Insights from Out of the Crisis, Chapter 1, Chain Reaction: Quality, Productivity, Lower Costs, Capture the Market, in EAM System Design

Top 3 Insights from Chapter 1 in ‘Out of the Crisis’ by W. Edwards Deming for EAM System Design and Use


Today is the start of the tenth time I study W. Edwards Deming’s famous book, Out of the Crisis. I first read the book around 2004, 2005. The insights it gave me back then about quality, productivity, lower costs changed my life and my career for the better. The last couple of times when reading the book, I thought it would contribute real value to Enterprise Asset Management (EAM) if I explained the insights Deming’s experiences, concepts, and advice in Out of the Crisis gave to me over the years about EAM System design and use. The approach for this series of articles is to read a chapter and then explain my top three understandings of Deming’s writings when applied to Enterprise Asset Management systems. Any misinterpretations and errors in what I perceive Deming meant are my own.

Keywords: Enterprise Asset Management system, holistic EAM system design, Total Quality Management, TQM,

Top 3 EAM system insights this article helps you to appreciate:

  •  Organizations are holistic systems connecting inputs to outputs via its operational processes.
  • Increase efforts to make top quality product and you lift productivity and reduce costs.
  • First stabilize a process at its natural behaviour and then you improve it.

The book, Out of the Crisis, is about what makes effective, highly productive business and operational systems. Deming intended the book to cover all systems created and built by humans. For sure that includes EAM systems and their processes.

When MIT published Out of the Crisis in 1982, USA-made products were losing market share to those from Japan and the Asian Tigers—South Korea, Singapore, Taiwan, and Hong Kong. Deming feared for the future of his country’s economy because the home-made products were of inferior quality manufacture and poorer value compared to those from the overseas competitors. Deming was by then acclaimed as the Father of Quality Management. Due mostly to his effort, and aided by a few other quality experts, to help Japanese industry recover after World War II and allow the country to rebuild its economy and care for its people. Deming took to Japan in 1950 the best Total Quality Management (TQM) practices learnt by USA manufacturers in WWII for making military equipment and showed senior managers, middle managers, and engineers across the country how to do and use TQM to build highly effective production systems. By the time Deming wrote Out of the Crisis, he had seen Japanese company after company dominate their markets at the loss of US businesses. When released in 1982, his book held 32 years of teaching TQM and seeing how Japanese industry transformed into a marketing and production global force.

Out of the Crisis Chapter 1 Top 3 Insights

The title of Chapter 1 is, ‘Chain Reaction: Quality, Productivity, Lower Costs, Capture the Market.’

When Deming taught Japanese industry, he started his classes by showing the two diagrams below. The first illustration he called ‘the quality chain reaction,’ and the second one he titled, ‘Production viewed as a system.’ The entire book revolves around these two diagrams and how to achieve the full economic and market potential implied by their content.

Put plain and simple: Low quality means high costs. Deming advised when a process achieved tight quality distribution by reducing process variation then productivity rose, since everything is right first time, and costs go down, as there is no money lost to scrap, rework, or waste. You can then enter the market and offer customers a better-quality item at a lower price than they have ever before seen. That strategy, as taught by Deming, is what Japanese business and industry did.


Insight 1: Everything Is a Part of a Holistic System

It is not instinctive to realise that everything and everyone around us functions within systems. Deming drew production as a system of processes because he was teaching managers and engineers from manufacturing organizations. But you can draw a system for anything, because when you investigate a situation, whatever it is, it is sure to belong to a system made of various processes. It might even belong to more than one system at the same time.

Applying this insight to Enterprise Asset Management, as Deming did for Production, means you can draw an EAM system to show its processes and the holistic nature of their interactions. Such a diagram of an integrated EAM system is found in the website article titled, That’s Not a EAM System. THAT’S A EAM SYSTEM!

Insight 2: Work to Abolish Variation to Stop Mistakes and Defects and Raise Productivity

There is an example in the first chapter where Deming uses production data to plot the proportion of defectives made in a plant day by day. The chart, shown below, displays a stable process with an average daily defect ratio of 11 percent, some days more and some days fewer. The ‘message’ told by the chart is the operation’s system and its practices makes both product and scrap as its output. The supervisors at the plant then reviewed the workers’ operational definitions, also known as a standard operating procedure (SOP), explaining how to make the product and reduced the causes of variation. That one improvement more than halved the proportion of defective products from 11 percent to 5 percent in seven weeks.



The beneficial gains of reducing variation were many: “quality went up; production of good product up 6 percent; capacity up 6 percent; lower cost per unit of good product; profit improved; customers happier; everybody happier.”

Deming encouraged the company to continue eliminating variation, to “wipe out the 5 percent defective,” because it was possible to make product with zero defects and zero failures. The plant needed to improve its production system and processes; help each operator to do quality work; and ensure incoming materials did not bring troubles and problems to the production process.

That got me excited, because eliminating defects and failures to zero by reducing variation was directly applicable to enterprise asset management systems as well. It is a simple formula to follow, a mantra: quality, productivity, lower costs. If there were no defects and errors throughout a physical asset’s life cycle, then the asset would be exceptional dependable and low maintenance during its whole service lifetime. That insight led to the creation of the Accuracy Controlled Enterprise 3T (Target-Tolerance-Test) method of writing and using a standard operating procedure. You can follow this link to read a PDF white paper about Using Accuracy-Controlled 3T SOPs for Production and Maintenance Quality Assurance.

Insight 3: It is Necessary to First Stabilize a Process and Only Then Work on Its Improvement

Another story Deming tells in Chapter 1 is how the Nashua Corporation saved a fortune in making a paper product without purchasing new production equipment by working purposely to reduce process variation. What immediately caught my attention in the story was the first thing the Nashua Corporation did was to do nothing at all. They started improving the process by leaving it alone to run and settle down to its natural behaviour.

It would be near impossible for the management of an organization to do nothing as the first step in improving their operation’s performance—unless the management understood why that is the best thing to do. That happened in Japan because the corporations also sent their senior and middle managers to Deming’s courses. Upper management learnt and understood that first a process must stabilize to be able to identify its natural range of variation and what variation was not due to the process.

It was mind expanding for me to learn that the role of an organization’s management is to ensure that variation in each process is tight around the required quality values of its outputs. By achieving that all production is defect-free and failure-free because the process design, construction, and use automatically delivers top quality results every time.

An Enterprise Asset Management system uses many processes, including design engineering, capital project management, original equipment manufacturing, supply chain procurement, inventory and warehousing, maintenance, and operations. Each process has a natural spread of variation, some of which could cause failures and breakdowns during service. But to learn the extent of the normal spread of results they must stabilize and not be interfered with so you can plot and see the percent defects.

After reading Out of the Crisis a few times, ideas for building a truly effective, holistic EAM system began to form in my mind. This link takes you to an article explaining An Effective Asset Management System for World Class Reliability Using the Plant Wellness Way EAM Methodology.


Mike Sondalini
PWWEAM System-of-Reliability
9 June 2022