I THE SCIENCE OF PURCHASING Mstrltmting Copies of to Receiving ORGANIZATION CHART FOB PURCHASING DEPARTMENT THE SCIENCE OF PURCHASING BY HELEN HYSELL WITH AN INTRODUCTION BY J. GEORGE FREDERICK PRESIDENT OF THE BUSINESS BOURSE, N. Y. AUTHOR OF "MODERN SALES MANAGEMENT," "BUSINESS RESEARCH AND STATIS- ETC. D. APPLETON AND COMPANY NEW YORK : : 1922 : : LONDON COPYRIGHT, 1922, BY D. APPLETON AND COMPANY FMKTZD IN THX UNITED STATM Or AMXMCA INTRODUCTION Hundreds of books are extant on selling and salesmanship, telling how a buyer may be won, but there were, until this book was completed, only two books on buying, which is the other side of the story of the sale. In fact, writers have complained thatj so much high class effort has been given to the wiles of persuading people to buy that the buyers "have no chance" against the expert technique of salesmen and sales managers. This book is the first recognition of the fact that the science of purchasing has also been keeping pace with the science of selling. The modern purchasing agent is a more important man by far than he was in older days when purchasing agents were likely to be more of the nature of "rubber stamps," or "buffers," or were bargainers for an extra penny of advantage. A purchasing agent of the modern breed is a creative thinker and planner and a. stu- dent of many elements of business. Very justifi- ably he now regards his work as a profession, be- cause he now applies professional standards and methods to his task. The ethics of purchasing is now on a most commendably high plane in all but a very few fields, and the fact that purchasing agents are leading in a fight against commercial bribery is 482340 vi INTRODUCTION in itself an augury of the new level of pride and ef- ficience and group consciousness which exists. For years the seller of goods suffered more than any other class from the backwardness of the pur- chasing agent. He was often an obstruction to his firm's progress, and not as now a channel and live contact point for securing for his firm the best and latest merchandise. The coming of more science in selling has been a boon to the seller, because he can get a hearing for his facts. The seller and the buyer can meet on the common platform of service as never before, and the competition of the inferior article is not now so formidable as it was when sheer personality and polite graft muddied the waters. The keener, more highly trained point of view in buying means, it is true, a higher type of salesmanship and a challenge to service and sound merchandising, but it is welcomed nevertheless. Miss Hysell has written a book which in my opin- ion splendidly and practically reflects the new de- velopments in purchasing. Her volume is complete in all aspects and has the right perspective be- sides being a concrete manual for business houses and students of purchasing. It will, I predict, bo- come the standard volume on the subject, and greatly increase the practice of modern purchasing principles much to the benefit of business as a whole. J. G-EOBGB FREDEBICK CONTENTS CHAPTER ^- ' PAGE ./I. ( ?EBSONAL QUALITIES NECESSARY FOR SUCCESS- FUL PURCHASE MANAGEMENT . . . . 1 Purchasing as a Vital Element in Business The Personal Qualities Essential in Pur- chasing Managers Natural Aptitude Foresight Mental Alertness Power of Analysis Self-reliance Commonsense Di- 4 rect Action. II. KNOWLEDGE OF AIM, PLANS AND RESOURCES . 13 Intensive Knowledge- Aims Plans Fi- nancial Resources Difference between Credit and Resources. III. SOURCE OF SUPPLY 19 The Necessity for a Coterie of Selling Firms Difference between Reliable and Dependable Sources of Supply How to Locate the Source of Supply Standing of the Probable Source of Supply Policies and Principles of the Seller Need for A Purchasing Agent's Association. IV. (PRINCIPLES AND POLICIES Vital Need of Definite Organization Poli- cies Difference between Policy and Prin- ciple Bearing of Sales Policies upon Pur- chasing Purchasing Executive's Policy to- ward his Organization Importance of Goodwill. V. ATTITUDE TOWARD SALES SOLICITATION . . , 36 Importance of Right Relationship between Buyer and Seller Old Method of Selling and Buying New Method of Selling and vii viii CONTENTS CHAPTZK PA01 Buying Reasons for Former Ill-will be- tween Seller and Buyer Gradual Change in Attitude Sizing up the Purchasing Ex- ecutive Personal Analysis of Physical Ap- pearances Personal Analysis of Speech Personal Analysis of Actions Personal An- alysis of Surroundings The Purchasing Executive's Analysis of the Salesman The Hand-Clasp Manner of Approach Ideal Salesman from the Salesmanager 's Point of View Building up a Sales-Defense De- sirable Impression to Leave with the De- parting Salesman Should There be Speci- fied Calling Hours? The Salesman's Side of Calling Hours The Compromise. VI. SERVICE 62 Service a Moot Question What the U. S. Patent Officials rule Service According to the U. S. Bureau of Standards Service as It Appears to the Modern Salesman The Purchasing Executive's Idea of Service What the Purchasing Executive Expects When He Buys Service. VII. COOPERATION AND COORDINATION BETWEEN EX- ECUTIVES 70 Reasons for Demanding Coordination of Departments Responsibility of Purchasing toward Other Departments Interdepen- dence of Purchasing upon Other Depart- ments Detailed Information that Must Come to the Purchasing Executive Co- ordination between Engineering and Pur- chasing Departments Relation between Manufacturing and Purchasing Depart- ments Interrelation of Sales to Purchas- ing Department Interrelation between Accounting and Purchasing Departments Relation of Purchasing to Economy of Manufacture. g CONTEF; rs ix CHAPTER PACK VIII. TECHNICAL KNOWLEDGE OP REQUIREMENTS . 84 Vital Necessity far detailed Knowledge Proposed Use of the Purchase Manufac- turing Processes of Materials Purchased Manufacturing Processes in Relation to Time Element Knowledge of Price Knowledge of Values Price Versus Per- formanceData Necessary for Successful Purchasing Guarding against Unnecessary Purchasing Quantity Purchases Quan- tity Purchase under Blanket Order. IX. THE STUDY OP FUTURE TRENDS AND FORE- CASTS 99 The Proven Need of Forecast Study in Purchasing Effects of Deflation on Pur- chasing Business Cycles and Planning Ahead Changes in Quantity or Kind of Goods to be Bought Effect of Foreign and Speculative Buyers The Purchasing Agent 's Forecast Fundamental Factors on Business Forecast Composite Monthly and Yearly Changes. X. LEGAL SIDE OP CONTRACTS 118 Need for a Knowledge of Contract Laws First Requirement of the Purchasing Ex- ecutive Law of Contracts The Consider- ation Meeting of Minds Communication of Acceptance Competence Validity of Oral Contracts Failure to Perform Agree- ment Misrepresentation Cancellation Damages. XI. ETHICAL SIDE OP PURCHASING ..... 133 Function of Ethics in Business Usefulness of Ethical Standards in Business Pur- chasing Ethics and Purchasing Policies Need for Laws to Enforce Ethical Methods Past Practices against the Purchasing Executive Effect of Specialized Buyers upon Sales Methods Competition Versus x CONTENTS CHAPTXB PAOB Corruption Agitation and Laws against Bribery Moral and Material Aspects of Bribery Commercial Bribery Defined Christinas Gifts Purchasing Executive's Duty to His Profession. XII. ORGANIZATION OF THE PURCHASING DEPART- MENT 149 Correct Conception of Purchasing Organi- zation Purpose of System Reasons for Different Kinds of Purchasing Organiza- tions Different Methods of Buying that Require Different Types of Organizations Analysis of Purchasing Organization Value of a Definite Principle behind an Or- ganization Value of Charts for Fixating of Responsibilities Charting the Purchas- ing Organization Matters for the Personal Attention of the Purchasing Executive The Duties of the Assistant Duties of the Chief Clerk. XIII. STORES Vital Necessity of Properly Controlling Materials and Supplies Denning the Stores Department Selecting the Best Method of Managing Materials Supervision of Stores Result of Faulty Stores System Per- sonal Qualifications of the Storekeeper Duties of Storekeeper Receiving Sources Indirect Loss Elimination of Indirect Losses. XIV. INVENTORY 176 Importance of Inventory Essentials of Plant and Material Inventory Perpetual and Physical Purpose of Perpetual Inven- tory Stock Levels Purchasing Execu- tive's Relation to Inventory Stores De- partments' Relation to Inventory Store- keeper as an Aid to Physical Count. CONTENTS CUUPTXB XV, STANDARDIZATION 186 Why the Purchasing Executive Is Con- cerned with Standardization Vital Neces- sity for Standardization Beginning Stand- ardization with Catalogues and Forms Standard Invoices Purchasing Executive as a Balance to the Engineer Do Stand- ards Interfere with Progress? Effect of Standardization upon Kequisitors Effect of Standardization upon the Seller Misuse of the Word " Standardization" in Price- Baiting Effect of Standardization upon Storekeeping The War as a Stimulation to Standardization. XVI. RECORDS AND FORMS 200 Qualifications of an Ideal Purchasing Sys- tem Origin of the Following Forms and the Discussion Thereof The Requisition Purchases Made without Requisition Fil- ing of Requisitions Quotations The Pur- chase Order Acknowledgment The Fol- low-up System The Record Cards Filing the Record Card Receiving Record Checking Invoices Shortage Goods Re- turned for Credit Delivery of Patterns to a Foundry Relation of Cost Department to Purchasing Department. APPENDIX. Notes on the Testing of Ma- terials . . 233 Index . 253 THE SCIENCE OF PURCHASING CHAPTER I PERSONAL QUALIFICATIONS FOE SUCCESSFUL PURCHASE MANAGEMENT Purchasing as a Vital Element in Business Suc- cess. The purchasing executive makes a most im- portant contribution to the success of modern busi- ness. (_ A dollar saved in wise and careful buying is considered of more value than a dollar profit, be- cause it is a dollar earned over and over again. The entire structure of cost and profit percentage rests upon a foundation of right purchase and often competitive advantage and superiority in quality is based upon purchasing policy and purchasing alertness. Bankruptcy, failure to earn or pay divi- dends, may be, and frequently is, chargeable either to incomplete or inadequate understanding of the function of purchasing. In past years it was the practice to take too nar- row a view of purchasing. The purchasing agent or manager was popularly supposed to be an indi- vidual who warded off salesmen and played one seller against another in order to get a low price. Unfortunately, there was a large measure of truth in this assumption. A few years ago, the purchasing executive was without vision or broad training and 1 2 THE SCIENCE OF PURCHASING usually without authority. In consequence, it be- came a byword that purchasing executives were merely "figure-heads'* the real purchasing au- thority being vested in others. Sellers, as a result, went higher up whenever possible. This understanding of the function of purchasing held within the organization even more than with- out. The purchasing executive was looked upon as an order writer and, as such, was ignored by the heads of other departments. Executive confer- ences almost never included him, and important matters pertaining to expansion and curtailment of business activities were decided upon without con- sulting the purchasing executive. Yet, as an order writer, he was expected to purchase materials and supplies in quality and quantity desired, under ad- vantageous conditions, and have them on hand at the time specified. Frequently, his only warning was the receipt of a requisition from the manufac- turing or stores division, in case of increased pro- duction; or a cancellation, in case of curtailment. Such a situation was anomalous and unsound and is being rapidly changed. The modern business ganization demands a thorough coordination executive functions. The aims, plans and policies of the entire organization are discussed and de- cided upon through the cooperative efforts of all executives. A broad selling campaign is not in- augurated until the salesmanager, the advertising manager, the head of the manufacturing or produc- tion department, the head accountant and th pur- PERSONAL QUALIFICATIONS 3 chasing executive have considered the project from all its angles and have made sure that each step is clearly outlined, practical and within the possibili- ties. Thus, the accounting department is cognizant of the coming of an unusual expenditure; the manu- facturing department is enabled to prepare for an increase in production; the advertising and selling departments may perfect the details of their cam- paign, and the purchasing executive may secure bids on primary materials in advance of actual need. Only by this method can satisfactory re- sults be obtained. Far from being a mere clerk who buys when some one tells him to, or a trained person who heads an expert bureau that advises ex- ecutives after they have decided to buy, the modern purchaser is a coordinate executive who has the power of direct action in consonance with the ac- tions of other executives who meet in conference. The mature technic of purchasing management is, therefore, now developing and the special require- ments of a purchasing executive are becoming def- initely known in a way similar to the knowledge of a sales or advertising manager. The Personal Qualities Essential in Purchasing Managers. In view of the special demands made upon a purchasing manager and the selling pressure brought to bear upon him, a certain definite set of personal qualities seems to be required. He must have the correct temperament for his job of buying, just as distinctly as the salesmanager must have the 4 THE SCIENCE OP PURCHASING correct temperament for selling. Popularly, the seller is presumed to require an "optimistic" tem- perament, while the buyer is presumed to require a "pessimistic" temperament. This is not pre- cisely the case, but has, of course, its elements of truth. Broadly speaking, a purchasing manager may be said to require the following principal per- sonal elements : 1. Natural aptitude. 2. Foresight. 3. Mental alertness. 4. Power of analysis. 5. Self-reliance. 6. Common sense. 