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Run Charts at Koch Industries

In 1968, Phil Dubose was working in a grocery store in rural Louisiana. If you’d met him at the time, it wouldn’t be likely that you’d peg him for success: he was in his late twenties, had no college education, and was married with three kids. And yet, over the course of the next 20 years, Dubose would rise through the ranks of Koch Industries, into the realm of senior management, where he would find himself in charge of a surprisingly large chunk of America’s energy infrastructure.

Dubose’s story plays a small but important role in Christopher Leonard’s Kochland, a remarkable book on Koch Industries. To hear Leonard tell it, Dubose’s fate changed one day when a teenager asked if Dubose could give him more shifts at the store.

Dubose told the boy that he’d allow it, but only if the kid brought his report cards to work so that Dubose could make sure his grades weren’t falling. This small decision changed the path of Dubose’s life. The kid’s father was named Don Cummings, and he was impressed to hear that a grocery store manager would care so much about his son’s grades. Cummings thanked Dubose, and then he offered him a job. Cummings said Dubose could work for him at a local oil company called Rock Island Oil. Cummings made a convincing pitch. Rock Island might sound like a tiny company, but it was owned by a conglomerate out of Wichita that was owned by the wealthy Koch family.

Dubose started out as an oil gauger. His job would be to measure the oil in each collection tank, spread out across the swamplands of Lafayette, Louisiana, before Koch Industries came to collect it. Then, he would pump the oil onto a barge and take it to one of Koch’s pipelines, where it would be shipped to a refinery.

Dubose spent most of his days on a small barge, out on the bayou and in the marshy lands. From there he began to rise.

In the early 1980s, Charles Koch began to institutionalise the teachings of business consultant and statistical process control pioneer W. Edwards Deming. He created something called ‘Koch University’. Leonard writes:

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.

In 1982, after years of slow but steady progress, Dubose was promoted to oversee Koch’s marine operations around the Gulf of Mexico. He was in charge of a fleet of barges that went from terminal to terminal, collecting crude oil and shipping it to refineries in Texas. He was several levels above where he had first started out, on the wetlands of Louisiana. He was also terrified.

The two previous managers of the marine unit had both failed to turn a profit. “If it failed again, I was going to go down with it,” Dubose recalled, many years later. He was determined to succeed. So he took to Deming’s operational tools like a duck to water.

Leonard documents what happened next.

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 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 his fleet; he knew which ships were losing money and which were making it.

It got to the point where the boats were competing against each other. I was just sitting back like a big old Cheshire cat in a tree,” Dubose said. Using data to drive changes at the level of each barge, Dubose boosted profits in the marine unit overall. His profit margin reached 33 percent. The trucking division, by contrast, was lucky to see a profit margin of 8 percent or 9 percent. As he boosted profits, Dubose was given more freedom and more resources. He added more ships, buying larger barges that could ship forty thousand barrels of oil at a time.

All the while, he was in contact with managers from Wichita. They helped him prepare his run charts, and they taught him other tricks from Deming. As he talked with more managers, Dubose learned that not everyone embraced the Deming formula. A lot of managers were accustomed to making decisions based on gut instinct. They thought the charts were just a gimmick. But as many Koch Industries employees would learn over the years, Charles Koch did not consider his guidance to be a gimmick. And following his guidance was not optional.

“Some of these poor rascals just couldn’t embrace [Deming’s] thing. They couldn’t get their arms around it. . . . They’d just zigzag a line across with a bunch of numbers. The people who couldn’t support that, well, most of them were let go,” Dubose recalled.

Note for the uninitiated: Run charts are a simpler form of the process behaviour charts we explored in How to Become Data Driven. The goal of run charts are the same as process behaviour charts: they display time series that help operators differentiate routine variation from exceptional variation. Unlike XmR charts, though, they do so through a simple set of four rules. Read more about run charts here.


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