, and some made in the south were sold very well in the west. It was crazy. But there was, of course, one motorcycle that would always stand out and people would say that, "Yeah, this is the one which really..." But that would always be the case. But by and large, everyone did well. Looking back, I say that, wow, they were practicing this without us knowing it.

 

0:23:51.6 Balaji Reddie: And even now, if you know, I don't know whether this happens outside of India, but Suzuki and Toyota in India have collaborated with each other to use the car body, if you know what I mean. The insides would be their own inside. Suzuk... Maruti is the name of the Indian company that's tied up with Suzuki Motor. So you have Maruti Suzuki and Toyota. They have common bodies, names are different, but the inside is Toyota technology and Suzuki technology. So they've decided, they just realized that they need each other, right? And they're doing exceedingly well, both. Just both.

 

0:24:33.7 Andrew Stotz: Sharing the platform.

 

0:24:36.0 Balaji Reddie: Yeah. It's crazy. And you don't start bothering so much about trying to defend yourself, right? You go ahead and focus on what you're good at. So this point two, the new philosophy, what it meant before and what it means now, I would not say it replaced it, but it's just added on to it, where he said that top management should be involved. That was the new philosophy, that quality has to come from the top. Western management waking up, et cetera. The Western managers to see quality is the basis for running your organization. It should be your strategy. And he just says as an extension of that strategy, we need to get together and cooperate and think win-win. So that's the new philosophy. It takes us, he always says, a new reward system would come in. It would be a better applied science. You can read that in The New Economics, that what is the purpose of this entire new philosophy, The New Economics, where he explains this.

 

0:25:39.2 Andrew Stotz: Yeah.

 

0:25:41.4 Balaji Reddie: In a nutshell is point two. So the purpose was to shock the Western management at that point in time, but also in a different sense, try to open the eyes of people even now that please don't think small, think big, right? The new philosophy tells us look beyond the boundaries that you've artificially created and see what you can do with the others, including your competitors. And don't look at them as adversaries, rather than partners in something that both of you will grow. Maybe not evenly, but you will grow. So that was...

 

0:26:18.7 Andrew Stotz: Yeah. One last thing for me on that is just the idea that he reinforces the focus that quality is, the key is the customer in that process of quality.

 

0:26:33.8 Balaji Reddie: That's right. That's right.

 

0:26:34.4 Andrew Stotz: As opposed to it's not about quality, quality, quality, control charts and QC circles and all that. It's about what is quality in the eyes of the customer and how do we better deliver that. So that always gave me so much comfort when I learned what he was teaching, that he wasn't just... It wasn't all about quality and tools. It was about quality in the eyes of the customer.

 

0:27:00.8 Balaji Reddie: Right. So that's why he said tools are just 3%. And you can be 100% excellent at the 3% and still run out of business, right? He always said that. So you need to apply this in the broader sense of the term. So that was...

 

[overlapping conversation]

 

0:27:08.5 Andrew Stotz: Yeah. And the problem is if you don't understand the system and you don't understand the whole teaching, then even if you're good at the tools, you may misinterpret from the tools.

 

0:27:25.6 Balaji Reddie: Yes. So, right, so that was point two.

 

0:27:30.4 Andrew Stotz: Whoo!

 

0:27:31.3 Balaji Reddie: So now we come to point three. [laughter] Now point three... Yeah, we just got I think 15-odd minutes, but I'll cover some part of it and I think we'll continue with this.

 

0:27:34.0 Andrew Stotz: Yeah, yeah. We good. I got time.

 

0:27:42.5 Balaji Reddie: Point three. Now this again has been so crazily misinterpreted. All right, so I'll start with the wordings once again, I'm referring to the document what he wrote. And he says now, "Cease dependence on mass inspection to achieve quality. Eliminate the need for inspection on a mass basis by building quality into the product in the first place." Now if you look at that, he was talking much about the act of inspecting and the entire activity-based and saying don't depend. The keyword was "cease dependence," because if you hear what happened in one funny case where the manager from Ford went back and just sacked all his inspectors saying Dr. Deming said we don't need inspection. But that was, I think, overstating it. But nevertheless, the keyword is dependence. Don't depend on inspection. And then he said, build quality into the product in the first place. And then he quotes Harold Dodge who said you cannot inspect quality into a product. Quality is already there. Inspection just reports what's happening. It doesn't tell you where... You know.

 

0:29:00.4 Andrew Stotz: Yep.

 

0:29:03.4 Balaji Reddie: Andrew, can you hear me?

 

0:29:05.8 Andrew Stotz: Yes. Keep going. So what you're talking about is the idea of thinking about quality not from the perspective...

 

0:29:20.2 Balaji Reddie: Yeah, we got disconnected.

 

0:29:21.7 Andrew Stotz: Yeah. What I was saying you're talking about is this idea of cease dependence on inspection, that it doesn't mean inspection's completely gone, but it means starting at the beginning of the process and thinking about how do we improve things from there. So continue on.