7. Direct action. These qualities are separately discussed in the fol- lowing paragraphs. Natural Aptitude. As in other professions re- quiring natural aptitude, together with specialized training, so in purchasing, some men are naturally better equipped than others to make a profession of studying buying needs and doing the buying. It is probably true that some temperaments are "nat- ural born" buying temperaments and others "nat- ural born" selling temperaments. As the boy who shows a distinct preference for things mechanical, may, if he follows the urge from within, become a specialist in some one of the engineering profes- sions; so possibly, will the child who, without in- struction or previous experience, manages to drive a good bargain when trading a handful of marbles PERSONAL QUALIFICATIONS 5 for a jackknife, become a successful purchase man- ager, providing his natural ability to size up values is developed. All other things being equal, it is safe to say that the ability to become a successful purchasing executive is primarily instinctive. But, without ac- quired knowledge, this instinct is likely to prove a hindrance rather than a help. Buyers holding the most responsible positions in the world of business to-day are those men who get results through the broad and comprehensive knowledge acquired through study knowledge that has become so deeply rooted that the man who has made an especi- ally "good buy," when asked how he happened to do it, may truthfully say, "I had a hunch. " But this same "hunch," if analyzed, would be found to have been based upon an economic fact absorbed and become a part of the very mind of the man. Buying instinct, therefore, resolves itself into the inherent propensity for bargaining plus a broad and comprehensive knowledge 'of markets, materials, methods and men. The purchase executive must be a trader by instinct, knowing selling methods thor- oughly; but from the obverse side, his instinct must keep him aware of all the finesse of selling as well the finesse of buying. Foresight. A successful purchasing executive must be able to foresee conditions that, very often, do not appear at the time of placing his order. He must take action in reference to the future, these actions being based upon certain conditions that 6 THE SCIENCE OF PURCHASING have held in the past. With many concerns the pur- chase budget is prepared months in advance of the date of requirement, in which case the purchase manager must take past price variations as a prem- ise and, by ascertaining the basic principles under- lying these variations, anticipate the market trend between the time the order is placed and the date of delivery or resale. In order to do this success- fully he must possess the power of foreseeing, aug- mented by perpetual study of business conditions past and present, specialized knowledge of the com- modities in which he is dealing and complete records of requirements of the concern for which he is mak- ing the purchase. The buyer's system of stock keeping will enable him to anticipate the needs of his organization and to gain absolute information concerning the maxi- mum and minimum amount of each material on hand. Possessing foresight, he will be able to load up his firm, even beyond the maximum point or, when it seems advisable, to buy in small quantities from week to week, knowing that a change in the market is imminent. He must be able to understand the difference between foresight buying and sheer speculation, and how to relate the company's finan- cial position to the purchasing plan. Mental Alertness. In a peculiar degree a pur- chasing executive must be alert. A great number of highly trained sales and advertising forces are pointed toward him and their success is measured by what effect they can produce upon him or what PERSONAL QUALIFICATIONS 7 decisions they can inveigle him into making. The whole gamut of persuasion, argument, personality, sophistry, allurement and manipulation are operated upon him by those whose lives are given to the per- fecting of these arts and who probably receive higher salaries than the purchasing executive as a reward for their skill. The one shield with which the purchasing executive has to meet such pressure is alertness, which means simply that he clearly un- derstands every situation arising or representation made. This need is increased through the necessity of carefully watching the multiplex features of the market, anticipating a rise or fall in the price of com- modities, and watching the general economic drift. To foresee, however, for instance, the result of progress on the part of a competitor or of a selling concern; to realize the effect of deterioration either in/the selling concern or in the commodity in which ip deals, requires alert attention to the smallest in- dication. To be prepared to take advantage of prof- itable changes in the markets, the purchasing ex- ecutive must be a student of world economics as well as of history of business conditions. He must be ever on the alert for means whereby he may ne- gotiate a saving for his concern by purchasing ex- actly the right quantity at precisely the right time in order to secure the best possible price. A slug- gish mind, a slow-perceptive intelligence, and af ter- witted temperament, or a dulled edge of awareness to what is going on is a severe drag upon success in purchasing. 8 THE SCIENCE OF PURCHASING Power of Analysis. Considering the fact that the purchase manager must be a specialist along lines highly diversified in nature, the ability to resolve people and things into their component parts, to go beneath the surface and discover the underlying reasons for each point that is brought to his atten- tion, is essential. This power of analysis enables the purchaser to discover, without being told, many facts that would otherwise remain obscure to him and would tend to lessen his value to his organiza- tion. By studying and analyzing the market the wide- awake buyer may learn the precise reasons for the rise and fall in prices. By studying and analyzing the salesman with whom he comes in contact he may determine to how great an extent each one is draw- ing upon his imagination for the supposed facts he is stating. And by studying and analyzing the mem- bers of his own organization he may arrive at the basic characteristics of these men and thus uncover the different types and learn how best to handle them tactfully, and go contrary, sometimes, to their purchase recommendations in the interest of the firm. Thus, when he is confronted with a requisi- tion for some new and expensive article, he must de- termine whether it is a luxury or an economy ; and to determine this, he must technically analyze the situation, and also the man making the requisition. He is far more likely to send the order through if he is satisfied that the requisitor is reliable and himself capable of analyzing the situation. If he PERSONAL QUALIFICATIONS 9 knows that the man is inclined to desire a purchase without proper consideration of all phases of the matter, he must follow a different procedure. The opportunity for analysis of purchase requirements is, of course, unending, and a man without a very marked ability of practical analysis is a hopeless waster in a position of purchasing executive. Both the men in his own firm and the sellers of goods are constantly bringing unanalyzed recommenda- tions for his decision and the ratio of his value to his firm is the ratio of his success at analyz- ing these recommendations down to their bedrock fact. Self-reliance. It is approximated that from forty to forty-five per cent of the operating expense of the average business concern is controlled by the purchasing department. It naturally follows .that the mail at the head of this department must of ne- cessity have the ability to spend this large percent- age wisely. In order to do this he must believe in himself and be able to state his beliefs convincingly. To be successful in any line of endeavor one must have faith i"n one's own opinions and decisions, and must be able to combat opposition with clear reason- ing and concrete facts. In purchasing management, more than in most other professions, confidence in the certainty of one's knowledge is essential, since the responsibility is so clearly financial. One -of the traits often lacking, however, in the purchase executive is self-reliance. In too many in- stances, the backing of the concern with which he 10 THE SCIENCE OF PURCHASING is connected forms a barrier behind which he en- trenches himself, growing to depend more and more upon this backing than upon himself. This habit of dependence is likely to begin at the point of contact with the seller's representative and grow gradually until it encompasses his association with all mem- bers of his organization. Lacking confidence in himself, the purchase executive frequently allows his decisions to be set aside without due defense of his position or sufficient discussion of his reasons for taking his stand, seemingly upon the side of the question opposite to the side taken by the other de- partment heads. Self-reliance, when not developed to the point of conceit, and reinforced by clear and careful analysis of facts, is one of the characteristics of the purchase executive, that will go far toward securing for him the authority and respect due him- self as a man and as the head of one of the most im- portant departments of his organization. No bur- den of responsibility, such as a bona fide purchasing executive bears, can be carried without a great deal of self-reliance. Common Sense. To a larger extent than in many other professions the purchasing executive is de- pendent upon his innate cotaimon sense for the suc- cessful accomplishment of his duties. There are col- lege courses provided for the engineer, the doctor, the lawyer, etc., and many books to which to refer. Modern business concerns maintain schools for salesmen, issue pamphlets of instruction and provide a library of books upon the science of selling, pro- PERSONAL QUALIFICATIONS 11 duction and other duties ; but so far, little has been done toward aiding the purchase manager to ad- vance in his profession. Only during the last three of four years have courses been included in the col- lege curriculum that cover even partially the tech- nicalities of purchasing. A handful of books have been written upon the subject; and the only library provided for the purchase manager is his own office file of data, catalogues, trade journals, etc. He must draw almost entirely upon his highly developed mental alertness, power of analysis and common sense plus the acquired knowledge of the needs of his organization, of materials required and the general business conditions governing the buying and sell- ing of that material. Technical knojflf^e, no mat- ter how exhaustive, cannot be successfully applied without conimon sense. Technical knowledge is es- sential for the specialized profession ; but, as in prac- tical engineering, technicaTTmowledge is but a start, the native practicality and solid common sense of a purchasing agent is of particular value to his firm. Direct Action. In the past, direct action was a phrase unknown either to the purchasing agent or to the salesman. Buying was a leisurely process arrived at through slow stages of amusing anec- dotes ; unimportant gossip of the road ; luncheon or dinner with perhaps the theater, and at the last a brief discussion of the material, price, etc. Under the old system, a purchasing agent could see but one or two salesmen during a day and his designation of "buffer" was to a large extent justified. He it 12 THE SCIENCE OF PURCHASING was who kept the salesman occupied and left the way clear for the real head of the purchasing depart- ment to transact other business. The salesman, realizing that he was dealing with a " figurehead, " a mere order clerk dignified with the title of pur- chasing agent, had no incentive to speak at any great length upon the merits of the article that he wished to sell. He knew that the real authority for the purchase must come from "higher up" and he, therefore, entertained the purchasing agent in the manner in which that agent desired to be entertained hoping thereby to gain a hearing before the real head of the purchasing department. Under the modern system, however, ten salesmen may be interviewed in the same length of time that it once took to interview two, because both the pur- chasing executive and the salesman realize the value of direct action in the transaction of modern busi- ness. To-day the time element is the important fac- tor and direct action is absolutely essential for the accomplishment of the day's routine. The ability to come to the point immediately is an asset both to the purchasing executive and to the salesman with whom he is conferring. Lost motion is one of the most expensive attributes of business. Much is gained by the work of a real purchasing executive who knows what direct action is, and who operates on the direct action principle ; who can start at the beginning and carry his analysis of the proposition clear through to a decision with no halts or camou- flages or mysterious delays and reticences. CHAPTER II KNOWLEDGE OF AIMS, PLANS AND EESOUECES Intensive Knowledge.-tThe province of puchasing enjoins extensive knowledge of, and ability to under- stand, all -the various activities of business in gen- eral. It demands, to an even greater degree, an intensive knowledge of the particular business for which t^ director pf purchases iaj)royi'ding mater- ials and supplies^ But the one essential around which the science of purchasing revolves is the source of supply. For this reason it is imperative that the director of purchases know: 1. Aims. 2. Plans. 3. Financial resources. Aims. To be cognizant of the aims of the concern with which he is connected is of first importance to the purchasing executive in the selection of his source of supply. It is advisable, in the case of limited capital or comparatively small orders, to confine the purchases to a few of the more reliable houses handling the desired material. This policy assures the development of cordial relationship be- tween the buyer and the seller that, obviously, can- not be possible if an attempt is made to scatter the 13 14 THE SCIENCE OF PURCHASING purchases over a broad area. There will be times when goods might be obtained from a new concern or a firm, bidding for new business, at a lower price than that asked by the firms with which the purchase manager has become acquainted, but usually it will be found more satisfactory to limit the number of firms with which the small buyer is dealing. This makes sure of prompt attention to orders and the granting of a possible favor at times. If the concern with which the purchase manager is connected is small but has as its aim reorganization at an increased capitalization, it behooves the ex- ecutive to build up his source of supply in anticipa- tion of this enlargement. If it is deemed advisable by the owners or directors, sellers may be apprised of the company's goal, in which case, the benefit of a better price and good service on the strength of future increased business is gained. Plans. Too often the last member of an organi- zation to receive advice as to curtailment or expan- sion of the rate of production is the director of purchases. Unless he is very aggressive and keeps himself in the foreground, he is likely to find him- self isolated from the other executives of his firm and in ignorance of what is transpiring. Without including him in their consultations, the heads of the different departments meet, discuss conditions, and decide what they consider best to do. If there is to be a curtailment of production, the department heads using the materials, which in many instances are on the way to the factory, merely refrain from KNOWLEDGE OF AIMS 15 sending requisitions to the storeroom. If an in- crease in the output is decided upon, they forward orders for an increased amount of materials which, had he been given an opportunity to say so, would have to be purchased on an unfavorable market. There are many cases on record in which the pro- duction and sales departments outlined plans in- volving the immediate use of materials that could not be obtained for six months or a year. This overlooking of the purchase executive is sel- dom, if ever, intentional, but rather the result of the general false idea of the function of purchasing. The task of bringing the other executives of his organization to the /point of recognizing the true place of purchasing las an indispensable cog in the wheel of business management, is largely a matter for the purchasing executive himself. He must not expect his title, whatever, it may be, to be taken seriously by the more aggressive men about him if he is content to allow himself to remain in the back- ground, a convenience to be used or ignored at will. In allegiance to his employer, and in justice to him- self, he must demand and insist upon his place in all conferences between department heads, whether these conferences are formal or informal. It is by keeping abreast of the details pertaining to his busi- ness that the purchase manager is able to make his purchases conform to the plans and requirements of his firto in quality, quantity, price and delivery. He must neither be, nor have the appearance of being, a mere order clerk or "buffer" for salesmen. 16 THE SCIENCE OF PURCHASING Financial Resources. The financial standing of his firm is another of the important factors in suc- cessful purchase management. With definite infor- mation upon available funds at hand, the director of purchases knows at once whether or not he may demand and receive advantageous terms from the seller. He should also be informed of the usual and unusual drafts upon the resources of his concern in order that he may determine the advisability of heavy buying or, in case of an emergency, that he may buy lightly. A general knowledge of the business with which he is connected is even more necessary to the director of purchases than to the sales agent, credit man- ager, or any department head. He must possess the salesmanager 's knowledge of what the firm manu- factures or sells; he must know the quantity of goods sold in the past and the rate of sales past and present together with the profit thereon. To him the manufacturing department's cost sheet should be accessible at all times. Spending, as he does, so large a percentage of his firm's money he must keep informed in every way possible as to the financial condition of his business. It is only by direct knowledge of the intentions of the directors and executives toward curtailment and expansion and by open discussion of ways and means of carry- ing out these plans that the purchase manager may govern his purchases in accord with quality and quantity of output under different conditions. The purchasing executive who does not know the aims, KNOWLEDGE OF AIMS 17 plans, financial resources and credit rating of his firm cannot hope to make a success of his profession. Differences between Credit and Resources. There is a great difference between credit and resources, though the two terms are often confused. Credit is moral standing. Eesources is financial standing. Credit depends upon the reputation derived from the confidence inspired in others. It is not a value in itself but represents a value. In business, credit is the exchange of a commodity for a promise. If the credit of the person or firm negotiating for the com- modity is not good, the person owning the com- modity will very likely refuse to accept the promise of payment. In other words, if moral standing is bad, credit will not be /Extended. Kesources, being pecuniary means, is a tangible asset. It is money or property that may be con- verted into supplies or given in exchange for sup- plies. It may be seen or touched. But the pres- ence of substantial financial resources does not neces- sarily mean that the credit of a firm is good. Very often the most solvent of concerns is forced to the wall because of its questionable moral standing. Slow payment of bills, short sighted, money-grab- bing methods of dealing that verge upon sharp prac- tice, all tend to lower the credit standing of a financially responsible concern. A firm having limited resources may be rated "credit good," providing its moral standing is above reproach and it is known to pay its bills promptly. Credit is faith. It is belief. It is expectation of 18 THE SCIENCE OF PURCHASING future payment. If this belief is lost, resources re- solve into the amount possible of recovery by law on the part of the creditor. Broadly speaking, it is more important to know the credit of a prospective seller than to know his financial standing. For financial standing may exist without a vestige of credit, while the firm with a high credit rating may be considered a dependable source of supply even though it is known to be oper- ating ' ' on a shoe string. ' ' Moral standing is always preferable to financial standing, be it in the business world or in the world of individuals. CHAPTER HI SOURCE OF SUPPLY The Necessity for a Coterie of Selling Firms. Just as an intimate knowledge of his own concern is essential to the purchasing executive, so also is an expert understanding of the affairs of the firm from whom he makes his purchases. The necessity for a coterie of selling firms that may be termed Dependable as well as Reliable, is becoming more and more apparent to the modern purchasing executive. During the war, with its at- tendant increase in demand and decrease in supply, the purchasing director discovered that few houses could be depended upon even though they had been considered reliable under normal conditions. Un- doubtedly, many sellers suffered loss of their cus- tomers' faith and are to-day omitted from the Honor Roll of Dependables, through no fault of their own. These firms are, in turn, editing their own Honor Roll as a result of bitter experience with the failure of their own sources of supply to deliver. With the gradual return to normal business con- ditions and the readjustment to the new conditions developed from the trials of war times, the purchas- ing executive is, more than ever before, anxious to 19 20 THE SCIENCE OF PURCHASING create for himself a list of Dependables compiled from his list of Reliables, for he has realized that a dependable source of supply means that his daily business is half completed before his desk is opened in the morning. Difference between Reliable and Dependable Sources of Supply. A house, to be considered Reli- able, must be able to furnish quality, quantity, price and delivery. It must be reputable, financially sound, equipped to do what it says it will do, and scrupulous about delivering quality and quantity as compared with samples and invoices. A firm, which, upon investigation, shows that it is able to do all these things, may be considered eligible to the Re- liable Roll. Only by experience may the purchase director assure himself of the dependability of the firms listed as reliable. A firm that is able to fur- nish quality, quantity, price and delivery may, for reasons that appear to be weighty, fail to live up to its contract. There may be a strike, a fire, a shortage of materials or an unexpected tie-up in shipping facilities. A house, to be considered De- pendable, must show a willingness to live up to its contracts no matter what difficulty may arise be- tween the time of acceptance of the order and its delivery. It must not only be able to furnish quality, quantity, price and delivery, but must do so without fail. In addition to the qualifications de- manded of the Reliable source of supply is that in- tangible asset called Service or Courtesy. To sum up, a Dependable source of supply is one SOURCE OF SUPPLY 21 which has all the qualifications of a Reliable sor_rce plus Service. The purchasing executive who has completed his Honor Roll of Dependables is fortu- nate indeed, for he can then place any order from one dollar to one thousand dollars, or upward, and pass the order along to the files as completed. How to Locate the Source of Supply. In order to find out where he may obtain his materials, the purchasing executive has many sources of informa- tion. From trade papers, advertisements and clas- sified business directories he may secure the names of firms dealing in the commodity desired. These firms should be considered merely as possible sources of supply. The purchasing executive must sift these possibilities over and d." He need have no fear that his integ- rity is duubted, or that an attempt is being made to influence his buying judgment by " entertain- ment. " He may be reasonably sure that he will not be offered a lump sum of money, a commission, a discount, a valuable gift, or other form of com- mercial bribery. Both seller and buyer have come to realize that all merchandise should be sold on its merits and not mingled with any personal understandings or considerations. The whole framework of trade is 144 THE SCIENCE OF PURCHASING built upon the definition of competition as the striv- ing to gain a particular object by honest means. The entire theory and practice of advertising are predicated on the assumption that the purchaser is making a free and unhampered choice on the merits of the competing products. Business men through- out the country have become convinced that, both from a moral and a material aspect, bribery is a most costly and useless method of competition, and, they are uncompromising in their antagonism to it in any form, however subtle. Commercial Bribery Defined. Commercial bri- bery, as we use the word, " involves a transaction whereby a seller gives something of value to the employee of a customer, or to the employee of his competitor's customer or prospective customer without the knowledge of the employer, and with the purpose or with the effect, or for the purpose and for the effect, of causing that employee to seek to influence the buying judgment of his employer." This is on the authority of Wm. B. Colver, U. S. Federal Trade Commissioner, before the Purchas- ing Agents of New York. The three tests to apply are these: 1. The giving must be done without the knowl- edge of the employer. 2. The thing given, or promised to be given, must be of so great value that, prima facie, the transac- tion is for the purpose of influencing the judgment or obtaining the secret support of the employee or purchasing agent. ETHICAL SIDE OF PURCHASING 145 3. When the thing is of lesser value and here comes the element of entertainment whether or not the manner of its giving, or of the promise to give, is such as either to be intended to, or in f fact does result in an undue influence upon the judgment or conduct of the employees of the purchaser or the prospective purchaser. If the entertainment is of such a character as to be the " intensive cultivation of friendship" unknown to the employer, then the practice is not good, and modern business men recog- nize it as commercial bribery and put a ban on it. Christmas Gifts. The custom of giving expensive Christmas gifts to buyers is fast dying out, but there are still many firms who allow their salesmen expense accounts for presents to customers. Em- ployers have come to expect the holidays to bring gifts to their employees so that the gifts, to all intents and purposes, is not a form of commercial bribery. Under the English law against bribery, it is the condition of secrecy that makes a gift a bribe. Nevertheless, many gifts are made openly which are intended by the giver to influence the future con- duct of the recipient, and are, therefore, essentially questionable ethically. There is such a thing as an effort at unconscious bribery ; an effort to affect the unconscious mind. If the spirit back of the gift is one of appreci- tion of business during the preceding year, there is no ethical reason why the purchasing executive should not accept the gift in the spirit in which it is given. But salesmen frequently take advantage 146 THE SCIENCE OF PURCHASING of the holiday season to send expensive Christmas gifts to their customers or prospective customers. Because of the season, purchasing executives who would not think of accepting a bribe, accept such presents as a matter of course, without realizing that they are obligating themselves to the sales- man. Others, of less high principles, make it known to the salesman that, unless such remembrances are forthcoming, the next time the salesman calls he will get no order. Many purchasing executives are to-day conveying the information to salesmen that they will not ac- cept anything of value at any season of the year, thus forestalling any unpleasantness that might re- sult from the refusal of the gift. The difference between gifts as tokens of appreciation and gifts as bribes is great; but it is often difficult for the purchasing executive to strike a middle course. To do so calls for the exercise of his powers of analysis, his foresight, and his innate common sense. Purchasing Executive's Duty to His Profession. Although we are told repeatedly that "one swal- low does not make a summer, ' ' the popular mind has come to assume that the purchasing profession is to some extent a graft-receiving class. This im- pression has arisen because there have been in- stances in which purchasing agents or buyers have been known to accept gratuities from selling firms. Investigations show that the men most susceptible to taking bribes are the minor-plant officials, depart- ment foremen, engineers, etc., whose disloyalty re- ETHICAL SIDE OF PURCHASING 147 acts upon the purchasing profession. To remove this stigma, it is the duty of every purchasing ex- ecutive to investigate thoroughly the character and conduct of the men from whom he received requisi- tions for purchases. Lack of proper supervision and control of men and material, accompanied by ignorance and incom- petency on the part of responsible heads of a busi- ness, encourage graft. Obviously, the underpaid employee has a greater incentive to solicit graft than one who is paid an adequate salary. On the other hand, it appears unlikely that a confirmed bribe taker will voluntarily forego an opportunity of taking tribute. He must be made to see that the ac- cepting of gratuities makes him serve two masters, and that this cannot be done with justice to either. Manufacturers must rely upon the honesty and loyalty of 'their employees, but it cannot be doubted that weakness on the part of employers encourages bribery and, in many instances, the entire responsi- bility of proper supervision of materials falls upon the purchasing executive. For the honor of his profession the purchasing agent must do all in his power to remove the stigma of bribery. For the purchasing executives' own guidance the following rules are given : 1. The purchasing executive shall act in all pro- fessional matters strictly in a judiciary man- ner with regard to any purchases he may make, and his salary shall constitute his only re- 148 THE SCIENCE OF PURCHASING numeration in connection with such purchases. 