 

0:29:37.3 Balaji Reddie: Yeah, so I just said here that he was not so much at that time when he wrote this, like I said here, it was misinterpreted because, yes, he did start with saying the activity, the activity-based thing about inspection, that we should not depend on it. And I think I mentioned that Ford... One of the managers of Ford, misinterpreted that and sacked his inspectors and things like that. But he said that eliminate the need for inspection by building quality into the process and the product in the first place. So the word was dependence. And so he did not say that you need to eliminate the act of inspecting. In fact, it's very interesting what he actually spoke about this in the workbook which you get when you go a four-day seminar on video which was created by General Motors, right?

 

0:30:30.6 Balaji Reddie: So those video cassettes, and then the workbook that came with that had a very interesting take on inspection. So he said that it doesn't mean that we're gonna stop. He said you'd be a fool to keep yourself in the dark about what's happening in the process. You need to know what's happening in the process. So he's not saying that do away, he's saying use inspection. So now he actually said this, and here's where the interpretation comes in: understand the purpose of inspection. The purpose of inspection is to give yourself more and more knowledge of the process, not for sorting bad from good, because good and bad product come from the same process. We need to fix the process. And this is to be interpreted if you talk about how he looked at this, because if you read what he spoke about the nine heavy losses, when we discuss those, he says that one of the losses was performance appraisal. So I want to ask those people who say that this interpretation, isn't performance appraisal quality by inspection? You're sorting bad from good based on some arbitrary measure that you created in your head. You decide what's good, you decide what's bad. You're God, is it?

 

0:31:52.9 Balaji Reddie: I mean, Douglas McGregor actually wrote an article on this saying that managers don't like to play God, right? And he's the one who advocated, no, we don't need performance appraisal. It actually harms. And Dr. Deming just said the same thing. So if you read Douglas McGregor's book, The Human Side of Enterprise, there's a new version, the annotated version, where they've given commentary of what some experts or some the interpretations of the text. And I was amazed to see Dr. Deming's name come up there and saying that Dr. Deming also concurred with this and said it in very plain words that do not carry out performance appraisal. And he likened it to using inspection to create quality, whereas we know it doesn't. So fix the process. Right? And then people again take this in piecemeal and start quoting Deming: "A bad system will beat a good person anytime." I don't know what to say here, really. I mean, he obviously he said... He was trying to explain that you cannot judge that person based on the output of the system. I mean, it's an output of the system, the person. So you need to look at it that way. I don't know whether I'm making sense here, but that's the way to look at this point number three. Right? And he says that don't depend. Use the inspection to understand the process. Now, he says here, and I think I've got the text in that, he says, "There will always be inspection. We must never deliberately leave ourselves devoid of information on how the process is doing. Is it still in statistical control? Is there a trend? Were our efforts towards shrinkage of variation or change of level successful? The function of inspection is optimization of the whole system, including suppliers of materials and services and the ultimate consumer." So he very clearly stated this, that this is a system. And this was the system he was talking about, right? And he says here that it's not about just manufacturing, service. It's if you are really, really interpreting this, then you'd also remove performance appraisal in the process, right? Because that's quality by inspection. Uh-oh.

 

0:34:21.2 Andrew Stotz: The Human Side of Enterprise, the annotated edition, is available on Amazon. Just looking at it right now, this annotated edition came out in 2023. So I haven't read it, so I'm gonna check it out myself.

 

0:34:42.1 Balaji Reddie: Yeah, I think I lost you again.

 

0:34:44.5 Andrew Stotz: Yep. I just went through the details about The Human Side of Enterprise and that latest version or edition that's just come out that you've mentioned. It came out in 2023.

 

0:34:57.0 Balaji Reddie: Right, right. So you could get that, read that book, you'll get to see it. And he very clearly... Did you record that bit where I read out the text?

 

0:35:09.4 Andrew Stotz: I don't remember that.

 

0:35:10.8 Balaji Reddie: Okay, I'll just read it out again so you can edit it later. So, yeah, he says here, "There will always be inspection. We must never deliberately leave ourselves devoid of information on how the process is doing. Is it still in statistical control? Is there a trend? Were our efforts towards shrinkage of variation or change of level successful? The function of inspection is optimization of the whole system, including suppliers of materials and services and the ultimate consumer." Did you get that? Did that get recorded?

 

0:35:45.5 Andrew Stotz: Yeah.

 

0:35:46.0 Balaji Reddie: Yeah. So that's exactly what he meant. He said that he was not talking about the act, and he said you would have some inspection. Now, interestingly, a very, very different take on this that, yeah, I told you Myron Tribus was talking to Dr. Juran about this, and Dr. Juran gave his interpretation. Because if you know, he invented this badly misunderstood and abused term called cost of quality, right? And if you know why he invented it and what happened later, I don't even want to get into it. He said, "The only way I could grab management's attention was to present my problem in terms of money. If I explained to them and said to them that there is... This process running at 90% efficiency, they would be happy. They said, "Great." He said, "No, it's not great." And then they just wouldn't listen. They said, "90% is great." So he said, "How do I talk to them?" And so he went back to them and said, "Okay, your process is running at 90% efficiency." They said, "Yes." He said, "But you're paying 100% salary to this guy to do 90% good work, and then you're paying 100% salary to another guy to remove the 10% bad work, and then you're paying 100% salary to a third guy to correct that bad work." And that's how he invented cost of quality.