2. He shall not accept any trade commissions, dis- counts, allowances, or any indirect profit in connection with the purchases. 3. He shall not, while acting in a professional capacity, be, at the same time, without disclos- ing the fact to his employers, a director or shareholder in any company with which he may have occasion to deal. Neither shall he act as agent, nor in any other way have any finan- cial interest in such a business. 4. He shall not receive, directly or indirectly, any royalty or commission on any patented or pro- tected article or process used on the article purchased, unless, and until, such royalty, gratuity or commission has been authorized by his employer. CHAPTER XII ORGANIZATION OF THE PURCHASING DEPARTMENT Correct Conception of the Purchasing Organiza- tion. The purchasing organization must be up-to- date. It must be built upon plans that will allow for expansion or curtailment without reorganization and yet be complete enough to handle the maximum of present-day business with ease and perfection. The greater number of business organizations have grown unevenly from small beginnings. During the war, especially, small concerns, having organizations sales, accounting, factory, purchasing, etc. that were sufficient for the business being transacted at the beginning of the war, grew with such rapidity and to such magnitude that their various depart- ment organizations and systems were swamped. Many a purchasing executive, who had followed the plan of remembering the names of the firms from which he bought and the prices paid for materials, and trusting to his retentive mind for the greater part of his data, suddenly found himself lost in the overwhelming demands which fell upon him because of war orders. As with the sales organization, which should be built to fit the full possibilities of sales rather than 149 150 THE SCIENCE OF PURCHASING the hit-or-miss accident of sales, so with the pur- chasing organization. It should be designed to help build up the business and to anticipate the future growth of the industry. Even if it is necessary to reorganize the department and to discard the old system entirely, it is essential to provide the or- ganization with proper tools that are capable of expansion. The purchasing organization is like the factory, in that it must have modern equipment with which capable men may work. Purpose of System. System is the set of tools with which the office employees must work. These tools must be elastic, and adaptable to condensation or expansion. System is largely a matter of records entered in a certain order. The value of records is for comparison. Entries that are not useful for this purpose are, as a rule, superfluous. The pres- ent-day tendency is to make records too complete, thus overloading the office with a system, installed, in many instances, because another firm installed it, or for pure love of system and lots of it. There are, to-day, many efficiency experts, speci- alists in systematizing, industrial engineers, organi- zation specialists, etc., who are capable of equipping offices with a correct system and of directing the or- ganization of any or all departments. Unfortu- nately, there are also men who call themselves ex- perts who are incapable of carrying out this work successfully. These are largely responsible for the fact that many small firms are at present tangled up in a mass of red tape from which it will take a PURCHASING DEPARTMENT 151 bona fide expert to extricate them. There are, too, a great many large firms that are floundering in a mire of antiquated forms and systems long since outgrown, that should have, and probably would have, been discarded at the beginning of business growth, were it not for the fear of falling into the hands of an unreliable type of experts. To repeat : the purpose of system is for facilitat- ing operation and recording necessary data in the simplest possible manner. All unnecessary data should be eliminated. In weighing the points of the old system, or in considering the new one, the following questions should be asked: 1. What result is desired? 2. What information is necessary to get this re- sult? 3. What is the simplest form in which to record this data? 4. Is the result worth the cost in time and money expended? Satisfactory answers to these questions are the tests of the value of any system. Reason for Different Kinds of Purchasing Organi- zations. The aim of the purchasing executive and his organization under anjrfcondition is to buy as cheaply as possible the quality of materials needed by the firm. It is not possible to set down any hard- and-fast rules to be followed in accomplishing this aim, or in organizing the department that is to assist in its accomplishment. The kind of organi- 152 THE SCIENCE OF PURCHASING zation depends largely upon the volume of the busi- ness and the amount of the yearly purchases. It stands to reason that the concern spending a few thousand dollars a year does not need the elaborate system or the extensive organization required by the corporation whose expenditures amount to mil- lions. The character of the purchasing department is also contingent upon the nature of the business. For example, the concern manufacturing castings whose chief requirements are pig iron and sand will not need a large purchasing organization, or even, unless the business is very large, a special pur- chasing agent. The buying of supplies for the foundry may be attended to by some member of the firm with the aid of a stenographer or a bookkeeper. The need of a large corporation maintaining ware- houses and using the same variety of articles year after year may be anticipated by the purchasing ex- ecutive and purchased in quantity on a favorable market. On the other hand, a contracting company that buys supplies only for the filling of the con- tracts on hand requires a large organization for the purpose of following up orders and seeing that materials are delivered at the time and place speci- fied. It may be seen, therefore, that two important factors enter into the organization of the purchas- ing department and the selection of the correct system of buying materials and supplies the size of the concern and the nature of the business. PURCHASING DEPARTMENT 153 Different Methods of Buying That Require Dif- ferent Types of Organizations. Broadly speaking, there are as many different methods of buying as there are different types of businesses. The nature of the business, seasonal requirements, etc., control the size of the purchases, while the size of the pur- chases governs to a large extent, the method of purchasing. It is not feasible to prescribe any one method of buying, as there are eight widely differing methods calling for systems and organizations of widely differing magnitude. 1. Contract buying, or buying direct in large quantities from a small group of large pro- ducers. 2. Buying direct in smaller quantities from a larger number of producers whose offices or branch offices are close to the factory using the materials. 3. Buying in such small quantities as to necessi- tate dealing with jobbers only. 4. Buying through brokers who represent dealers or jobbers. 5. Buying through salesmen only. 6. Buying by mail through samples and analysis. 7. Buying on the open market (shopping). 8. Buying through bids submitted. It is possible also for the purchasing executive to use more than one of the above methods, depend- ing entirely upon i 71 5- g- 3 f i 5 8-:?r r s r ia 1 R || B : 8 ST-^S.S 4S Ihrlafi i = s srs-s.8. Approved |! s i n HL o | :5 d !ir*r*if f iUferf S i 1 z t! j RffiPI i 5 ^fff 3ji . ^ I K : ^ * o It] 8$ i s s- 1 =r|1 s. I P = 5>|i r ?- I8..H * "It S F ? | [ H f s|s 1 i , R IrF 5 INVOICE CHECKED r-4^ > ^2i-noiPr r >^?9r iisrii^^i i^- iii & f i 212 THE SCIENCE OF PURCHASING out of paper. It is also easier to handle, and not so liable to be lost or blown aw&y. Sometimes a fifth copy is made for later reference to the Cost- ing or Accounting Department, and often a sixth copy is sent with the original to the vender for his acknowledgment. The copy going to the vender should be printed at the top "Purchase Order. " The other copies should have printed at the top the names of those who are to receive them, such as "Stock Clerk's Copy," "Receiving Clerk's Copy," etc. Acknowledgment. It is advisable for all pur- chasing agents to make suitable arrangements to obtain an acknowledgment on orders, particularly on those which come from other than local terri- tory. The form of acknowledgment is generally one of three methods. As stated, some companies send an extra copy of the purchase order to the vender, suitably printed for an acknowledgment. This, of course, being a carbon, will have the exact informa- tion on it of the goods ordered, and will have a space for the vender to supply the information as to time of shipment. The second method, and that which seems to be gaining favor, is to have an attached, perforated slip at the bottom of the vender's copy of the order, which gives the order number and date, and leaves a space for the vender to fill, on which he will specify the date of shipment. The third method consists of a separate acknowledg- ment form (Fig. 8) which includes printed data of requisition number, date, order number, name and KECORDS AND FORMS 213 address of the purchasing company, space for the listing of the items ordered and the date upon which the vender will make shipment. Some firms do not require the acknowledgment to list the items, con- sidering the order number and the date of shipment to be sufficient for record purposes. This form is often printed upon a postal card bearing the printed address of the purchasing company with the request to return the same. After the order is submitted and acknowledgment is received, or if the information as to time of ship- ment is received in any other way, the order is within the sphere of the Follow-up Department, which may be conducted by the purchasing agent himself, or, as many concerns are doing, by means of a clerk who has sole charge of this. OPTIONAL CONDITIONS Invoices in duplicate, shipping memoranda and bill of lading with full routing must be mailed to us at on date of shipment. Unless otherwise specified, payment of invoices are subject to a cash discount on 15th of month following receipt of invoice. Material will be received subject to inspection and, if found defective, or not in accordance with specifications, will be re- turned at your expense. A delivery receipt showing order number and description of material must accompany all city deliveries. By accepting this order you agree to defend, protect, and save harmless its customers and the users of its products, against all suits and from all damage claims, and demands for actual or alleged infringements of letters-patent by reason of the use of the articles hereby ordered. We reserve the right to cancel this order, or any portion thereof, if deliveries are not made as specified herein. If this order is subcontracted the subcontractor must be 214 THE SCIENCE OF PURCHASING instructed to mark all packages with this order number. We will not accept substitutes. This company reserves the right to cancel all, or part of, this order if not filled within the specified time. By paying your invoice before arrival and inspection of our purchase we avail ourselves of the cash discount only, and do not thereby accept quality or quantity as approved. All goods shipped on account of this order will be carefully inspected, and, if rejected by us on account of material, work- manship or other defects, same will be held subject to your orders, freight and cartage chargeable to your account, and when returned are to be replaced ONLY on replacement purchase order. The supplier herein guarantees that the sale or use of its product will not infringe any United States patent or process of manufacture and covenants that it will, at its own expense, defend every suit or action which shall be brought against or those selling or using any product of the supplier, for any alleged infringement or claim of infringement of any patent or process of manufacture by reason of the sale or use of product and agrees that it will pay all costs, damages and expenses which might sustain thereby. ACKNOWLEDGMENT FORM Form No. ACKNOWLEDGMENT OF Req. No ORDER Date- 19 To JOHN DOE & CO., 900 West St. , Boston, Mass. Your Order No. We hereby acknowledge and accept your numbered order for: Shipment will be made __ 19 FIG. 8 EECOEDS AND FORMS 215 The Follow-up System. It is necessary in order to get satisfactory service, and to keep the purchas- ing company advised regarding deliveries, to adopt a follow-up system. It naturally follows that this system should be applied more intensely to out-of- town shipments than to local pick-ups. A great many concerns use a signal system, which is a small, metal, movable tab, placed on top of the purchasing agent's copy of the order. This top is marked off numerically from 1 to 31 inclusive, or any other number. The tab is placed over the num- ber corresponding to the one on which advice has been received that shipment will be made. In con- nection with this point of determining the date of shipment, it is easy to see that the acknowledgment of the order occupies a place of the utmost import- ance. The signal tabs arrange themselves in a straight line throughout the order file, and all tabs for given dates can instantly be noted and the cards removed. The first thing to do is to ascertain whether the invoice from the shipper has been re- ceived. If not, a letter or blank form of inquiry should be sent out and the tab moved ahead the requisite number of days for the receipt of the an- swer. The tab should then be changed to conform to the answer. A great advantage of having a light, flexible cardboard for the purchasing agent's copy of the order as aforesaid, will here be noted, for the objection has been made that, where the purchasing agent's copy is of paper, tabs are easily misplaced and get moved to other dates, which will involve in- ? $ s 1 O 2 K U d O r z RECEIVERS COPY SHIPPERS COPY JRCHASING AGENTS COPY SHIPPING OR BOSTON, MASS. ;OUNT OP OUR PURCHASE ORDER rHEM. SHOW RETURN OF PATTER DESCRIPTION 3 i c t z tt gl 2 i! 5 I! Q. ll ii SB W lit ll s |2 1 fCL Z n? _> MM M Ii RECORDS AND FORMS 217 accuracy. The tab method saves all extra expense of having an extra copy of the purchase order and an extra file. Many firms, however, prefer to use an extra copy of the purchase order, with the proper notations made thereon by the purchasing agent or clerk in charge as to the probable date of shipment. This copy is filed by date of expected shipment and on each day letters or blank inquiry forms are sent to those venders from whom no invoices have been re- ceived as expected. (For further use of this copy of the purchase order see " Relation of Purchasing Department to the Accounting Department. ") Either system will bring results if properly looked after, and especial care should be taken of the fol- low-up records whatever the method used. A great deal of money and time can be lost by a company whose shipments are not received promptly. The Record Cards. A record card of some form is necessary to every purchasing department. In considering this card it is necessary to decide what information, and how much, the purchasing agent needs for ready reference in the future concerning the article purchased, the quantity, the price, and from whom it was purchased. These cards should be indexed under the names of commodities. For example, cards headed at the top Gasoline, Flour, Portland Cement, Coal, and other words of a general nature, require no explanation. Neither do cards headed Nails, 8-penny, Coated; Lumber, Hard Pine 6X8; and a card for each does not involve too 218 THE SCIENCE OF PUECHASING many complications. However, where cards in- volve articles which have a variety of forms or shapes, and each form or shape has a great many sizes, it is best not to have a card for each size, but a card for each shape. For example, Eods, Brass, Bound, % inch diameter, % inch diameter, 1 inch diameter, could all be upon one card, designated Eods, Brass, Eound. Likewise, there should be a card for Eods, Brass, Square; Eods, Brass, Hexa- PURCHASE RECORD CARD FIG. 10. PURCHASE BECOBD CAED. gon, etc., and the same rule applies to practically all machine fittings and appliances. In other words, general classifications should be formed, having a card for each, and on this card various sizes or kinds can be shown of one classification only. Experience has shown that the following items are necessary upon the record card (Fig. 10) : 1. Order number and date. 2. Name of vender. KECOKDS AND FORMS 219 3. Unit price. 4. Date of shipment. 5. Quantity, price and discount, or net price per unit. 6. Column for checking price if 0. K. 7. Date of delivery. Regarding the quantity, it is deemed advisable by some to have two columns ; one in which to enter the number of pounds, gallons, feet, etc., and the other to be used where there is a carload shipment of a commodity, and to show the number of units contained in the car, such as the number of casks, barrels, bales, boxes, etc. This latter is not of pri- mary importance, except where this information may prove helpful to the traffic department, in cases of claims or of faulty deliveries, and in later questions relative thereto. If either column must be elimi- nated, the large column showing pounds, gallons, etc., should be kept. As to the cost column, whether or not the record cards show the price and the discount or the net price with the discount figured off, is a matter to be decided by the purchasing agent. Particular at- tention is called to the relation in which the sample diagram is arranged, namely, having the commodity at the top, and the different orders and deliveries in the same straight line underneath. Thus at a glance can be shown how much of a given article has been used since the first of the year, and even the year previous, or for any six months. There are no other details appearing on this card, and no de- 220 THE SCIENCE OF PURCHASING liveries are entered until order is completed; then one entry finishes the item. The partial delivery notations appear on the back of the purchasing agent 's copy of the purchase order (Fig. 10) which he keeps in his file in the nature of a continuous record. Each delivery is subtracted from the last balance due, and a new balance shown in the right-hand column until the order is com- pleted ; then the copy of the order is taken from the live index, notation of the total is made upon the record card, and the purchase order is filed in the dead index. By these means, the purchasing agent can find information on any order from either of two sources. Incomplete shipments are found on his purchase cards, and complete shipments on his record cards. This method will be found to save a great deal of extra work, for it is essential that the partial deliveries should appear upon the pur- chase order, and it is unnecessary duplication of work to put the same items down upon both the order card and the record card. Filing the Record Card. The record card in gen- eral use to-day is of standard size, 5 by 8 inches. However, there is a possibility that a special card 8 by 10, because of its greater utility, may supplant the 5 by 8 size with the majority of purchasing agents, for experience has shown that a card 8 inches wide and divided in the center does not provide suf- ficient space for all the columns necessary for two complete records on the face of each card. A 10- inch card makes up this lack and, in installing a RECORDS AND FORMS 221 new filing equipment, it is advisable to consider adopting the 8 by 10 size. The record card should be filed by commodities, in a file classified by departments or branch houses, or by expenses, such as Raw Material, Packing Material, General Expense, Power and Heat, Ship- ping Expense, etc. The cost accountant should be called into consultation on this point. Some purchasing agent's forms, as the circum- stances of their organization may require, show a distribution column on their card; that is, they show the department or branch to which the par- ticular goods go. Possibly department stores, muni- cipalities, and other businesses of similar nature would do well to incorporate this feature in their records, but most business concerns do not require this column. Receiving Record. The functions of the receiv- ing department are closely allied to the purchasing department, and the two should work in conjunc- tion. Many concerns do not consider this depart- ment in its true status, but whenever possible the purchasing agent should insist upon having a bright and abjle man as receiving clerk, and should have the right to use such methods or practices in co- ordination between himself and this clerk as is necessary to handle the delivery of goods accur- ately and completely. As has been stated, the receiving clerk is pro- vided with a copy of the purchase order for his guidance in determining the name of the shipper and 222 THE SCIENCE OF PURCHASING the quantity of goods expected to be received. It has also been stated, in a previous chapter, that some firms omit from this copy of the purchase order the quantity of goods purchased. The ex- planation of this omission is that the receiver will make a more accurate count, and will not be tempted to copy the quantity purchased without honestly counting the same. The majority of firms, how- ever, place sufficient confidence in their receiver to FIG. 11. RECEIVING RECORD. trust him not to neglect a proper checking of de- liveries, and they feel that, by showing the quantity ordered, he will be more apt to detect shortages, than otherwise. This copy of the purchase order is given to the receiver as a guide, and it is not customary for him to make his return thereon. For this purpose, blanks (Fig. 11), printed " Receiving Record, " are EECOEDS AND FOEMS 223 provided in triplicate. It shows the name of the shipper, the name of the transportation company, pro number, order number, and freight charges at the top, and the quantity and name of goods below. Slips are, of course, entered by the receiving clerk. The original and duplicate are forwarded to the stock clerk or to the department heads, according to the method employed in the different companies. The original is signed by the person who receives it and passed on to the purchasing department. The duplicate is either retained by the stock clerk or department head, and the perpetual inventory is posted from it if he keeps it and, if not, the duplicate is sent to the department which does keep the perpetual inventory. The same procedure is adopted throughout when an order is filled by partial deliveries, a new receiv- ing slip or record being made out for each delivery. Checking Invoices. The purchasing agent should check all invoices for the material which he has or- dered, as he is in a position to know the quality and quantity wanted, and is familiar with samples, the needs of his factory, etc. To allow any other depart- ment to check invoices is not for the best interests of the company, although some companies employ it as a safeguard. Having received the original and the receiving record (or records of partial ship- ment), the purchasing agent compares them with the invoice, makes notations of any shortage, attaches the receiving slips to the back of the invoice and passes it to the clerk who enters the record cards. 224 THE SCIENCE OF PURCHASING No invoice should be held for entry for longer than twenty-four hours, because of the possibility of los- ing the discount by delayed payment. The clerk, after making the proper entries on the record card, passes the invoice to the Accounting De- partment. In regard to the permanent disposal of the receiving clerk's copy of the purchase order, some companies provide a rubber stamp, marked " RECEIVED, " with date and quantity. This is stamped upon the face of the receiver's copy of the order each time a delivery is made upon a part of that order, and, when all deliveries are received, the copy is sent to the purchasing department and filed permanently in numerical order. A very good system adopted by some firms is as follows : On the back of the purchasing agent's office copy of the order there is kept (Fig. 12), on one-half of the sheet, a record of all receipts pertaining to that or- der, and other data necessary, and, on the other half, a record of invoices as to date, quantity, price, dis- counts, and, when possible, the invoice number. When the shipment is completed and invoices are paid the purchasing agent's copy will bear a com- plete record of the transaction; on one side, the or- der itself, and on the reverse side full information concerning the receipts, etc. Such a record is valu- able for reference purposes and requires no more time or labor than the various other methods. Shortage. Any shortages or overcharges noted are referred to the Traffic or Claim Department. In KECOEDS AND FORMS 225 some cases such notations are referred to the pur- chasing agent himself, who makes claim upon the shipper or transportation company according to the liability, for any damage, loss or shortage. If re- ferred to the Traffic or Claim Department, the pur- chasing agent should employ a blank form made out in duplicate, one copy going to the Traffic or Claim Department and the other to the Accounts Payable Department attached to the invoice before it is ap- RECE1F T8 IN vou ;cs DATE QUANTITY BAUkNCC DUE DATE QUANTITY mice AMT. OMCowxr NET If PWUCH t*mMf* inmaubcn FlG. 12. FORM APPEARING ON REVERSE SIDE OF PURCHASE ORDER (FlG. 6.). proved by the Purchasing Department. When the claim is adjusted and credit or check received, the fact should be noted on the blank and forwarded to the Accounts Payable Department. These slips should be numbered for the convenience of the Ac- counting Department. In case the purchasing agent makes such a claim himself, he retains the copy of the blank that would have gone to the Traf- 3: H> 1 I DER NO. III 1 w z o mt 6 s 1 s a 2 3 *4 i c V = COST DEPT. COPY SHIPPERS COPY BASING AGENTS COF SSVW>401S01 YOU ON BOOKS, WITH 1 UR ACCOUNT ACCORDIN s u o 1 U. CHARGE CREDIT y 1 t z < ^ UJ?% or ^^fcBBi S 226 RECORDS AND FORMS 227 fie or Claim Department, makes the proper notations upon it, and sends it to the Accounting Department. Goods Returned for Credit. The purchasing agent should devise some simple method of handling matters pertaining to goods returned for credit. There is a possibility of the firm losing money through records of returns not getting on the books and the vender failing to send a credit memoran- dum. All such instances of defective shipments or goods different from those ordered will naturally come to the notice of the purchasing agent, and he should be the one to make out the necessary papers for their return and see that these papers reach the proper departments. A 5 by 8 standard form, as per Figure 13, is sug- gested. It consists of an original and three copies. The original is mailed to the vender to whom the goods are being returned. One copy is kept by the purchasing agent ; one is sent to the shipping room ; and one is forwarded to the accounting or cost de- partment for proper entry upon the books. After shipment is made, and the shipper's copy filled in, it will be returned to the purchasing agent and affixed to his copy. Both copies are then forwarded to the Accounting Department to show that the matter has been taken care of. The first copy that the Account- ing Department receives is in the nature of a warn- ing and serves to put it on its guard. The copy that the purchasing agent temporarily retains will serve for him to make the proper entry upon his record cards, provided the delivery of these goods has been 228 THE SCIENCE OF PURCHASING entered on the record. If the delivery has not been entered there is no need to show that they were re- turned. For accuracy, however, it is better to en- ter the goods on the records and note that they were returned. This record will be available at all fu- ture times for information, and will show just when and what disposition was made of the article in ques- tion. The bookkeeping department would necessar- ily show an item on this same point, but in all prob- ability would give no information as to what the credit was for. The record, when it shows every detail of every transaction, will serve the purchas- ing agent in the nature of a guide to a dependable source of supply. Frequent returns to the same vender is an indication that the firm is careless and unreliable in many instances. Delivery of Patterns to a Foundry. Many pur- chasing agents pay for and furnish their own pat- terns of specially designed equipment and supplies, and it is considered advisable to cover this point. All patterns should be numbered and a card record thereof filed in a cross-index by numbers and names in one, and names and numbers in the other. When goods are sent to the foundry a form similar to Figure 10 will prove of some help. These forms are 5 by 8 standard size, and should be printed " Pat- tern, " or some other suitable heading, for this pur- pose alone. There should be four copies. One is to go to the foundry with instructions printed to re- turn the pattern make memo, on the invoice of its return, and show the pattern number thereon. The RECORDS AND FORMS 229 second copy is held by the purchasing agent until the return of the pattern. The third copy goes to the shipping clerk and, after shipment is made and noted on this copy, it is returned to the purchasing agent. The fourth copy is held by the receiving clerk and forwarded to the purchasing agent upon the return of the pattern. The completed trans- action is filed together and removed from the live index and filed in the dead index where it re- mains. Relation of Cost Department to Purchasing De- partment. The committee found, during its investi- gation, a great deal of variance among different firms in the matter of transmitting the cost of vari- ous articles from the purchasing agent to the cost ac- countant. Two methods which seemed particularly simple and direct were selected by this committee: 1. The first involves. the employment of a central stock clerk who has charge of a perpetual inventory, which he keeps accurately. An extra copy of the purchase order should be retained by the purchas- ing agent in addition to his regular copy, and when the goods arrive he can obtain from the invoice the price, and from the receiving record the quantity, listing both upon the extra copy of the purchasing order, carrying out the total if he prefers. This is forwarded to the central stock clerk, who com- putes the price of this lot and averages the price on both old and new stock, carrying out the newly found average price in a column for that purpose. All goods taken from stock after the arrival of 230 THE SCIENCE OP PURCHASING new goods are charged at the new average price. For example, if a firm had on hand 100 items at 90 cents and purchased 900 more at $1, it would have a total of 1,000 costing $990, or an average price of 99 cents each. This method of obtaining the average cost has been used successfully with but few discrepancies of total value of stock in the stock rooms as com- pared with the bookkeeping figures. These dis- crepancies should be redistributed in the usual way. In carrying out this plan, instead of the stock clerk obtaining both prices and quantity from the purchasing agent, he obtains the quantity from the receiving record, a copy of which is furnished him, and his prices from the purchasing agent. 