 

0:37:11.8 Balaji Reddie: Now people have gone and overindulged in this and they start having arguments about what is the category and where should it fit in and... Anyway, what he was trying to say is there are some activities where the more money you spend, the better it is. And so he came up with that cost of prevention and of course, I mean, conformance and non-conformance. In conformance, there were two categories. One was called prevention, where the more money you spend, obviously the better it is, but you get... You know, the returns on them will come much, much later, like training and spending money on the right things like maintaining your equipment, blah, blah, blah, research and development. He also gave a category called appraisal. And appraisal, he says, these are all activities which are necessary evils. [laughter] That means you can't eliminate them, at the same time you should not overtly depend on them to create quality. And one of them was inspection. And he says you should not spend more than necessary on inspection, just enough.

 

0:38:16.1 Balaji Reddie: Now here's the question I get, how much do we spend? [laughter] And the trick which I read somewhere and I saw that because I interpreted these points both ways. So when you start doing this, you walk into a company, make them calculate how much money they're spending on inspection right now. So let's say it's $100,000 or rupees or whatever. Now you start implementing the improvement processes, you start understanding the process and you start, well, the works, control charts, blah, blah, blah, blah. And then you start seeing that the process is getting better and so your defects are coming down and things are getting better generally. And so you're spending lesser money on inspection, you're spending lesser time on inspection, your resources are going in the right direction. And so that amount starts coming down and you keep doing that and you keep doing that and then you reach a point where you say, "Okay, this is it. I need this much of inspection at a bare minimum to keep myself," like Dr. Deming said, "not devoid of any information." I need to know what's happening. So that need-to-know basis, just enough, now that becomes the cap, right? And you say now, "If after this I see an increase in the money being spent, then... It's not that I'm going to go and just eliminate. I'll try to find out why." And if you look at it, that's exactly what Dr. Deming said, understand the purpose of inspection is to make the process better. The product, of course, will get better and you use the inspection intelligently to understand because good and bad products come from the same process. This is absolutely true for both manufacturing as well as services. You always can look at the activities and see which are the ones which are prone to a lot of mistakes that can happen and then you try to help the person carrying out the process. "Can I eliminate this? Can I reduce this?"

 

0:40:14.0 Balaji Reddie: And talking about AI, I think AI can help a lot in that, in much of the so-called mundane activities which are repeatable and being done on a regular basis. You can bring in AI over there, use it in the right way. Right? Even for the inspection thing, they talk about it, but yeah, like I said, we need to keep our eye and just keep glancing at it, but not going and standing in front of the process all the time. You don't need to do that. Just... So like Dr. Deming said, watch that... Look at the trend, the impact of my action that I need to inspect. So in that sense, like I said, the act of inspecting will never go away, but our reliance on that will come down drastically. And once in a while, just glancing through, just letting us know that things are going according to plan is the right way of looking at this. Anyway, I think that's all we have time for today, Andrew.

 

0:41:10.2 Andrew Stotz: Yeah. So I'm gonna wrap up by saying 290 years ago, Benjamin Franklin said, "An ounce of prevention is worth a pound of cure."

 

0:41:23.2 Balaji Reddie: Wow.

 

0:41:24.2 Andrew Stotz: Well, it's a lot of what you've just described is the idea of starting at the beginning and trying to reduce the need to depend on inspection. I love the stuff that you talked about about... He didn't say eliminate inspection, he said reduce the dependence. And that really reminded me that there's a purpose. And as you've described, the purposes of inspection isn't only just, "Okay, we don't want something bad going out to the customer," but what it really is about is understanding how are we doing. How have the upstream preventative or improvements that we've done in the upstream resolved or reduced what's happening at the downstream? I think that was a major thing for me as a young guy when I first heard Deming, to understand that, start at the beginning and try to get things right from the beginning, that will reduce the amount of trouble that you have towards the end. So, fantastic.

 

0:42:22.2 Balaji Reddie: That's true. That's true. All right, then.

 

0:42:24.5 Andrew Stotz: Well...

 

0:42:25.1 Balaji Reddie: We meet again next week or week after that to continue this.

 

0:42:27.0 Andrew Stotz: Yeah, I look forward to it. And for the listeners out there, remember to go to deming.org and jump into DemingNext to continue your journey.

 

0:42:36.5 Balaji Reddie: Yes.

 

0:42:37.0 Andrew Stotz: This is your host, Andrew Stotz, and I'll leave you with one of my favorite quotes from Dr. Deming, which is, "People are entitled to joy in work."

 

0:42:45.3 Balaji Reddie: "Joy in work."