2. In the second method the stock clerk does not have anything to do with prices (which are con- trolled by a cost clerk), but enters the quantity. The quantity is already on the copy of the purchase order forwarded to the cost department and the purchasing agent furnishes the cost clerk with full information as to net price. The cost clerk figures only the unit cost of the last shipment received and does not average his price or consider the price of any stock on hand. This method works in favor of a firm on a rising market. On a declining mar- ket a slight loss will ensue until the minimum is used up and all goods will figure on a basis of the last cost, until a new set of figures for new ship- ment is obtained. When goods are used with fair RECORDS AND FORMS 231 regularity, this method has certain advantages, but if shipments are received only two or three times a year, it would be well, in using this method, to write once a month (or at other regular periods), and obtain the latest price from the vender. APPENDIX NOTES ON THE TESTING OF MATERIALS BY HENRY C. KAYSER, PH.D. Industrial Testing Laboratory, Los Angeles. To the purchasing agent the subject of testing materials is of such fundamental importance as to justify a brief discussion of the theory upon which it is based and to out- line its purpose and ultimate aim. To determine the value of any material for a given pur- pose its properties must be measurable. These properties may have limiting values which must be regarded or the material may prove worthless, costly, or even harmful for the purpose intended. The testing of materials may prove a needless waste of time and money, unless due considera- tion has been given to the nature of the test to be applied, the conditions under which they are to be made, and the interpretation of results. It includes measurements of both quantity and quality. The testing of materials serves two important and dis- tinct purposes; first, to ascertain whether or not they comply with specifications, and second, to add to the gen- eral fund of knowledge regarding them. Materials may be classified in many different ways, for example; chemically, physically, according to their tech- nical applications, and likewise by any other aspect se- lected as criterion. Classification according to the use of the materials is especially significant, since the testing of materials is primarily done with a view to their efficient 233 234 APPENDIX use. Materials are grouped according to their use, for ex- ample: electrical materials, lubricants, illuminants, color- ants, abrasives, and many others. The materials possess properties useful for a specialized purpose. An import- ant group, based upon use is "structural materials, " such as metals, stone, cement, sand, brick, terra cotta, wood, protective coatings, paints, etc. Structural materials have for their practical function to maintain predetermined space relations of the parts of the structure under service conditions, and to protect the structure from the action of unfavorable agencies. Another group includes materials in which pliability or flexibility is a desirable quality. This class includes textiles, paper, rubber, leather, and similar materials. Another group consists of materials which form the sur- face upon other materials by adhesion or absorption. This group includes protective coatings, such as metallic coatings and paints, inks, stains and dyes, oils and varnishes. The utility of materials depends upon the nature, magni- tude and stability of their properties. The economic value of any given property depends upon its relative effect upon the net efficiency of the material for a given purpose. Quality is that which fits a material for a given use. The material is not simply good, it is good for a certain purpose, and the word " quality " is meaningless apart from the use in view. Good quality means good for a definite use. The test of the material is to determine how good for that use. Too much stress cannot be laid upon the economic value of testing for quality of materials before their use. The time has passed when the strength of materials can be left to guesswork or to intelligent opinion alone. Materi- APPENDIX 235 als must be guaranteed by specification and test. While the testing of materials in the modern sense is now a most important factor in the industries, such testing is still in its initial stage with respect to the establishment of rigorous standards of quality. A specification is in a sense a working standard of quality and indicates the quality desired and the conditions needed to insure it. A specification is too often not the real standard of quality at all. It may be narrow and exclude efficient material or so loose as to admit material of poor quality. A speci- fication, too, may require tests which do not gauge any desirable property and yet omit tests of vital importance. Defect may be due to lack of knowledge or, too often, to an effort merely to duplicate material once found satis- factory. This is done by describing a special brand and adding the words "or equal," or by minutely describing the properties of the acceptable brand. Both methods are used in place of specifying the use required of the material a practical recourse where a definite standard is still impracticable. Defective specifications, whether due to compromise of quality for economy or through lack of data should be replaced by those in which the best magnitude of each property involved is so specified as to predetermine the definite quality best meeting the need. The quality speci- cation should be just as definite to suit the conditions of use which it must meet. Bach essential requirement, whether of size or quality, must be correct within certain limits or the article is unsatisfactory or useless for the purpose. An ideal specification for material regards both economy and efficiency and does not ignore depreciation, replacement, repair, and service. The basis of specifications should be made the subject of 236 APPENDIX constant study by the purchasing agent, and changes should be made as soon as new technical knowledge necessitates. Inflexible specifications retard technical progress, but if allowed to advance apace with new technical knowledge, the specification becomes a distinct aid to such progress. The purchasing agent should select such tests which suffice to show with commercial accuracy the fitness of the material for the purpose in view. Economy dictates this limitation since in many cases the time and labor needed for more elaborate tests would make them prohibitive, and nullify the economic value of such testing. As far as prac- tical the testing laboratory selected to perform the tests should be given all the facts with respect to the material sent for test and the use for which it is intended. Other- wise a test cannot be well planned and the user may be un- able to correctly interpret the report of the test. An in- correct method of selecting test samples may entirely viti- ate a test as a measure of the quality of a given material. The best manufacturers aim to keep their product within an acceptable range of quality. A single test piece sel- dom shows the average quality of the material as a whole. If the test is designed to determine the average quality, sample test pieces should be taken from the various parts of the product. Again, the properties of the material sometimes change on exposure to light, air, moisture, or other agencies. If the samples are not properly protected, they may cease to be typical. In some cases, sampling of material is done directly by the testing laboratory, in other cases, samples are submitted directly by the purchasing agent. Samples which are liable to change upon exposure should be pro- tected in such a manner as to insure constancy until the test APPENDIX 237 is made. All samples should be protected from all sources of contamination. If the test is to check compliance with specifications, a copy of the specifications should accompany the request. It is particularly important that details be given as to the source, brand, and use of the material data which modify the test selected to ascertain the fit- ness of the material for a specified use. Classes of Materials 1. Metals A. Metals and Metal Products (1) Definition: Metals and metal products include the ele- mentary metals ; first, ferrous alloys, including all kinds of steel ; nonf errous alloys, including bronzes, brasses, compositions, special alloys, etc.; together with manufactured material or devices made from these, such as plated metals, enameled ware, chains, cables, springs, steel rails, etc. (2) Purpose of Tests (a) Determinations of the quality or prop- erties. (b) Acceptance or rejection of materials bought under contract, which are to fulfill certain specifications. (c) To ascertain the causes of failure in metal products or structures. (3) Nature of Tests (a) Chemical analysis, (b) Metallographic examination and heat treatment. (c) Mechanical tests. (d) Miscellaneous tests of physical properties. 238 APPENDIX (4) Sampling Correct sampling is of utmost importance; the purchasing agent should abide by the in- structions ordinarily furnished by the testing laboratory selected to perform the tests; drillings sent for chemical analysis should be free from oil, slag, moisture, dirt, or other contaminations. B. Composite Metal Products (1) Definition: Composite metal products form a class of metal products which is composed of two or more materials, for example, plated, en- ameled, and case-hardened metals. Plated or coated metals include roofing terneplate, "bright tin," galvanized iron, etc. They all consist of an alloy or a single metal applied to a steel or iron base called " black plate." The coating or terneplate consists of an alloy of lead and tin: That on bright tin plate is pure tin, and that on galvanized metal is zinc applied to the black plate. Terneplate and galvanized iron are used in general building construction, while bright tin is used in the canning industry and for cooking and domestic utensils. The coating should be adherent and continuous, free from pinholes and imperfec- tions and the base and coating should stand the required bending and distortion neces- sary to make proper joints and seams with- out fracture, or separation of coating from base. Enameled iron and enameled steel are produced by thoroughly cleaning the sur- APPENDIX 239 face and applying a coating of thin paste, (slush or ground coat), which consists of a fairly basic mixture of borosilicates. After heating and fusion of this layer a second, more glassy coating is dusted on, which after a second heating, forms the enamel proper. (2) Purpose of Tests Purpose of tests are the same as for " Metals and Metal Products." (3) Nature of Tests (a) Chemical analysis. (b) Determination of weight per unit area. (c) Bending tests. (d) Miscellaneous tests of physical properties, e. g., resistance to the action of dilute acids, resistance to certain heating and cooling, and good adhesion to the metal and the conditions of impact. 2. Hydraulic Cements and Concrete A. Portland Cement (1) Definition: The most common type of hydraulic cement is known as Portland Cement, which may be denned as the product obtained by finely pul- verizing clinker produced by calcining to in- cipient fusion an intimate mixture of prop- erly proportioned argillaceous and calcareous substances, with only such additions subse- quent to calcining as may be necessary to con- trol setting properties. Such addition should not exceed three per cent of the calcined prod- uct. Portland Cement is essentially a mix- ture of lime, silica, alumina, and iron oxide. There is perhaps no structural material sus- 240 APPENDIX ceptible of a greater variety of uses than ce- ment. This is due to the fact that it is han- dled and placed as a plastic material; it ob- tains great strength in a comparatively short period of time; it is of constant volume and relatively permanent, and is almost univer- sally available. The more important proper- ties of cement are its strength as a binding medium and its durability. A normal Ameri- can Portland Cement which meets the stan- dard specifications for soundness, setting time, and tensile strength, has an approximate com- position within the following limits: Per cent Silica 19 to 25 Alumina 5 to 9 Iron oxide 2 to 4 Lime 60 to 64 Magnesia 1 to 5 Sulphuric anhydride 0.5 to 2 Insoluble residue 0.1 to 1 The composition of normal Portland Cement, has been the subject of a great deal of in- vestigation, and it can be said that the quan- tities of silica, alumina, iron oxide, lime, mag- nesia, and sulphuric anhydride can vary within fairly wide limits without materially affecting the quality of the material. (2) Purpose of Tests The purpose of tests is to determine the compliance of the cement to the specifications approved by the American Society of Testing Materials. APPENDIX 241 (3) Nature of Tests (a) Chemical Analysis. The analysis of a cement will show the uniformity in composition of the pro- duct from individual mills. As the pres- ent standard specifications limit the sul- phuric anhydride to two per cent and the magnesia to five per cent, chemical analy- sis should be made for record on every sample. (b) Physical Tests The physical tests most frequently made to determine the quality, in the order of their importance, are : soundness, time of setting, tensile strength, fineness and specific gravity. The purpose of the soundness test is to detect those qualities in a cement which tend to destroy the strength and durability. The determina- tion of the time when the plasticity of the mixture ceases or the " initial set 77 is obtained is very important, for the sub- sequent disturbance of the material may cause a loss of strength. A knowledge of the time required for "'final set" is also of importance, especially if the cement is to be used in marine construction. The tensile strength test is a direct measure- ment of the cohesive strength of the material and is important in view of the fact that a cement may meet the require- ments of all the other tests and yet have very little cementing value. Only the ex- tremely fine powder of cement called 242 APPENDIX "flour" possesses appreciable cementing qualities and the coarser particles are practically inert, adding little to the cem- enting value for several weeks or months after mixing with water. No sieve is fine enough to determine the flour in cement, nor is there any other means of accurately and practically measuring the flour. Some cements grind easier than others ; first, although a larger percentage of one cement may pass the 200-mesh sieve than another, the former may have a smaller percentage of actual flour due to the difference in the hardness and the character of the clinker and the method used in grinding. The specific gravity of a Portland Cement is not an indication of its cementing value. It will vary with the constituents of the cement, especially with the content of iron oxide. (4) Sampling The samples of cement should be so taken as to fairly represent the material. The sam- pling is ordinarily left to the laboratory sel- ected to make the chemical and the physical tests. B. White Cement Most of the white cements now manufactured are white Portland Cements, as they are manu- factured in the same manner, and possess prac- tically all of the properties of the Portland Cement. The light color is due to the absence of iron in the APPENDIX 243 composition, which is controlled by using raw ma- terials free from iron in its manufacture. It is necessary in most cases to use White Cement if pigments are to be added for tinting, as the normal Portland Cement is gray and clear colors cannot be obtained with it. The same tests are applied to White Cement as are applied to Portland Cement. C. Sand and Stone Screenings Natural sand may be defined as the fine particles of natural water-worn stone or other mineral material. Stone screenings is essentially an arti- ficial sand. The best grade of sand is composed chiefly of inert siliceous material. The finer grades of plastering and building sand are usually beach or pit sand. Stone screenings may be ob- tained from any kind of stone and is the product received from the stone crusher which passes the ^4-inch mesh sieve. Sand is graded according to the uses for which it is intended. For fine plaster work the sand practically all passes a 20 or 30- mesh sieve, for mortar it all passes a 10-mesh sieve, and for use as fine concrete aggregate it all passes a %-inch mesh sieve. Stone screenings are used primarily in the construction of roads and as fine concrete aggregate. Sand varies in chemi- cal composition, size of grain, sharpness, porosity, hardness and cleanliness. Stone screenings will vary in chemical composition, shape of particles, porosity, hardness, strength and cleanliness or freedom from dust. A knowledge of the chemi- cal composition of sand or stone screenings to be used for building purposes is of little or no value. 244 APPENDIX The particles of sand or stone should be graded so as not to be of uniform size to give maximum density in water or concrete. The hardness of sand and stone screenings is of importance if the material is to be exposed to abrasion, as in roads, concrete floors, walks, etc. An apparently good sand is at times found to give very poor results in a mortar or concrete. This is found to be due in many cases to the presence of loamy clay, or- ganic, or mineral matter, which coats the particles and prevents adhesion of the binding medium. The following tests on sand and stone screenings are ordinarily conducted; the weight per cubic foot and percentage of voids ; granulometric analy- sis ; determinations of the percentage of silt, which is usually the deleterious material; determination of tensile and compressive strength as compared with the standard sand ; chemical determination of the presence of organic matter, soluble alkalis, etc. 3. Ceramics A. Clays and Shales Clays are mixtures of minerals or rocks in which hydrous silicate of alumina is present in sufficient amount to impart its characteristics to the mass to a reasonable degree. Shales are hardened clays, possessing a more or less well-defined cleavage. The main properties with which the user of clays is concerned are: plasticity and working quality, bonding power, drying shrinkage and behavior, burning shrinkage, vitrification range, color and fusibility. Note must also be taken of the presence of impurities like carbon, gypsum, pyrites, etc. APPENDIX 245 B. Clay Products Clay Building Brick includes both common and face brick, as well as blocks and various shapes employed in brick work. The term tl Architec- tural terra cotta" covers decorated hollow blocks of a fire clay body and pressed in plastic molds. These may be used with a glazed or unglazed sur- face. Clay roofing tiles are usually manufactured without a glazed surface, though increasing use is now being made of glazed products. Ceramic Floor Tiles are produced from mixed or natural bodies burned to vitrification. Glazed wall tiles are ceramic tiles covered with a bright glaze and used for the facing of walls. Paving Blocks and Bricks consist of vitrified shale or fire clay and are used for the surfacing of streets. Specifications offered by the National Paving Brick Manufactur- ers Association should be followed in every detail. Sewer Pipe is usually made from shale or fire clay, rarely from surface clay; ordinary hard-burned and provided with salt glaze. In products of this kind no evidence of excessive lamination or of an over burned, vesicular structure must be present. Any pipe showing black covering should be re- jected. The walls of the pipes should be straight and uniformly glazed. No unglazed surface, cracks, blisters or other defects must be observed. When struck with a hammer the pipe must give a clear ring. Drain Tiles are pipes consisting of burned clay, usually unglazed. They are usually made of red burning clay or shale. The tiles should be well burned, straight without cracks and should be cut off square at the ends. Porcelain 246 APPENDIX and White Ware are ceramic products manufac- tured from white burning mixtures of kaolin, ball clay, feldspar and flint ; when burned to the state of translucent vitrification, may be called porce- lain. Similar mixtures not carried to complete vitrification are known as white ware or earthen ware bodies. A great variety of products may be included under this heading, of which three groups are especially prominent: white pottery, known as porcelain, china, semiporcelain, white ware, etc., white sanitary ware, and electrical porcelain. Fireproofing for steel protection is ordinarily a clay fireproofing consisting of porous tiles shaped to adapt themselves to steel girders, beams and columns. The term "refractories" covers all the materials used to resist high temperatures. 4. Lime A. Burned Lime Lime consists essentially of calcium oxide or of calcium and magnesium oxides. It may be de- fined as the product obtained when limestone, marble, dolomite, or similar calcareous material is calcined at a temperature below the sintering point, provided that such product will slake when treated with water. The important properties of lime are: sand-carrying capacity, good crushing and good tensile strength of 1:3 mortar when ninety days old. The lime should be well burned, of good color, plastic, and free from material which will not slake. B. Hydrated Lime Hydrated Lime is a dry, flocculent powder which is prepared by slaking lime with an amount of APPENDIX 247 water insufficient to form a paste, but enough to combine with the calcium oxide present. Hy- drated lime should have the same properties as the lump lime in place of which it is to be used. In addition it should contain no free calcium oxide, and, when used for certain purposes the fineness of the material is important. C. Sand-Lime Brick Sand-Lime Brick consists essentially of sand which is bound together by hydrated calcium sili- cate formed by the action of lime on sand under the influence of steam. The distinguishing property of sand-lime brick is its color, which should normally be nearly white, and should be readily susceptible of change by the addition of various pigments. It should be comparable with common clay brick in regard to crushing and transverse strengths. The quantity of water it can absorb is important, and also the crushing strength when it is wet. 5. Stone Structural or building stones are of several types and of considerable variety. Since stones are usually called upon to withstand great pressures and are ex- posed to the elements, the important physical points to be considered by the buyer are strength and resist- ance to weathering. Stones of the same class vary greatly in texture and color, so that the selection of the stones should depend upon the service exacted. 6. Paint Materials This class includes dry pigments, pigments ground in oil and in japan, ready-mixed paints, water colors, tinting colors, enamels, stains, paint oils, volatile thinners, driers, oil and spirit varnishes, etc. Paints 248 APPENDIX and varnishes are the finished products; the others are paint materials used to produce the finished pro- duct; pigments should be finely ground, they should furnish a permanent, opaque surface of the shade or hue desired; they should not chalk, check or crack, nor discolor when exposed to normal conditions of exposure, and should have no corroding action on the surfaces protected, and the dry paint film should be as impervious as possible to moisture, air, and gases. Many single pigments do not have all these requisite characteristics; some have high tinting power but lack in opacity or optical covering power ; others have a tendency to chalk or peel when used alone; others have such strong coloring strength that they can be blended with cheaper pigments without any sacrifice of quality. Purity is not necessarily synonymous with quality. On these accounts the best results are frequently obtained by proper blending of pigments. Linseed oil is the chief drying oil. It absorbs oxygen from the air and changes it from a liquid to a solid, leatherlike substance which holds the pigments to the surface. Other oils, such as tung oil (Chinese wood oil), soya-bean oil, fish oil, etc., have this property of absorbing oxygen to a greater or lesser degree and may furnish a satisfactory substitute for linseed oils. By heating these oils with metallic salts, especially compounds of lead and manganese, boiled oils are pro- duced, the drying action of which is considerably in- creased. Driers are usually compounds of lead or manganese and linseed oil, rosin, or other gum resins. Volatile thinners are usually turpentine or a vola- tile petroleum product. Turpentine obtained from APPENDIX 249 the sap is called "gum spirits," while the turpentine obtained from the wood or stumps is called "wood" or "stump" turpentine. The petroleum products should be completely volatile at ordinary temperatures, but they should not volatilize so rapidly as to prevent a proper flowing out of the brush marks. Varnishes are sold under a great variety of names offered for a variety of uses. These differ in many cases only in name. For general use, interior, ex- terior, rubbing, and floor varnishes, will meet the usual demands of service. 7. Inks The only inks which can be relied upon as suffici- ently permanent for records are those containing finely divided carbon (India ink) and those in which iron gallotannate is the chief coloring matter. To the iron gallotannate an organic dye is added because the fresh writing would otherwise be too pale. Some writing inks and most of the ink powders are made solely of dyes. The nigrosine dyes make ink of quite satisfactory intensity of color, but should never be relied upon for permanent records. Colored inks are generally made by disolving the so-called aniline dyes, either in pure water or with various additions. Most of these are readily destroyed by sunlight, water, and various chemical reagents, and they should not be used for permanent records. The formation of sediment or the growth of mould when the ink is kept in an open vessel for a week in a place free from dust, indicates a poor quality of ink. 8. Paper In order that the user may more correctly judge the quality of paper and determine its usefulness for 250 APPENDIX the purpose intended, he should be informed by the seller upon the following points: the fiber composi- tion, tensile strength, folding endurance, thickness, weight per standard ream, and per cent filler re- tained in the paper. 9. Textiles Textile material includes all spun or woven fabrics or fibers suitable for spinning or weaving. Textile fibers have a wide range of uses. Among the prop- erties which the fibers should possess are: fineness, length, strength, and flexibility. Yarns should have good weaving and dyeing qualities ; minimum slipping in the fabric and high luster are often desirable. Fabrics should be well woven and finished with even and straight selvages, a minimum of spots and blemishes, and uniformity as to color and strength. 10. Rubber Crude rubber is obtained by coagulating and drying the milky latex derived from certain trees and plants. The quality of the crude rubber which determines its market value depends not merely upon the species of plant from which the latex has been secured but also upon the locality in which it is grown, and in a great measure upon the methods followed in its correction, coagulation, and drying. The best rubber comes from the Amazon basin. The term 11 rubber/* as commonly employed, does not refer to the commercially pure gum, but to a vulcanized com- pound which consists of gum, mineral matter or pig- ments, and sulphur. Mineral matter (filler) serves a very useful purpose in adding desirable properties APPENDIX 251 which could not otherwise be obtained. Their pres- ence, therefore, should not be looked upon as adul- teration. The real value of rubber in any case de- pends upon the length of time that it will retain those properties which are desirable. INDEX Acceptance, communication of, 123 Acknowledgment, 212, 214 Action, of eyebrows, 47 personal analysis of, 46 Advantages of a regular re- ceiving department, 171 Advertising, policy as key- note, 30 Agitation and laws against bribery, 142 Aims, plans and policies, 2 plans and resources, im- portance of knowledge of, 13 Analysis, of purchasing or- ganization, 154 of purchasing recommend- ations, necessity for, 8, of requisitions 8, of salesmen, 49 of self from selling point of view, 44 of speech, personal, 45 power of, 8 Appearance indicators, 45 chin and lips, 44 eyes, 44 forehead, 44 Appearances, personal analy- sis of physical, 44 Approval of invoices, 80 Assistant, duties of, 160 takes charge of purchasing department in absence Assistant (cont.) of purchasing executive, 125 Assuring standardization throughout the plant, 192 Basic principles underlying price variations, 6 Bearing of sales policies upon purchasing, 31 Beginning standardization with catalogues and forms, 189 Bids, blank, 207 securing in advance of, need, 3, 206 Blanket orders, 97 Blanks, acknowledgment, 214 appearing on reverse of purchase order, 225 National Association Stan- dard Purchase Order form, 211 pattern shipping order, 216 purchase order, 208 purchase record card, 218 quotation, 207 , receiving Record, 222 requisition, 202 Breach of contract, compen- sation, 132 damages resulting from, 131 253 254 INDEX Bribery, agitation and laws against, 142 commercial, 144 Building up a sales defense, 54 Business cycles and planning ahead, 102 Buying instinct, 5 Cancellations, 130 Changes in quantity or kind of goods to be bought, 103 Charge back invoice, 228 Charting the purchasing or- ganization, 157 Charts for fixating of re- sponsibilities, 156 Checking invoices, 223 Checking up established policies, 27 Chief clerk, duties of, 161 Chin, 44 Christmas gifts, 145 Conditions should appear on face of purchase order, 210 Commercial bribery defined, 144 Common sense, 10 Communication of accept- ance of -contract, 123 Compensation for breach of contract, 132 Competition versus corrup- tion, 141 Composite monthly and yearly changes, 117 Contract Laws, 120 classes of contracts re- quired to be attested, 125 Contract Laws (cont.) communication of accept- ance, 123 competence, 124 meeting of minds, 122 the consideration, 121 validity of oral contracts, 125 Contracts, essential require- ments in forming, 119 in general are equally valid, whether oral or written, 125 Correct conception of pur- chasing organization, 149 Cooperation with accounting department may hold good-will of seller, 35 Coordination, between ac- counting and purchas- ing departments, 2, 79 between engineering and purchasing department, 75 of all business functions, 2 of departments, reason for demanding, 70 Cost department, relation to purchasing department, 229 Cost record should be kept separate from other re- cords, 89 Counting and checking goods received, 171 Credit, definition, 17 Damages, 131 resulting from breach of contract, 131 Data necessary for success- ful purchasing, 92 INDEX 255 Defining the stores depart- ment, 164 Deflation, effects on pur- chasing, 100 Delivery of patterns to a foundry, 228 filing, 229 form, 216 Desirable impression to leave with departing sales- man, 58 Detailed information that must come to the pur- chasing executive, 74 Difference between, credit and financial resources, 17 policy and principle, 28 reliable and dependable source of supply, 20 Different methods, of ac- knowledging orders, 212 of buying that require different types of organ- izations, 153 Direct action, 11 Do standards interfere with progress, 193 Duties of assistant, 160 chief clerk, 161 purchasing executive, 158 Economic management of materials, 174 Effective way of applying pressure when ship- ments are delayed, 89 Effect of, "business cycle" on business, prices and profits, 102 foreign and speculative . buyers, 104 Effect of (cont.) specialized buyers upon sales methods, 139 standardization upon, re- quisitors, 194 storekeeping, 198 surroundings on salesman, 48 the seller, 195 wrong purchasing, 72 Effects of deflation on pur- chasing, 100 Efficiency experts, 150 Elimination of, indirect loss, 173 lost motion, 56 Emergency orders, 205 Essential requirements in forming a contract, 119 Essentials of plant and ma- terial inventory, 177 Establishing standards, 193 Excessive stock means, 172 Eyes, 44 Eyebrows, action of, 47 Failure to perform agree- ment, 126 Far-reaching effect of faulty stores system, 167 Federal Trade Commission, 137, 138, 140, 142, 144 Filing, of requisitions, 205 the record card, 220 Financial standing import- ant factor in successful purchase management, 16 First requirement of the pur- chasing executive, 119 Follow-up department, 213 Follow-up system, 215 256 INDEX Forecast study in purchas- ing, the proven need of, 99 Forehead, as appearance in- dicator, 44 Foresight, 5 Forms, origin of, 201, 202 Formula for making fore- cast, 106 Four copies of purchase order, 210 Fraud, 129 Function of ethics in busi- ness, 133 Fundamental factor on busi- ness forecast, 106 General policies, analysis of, 32 importance of, 27 Goods returned for credit, 227 Goodwill, held by coopera- tion with accounting de- partment, 55 importance of, 34 Gradual change in attitude between seller and buy- er, 41 Grafting an international question, 142 Graphic chart for business forecast, discussion, 107- 117 charts, 108, 112 Guarding against unneces- sary purchasing, 94 How to locate source of sup- ply, 21 Ideal office surroundings, 48 Ideal salesman, from pur- chasing executive 's point of view, 153 from the salesmanager 's point of view, 52 Indirect loss, elimination of, 173 sources of, 171 Inquiry through allied lines, method of locating source of supply, 22 Instinct, buying, 5 Interdependence of purchas- ing upon other depart- ments, 73 Interrelation, between ac- counting and purchas- ing departments, 79 of sales to purchasing de- partment, 78 Inventory, essentials of plant and material, 177 importance of, 176 purchasing executive 's re- lation to, 182 stores department relation to, 183 Invoices, approval of, 80 charge back, 226 checking, 223 standard, 190 Importance of, general poli- cies, 27 goodwill, 34 knowing the technic of sales approach and pros- pect analysis, 43 knowledge of aims, plans and resources, 13 misrepresentation when purchasing goods through samples, 129 - receiving department, 170 INDEX 257 Importance of (cont.) right relationship between buyer and seller, 36 Items, for consideration in purchase, of machinery, 85 of roofing, 86 necessary upon record card, 218 Kind of organization de- pends on kind of busi- ness, 152 Knowledge, of price, 89 of values, 90 Lack of, a standard of out- put, 172 coordination between ex- ecutives the cause of low- ered standards, 82 standardization in large corporations, 188 Law of contracts, 120 Legal requirement to read contract before signing, 119 Lips, 44 Lost motion, elimination of, 56 relation to direct action, 12 Manner of approach, 51 Manufacturing process in re- lation to fine element, 88 Manufacturing processes of materials purchased, 87 Material inventory, perpet- ual and physical, 178 Materials chargeable to stores department in inventory, 184 Matters for the personal at- tention of the purchas- ing executive, 158 Maximum stock level, 181 Meeting of minds, 122 Mental alertness, 6 Method of, making claims, 225 strengthening ' ' price memory, " 89 Minimum stock level, 181 Misdescription of property on sale, 129 Mismanagement of mate- rials, 172 Misrepresentation, 129 Misuse of word " Standard- ization " in price bait- ing, 197 Moral and material aspects of bribery, 143 Moral standing, 17, 18 National standard catalogue, 189 Natural aptitude, 4 Necessity for, physical count in inventory, 178, 183 standard quantity of out- put, 173 technical comparison of competitive articles, 85 Need for, a knowledge of contract laws, 118 laws to enforce ethical methods, 137 purchasing agents' asso- ciations, 24 New England purchasing agent's association, 201 New method of selling and buying, 38 Normal stock level, 181 258 INDEX No system can run itself, 201 Old English Statue of Frauds, 126 Old method of selling and buying, 36 One firm's policy may be an- other firm's principle, 29 Organization, purchasing ex- ecutive 's policy toward his, 33 Organizations, different methods of buying that require different types of, 153 Origin of forms and discus- sion thereof, 201 Past practices against the purchasing executive, 138 Perpetual inventory, as a basis from which to cal- culate requirements, 180 purpose of, 179 requires perpetual atten- tion, 178 Personal analysis of, actions, 46 - physical appearances, 44 speech, 45 surroundings, 47 Personal qualifications of the storekeeper, 168 Personal qualities essential in purchasing, 3 Physical appearances, per- sonal analysis of, 44 Physical properties, rate of depreciation of, 177 Points to consider in install- ing a system, 151 Policies, and principles of the seller, 23, 26 difficult to learn, 24 known as " trade cus- toms, " 29 Policy, as a keynote in ad- vertising, 30 defined, 28 Power of analysis, 8 Precise agreement, 122 Price guarantee, a form of rebate, 29 Price versus performance, 91 Principle, defined, 28 of analysis through speech, 46 , Principles, basic, 6 Proposed use of the pur- chase, 85 Purchaser's liability begins upon acceptance of goods by carrier and rendering of bill of lad- ing, 127 Purchases made without re- quisition, 204 Purchasing agent, in posi- tion of aggressor, 49 Purchasing Agents' Associ- ation, need for, 24 Purchasing Agent's Fore- cast, The, 105 Purchasing as an indispen- sible cog of business management, 15 Purchasing ethics and pur- chasing policies, 136 Purchasing executive, as a balance to the engineer, 191 duty to his profession, 146 not an order clerk, 3, 15 INDEX 259 Purchasing executive (cont.) policy toward his organ- ization, 33 relation to inventory, 182 Purchasing organization, charting the, 157 correct conception of, 149 Purpose of, perpetual inven- tory, 179 system, 150 Qualifications of an ideal purchasing system, 200 Quantity purchases under blanket orders, 97 Quotations, 206 blank, 207 Rate of depreciation of physical properties, 177 Eeasons for, comprehensive record of stores, 165 demanding coordination of departments, 70 different kinds of pur- chasing organizations, 151 former ill will between seller and buyer, 39 Receiving department, 170 Receiving form appearing on reverse side of purchase order, 225 Receiving record, 221, 222 Relation between manufac- turing and purchasing departments, 76 Relief from contracts, 126 Relation of, cost department to purchasing depart- ment, 229 purchasing to economy of manufacture, 81 Requisition, blank, 202 Requisitions, an aid to stand- ardization, 166 analysis of, 8 Requisitors, effect of stand- ardization upon, 194 Resources, definition of, 17 tangible asset, 17 Responsibility of purchasing toward other depart- ments, 71 Result of, faulty stores sys- tem, 167 shortage of materials and supplies, 172 Right relationship between buyer and seller, 36 Rules for ethical guidance of purchasing executives, 147 Sales defense, building up, 56 Salesman looked upon as consulting and source of information, 39 Salesman's analysis of buy- er, 42 Salesman's attitude toward defeat, 49 Sales policies, bearing upon purchasing, 31 Samples should be subject to analysis, 129 blank, 207 Selecting the best method of managing materials, 165 Self-reliance, 9 Service, a moot question, 62 according to the United States Bureau of Stand- ards, 63 as it appears to modern salesmanager, 64 260 INDEX Service (cont.) purchasing executive's idea of, 65 Securing bids in advance of need, 3, 206 Shortage, of materials and supplies, result of, 172 referred to traffic or claim department, 224 Should there be specified calling hours, 59 Signal system for facility in , follow-up, 215 Sizing up the purchasing executive, 42 Source of supply, difference between reliable and de- pendable, 20 how to locate, 21 one essential around which science of purchasing revolves, 13 Sources of indirect loss, 171 Speech, personal analysis of, 45 Stacking goods for physical count, 185 Staff specialists, 93 Standard invoice, 190 Standard, necessary for op- eration of any business, 188 of output, lack of, 172 Standardization of vital necessity to large cor- poration, 189 Standards, of performance, 64 of practice, 64 of quality, 63 reduce cost and amount of stock, 198 Standing of probable source of supply, 23 obtained through Dun 's, Bradstreet's and Moody 's, 23 Stock levels, 180 maximum, 181 minimum, 181 normal, 181 Storekeeper, an aid to stand- ardization, 198 Stores, department relation to inventory, 183 of vital importance to pur- chasing department, 77 Study of salesmanagement and salesmanship of value to purchasing ex- ecutive, 44 Studying buying needs, 4 Successful purchasing de- pends upon accuracy of data, 74 Summary of meaning of ser- vice as it appears to pur- chasing executive, 68 Supervision of stores, 166 System, purpose of, 150 Tact, 8 Technic of sales approach and prospect analysis, 43 Temperament, buying, 3 The business card, 49 The compromise, 60 The consideration, 121 defined, 121 The handclasp, 50 The necessity for a coterie of selling firms, 19 INDEX 261 The proven need of forecast study in purchasing, 99 The purchase director should know all policies of his firm, 31 The purchase order, 208 national standard, 211 The purchasing executive, object of highly concen- trated effort, 43 The purchasing executives, analysis of the salesman, 49 idea of service, 65 The record card, 217 The requisition, 202 The salesman's side of call- ing hours, 60 The war as a stimulation to standardization, 198 Three essentials, quality, ser- vice, and price, 65 Time, important factor in modern buying, 12 Trade boycotts, 139 ''Trade evils,' '138 Two methods of transmitting cost of articles to ac- countant, 229, 230 Types of salesmen, 51 Uniformity of quality linked with uniformity of primary materials, 83 United States Patent Offi- cial's ruling on Service, 62 United States Bureau of standards, interpreta- tion of service, 63 Usefulness of ethical stand- ards in business, 135 Validity of, contract often conditional upon goods being exactly like sam- ple, 130 oral contracts, 125 Value of a definite principle, behind an organization, 155 in fixation of responsi- bility, 156 charts for the fixing of re- sponsibilities, 156 firm policies, 27 salesman as bureau of in- formation, 58 Vender's file copy of quota- tion, 207 Vital necessity, for detailed knowledge of require- ments, 84 for standardization, 187 of properly controlling materials and supplies, 163 Vital need of definite or- ganization policies, 26 What the purchasing execu- tive expects when he buys service, 67 What the twelve factors of the dial represent, 109- 116 What the United States pat ent officials rule, 62 Why the purchasing execu- tive is concerned with standardization, 185 Wrong purchasing, effect of, 72 CD Valuable Books for the Business Man THE GREAT GAME OF BUSINESS By J. 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