"" M PURCHASING ITS ECONOMIC ASPECTS AND PROPER METHODS BY H. B. TWYFORD II OTIS ELEVATOR COMPANY WITH CHARTS, DIAGRAMS AND FORMS SECOND PRINTING SECOND THOUSAND NEW YORK D. VAN NOSTRAND COMPANY 25 PARK PLACE 1915 COPYRIGHT, BY H. B. TWYFORD ACKNOWLEDGMENT The author acknowledges with appreciation the courtesy extended to him by the undermentioned concerns some of whose forms are reproduced in this book. LONDON UNDERGROUND ELECTRIC RAILWAYS. OTIS ELEVATOR COMPANY. J. G. WHITE AND COMPANY. DAIRY MACHINERY AND CONSTRUCTION COMPANY. PREFAtl EVERY business establishment in the normal course of its operations has to make expenditures for various purposes to maintain its active existence. Divergent views exist as to the relative importance of these outlays. This is evidenced by the preponder- ance of educational efforts directed towards obtaining better results from the amounts expended for labor and selling expense, while other subjects are comparatively neglected or receive insufficient consideration. These studies in economics are having far reaching effects and it is the object of this book to draw the attention to a subject which has been but little touched upon in existing literature the economies which can be effected by the use of efficient methods in the purchas- ing of materials, goods, and supplies. Purchasing is one of the primary functions in the activities of the great complex structure we call busi- ness. The acquisition of raw material is the initial step incurred in the cost of manufacturing anything. In merchandising, a purchase must be made before a sale can be effected. In construction work, tools and equipment must be procured before workmen can commence operations. The significance of this subject is brought forcibly to the attention when it is realized that every undertaking in its inception involves the necessity of buying something, and the continuance of its activities perpetuates this important function. vi PREFACE It is easily conceivable that promiscuous buying would be a serious handicap to the success of any concern. It would render complete success unat- tainable, and the very existence of an establishment might be endangered and jeopardized. For the efforts of any organization to culminate in the most desirable fruition, it is a predominant constituent principle that its expenditures be properly regulated and made with wisdom, intelligence, and sagacity. Among the most prominent characteristics which produced the commercial prosperity of this country were: large areas of fertile lands, enormous deposits of metals and minerals, and an enthusiastic and am- bitious people. There are today three other factors which make necessary a thoughtful consideration of the future. These are: conservation of natural re- sources, competition, and the tendency to take life easier as evidenced by the agitation for shorter hours for workmen and longer week ends for employers. The cumulative effect of these conditions has brought intensive economical operation into promi- nence, and it is apparent that this must be applied to every phase of business to a greater degree as time goes on. Regulated and right buying is a study in economics, and vast savings can be effected by effi- cient and proper methods of performing this vital function. During a period when I was associated with one of his enterprises, an American financier with an inter- national reputation, who was well known for the successes he had achieved in various undertakings, expressed some opinions to me on buying and the economic objects to be attained by proper methods. PREFACE vii Among other things, he said that his experience had taught him that the problem of spending money judiciously and to good purpose was a harder and more difficult task than the acquisition of it. At that time some of his views were novel to me and since they were the cause of considerable reflection on my part, they were possibly the nucleus of thoughts which eventuated in this effort. He steadfastly held to the principle that a success- ful foundation for new enterprises, the growth of es- tablished undertakings, and the accretion to their resources is in a large measure dependent on the importance attached to, and the careful thought given to, the expenditure of all money for capital purposes, production, and supplies. He was unflagging in dili- gently scrutinizing and carefully weighing such ex- penditures, having in view the object to be attained and the practical utility of the result to be accom- plished by the outlay. Personal experiences and struggles with the prob- lems connected with purchasing materials, merchan- dise, supplies, and equipment, and in organizing and conducting this department of commercial life, to- gether with a close study of the interesting economic questions connected with it, are combined and repre- sented in this book. It is hoped that some of the observations made or the information given may be of service and value to the reader. H. B. TWYFORD NEW YORK CITY, April, 1915. CONTENTS PURCHASING CHAPTER I PRINCIPLES OF PURCHASING. GENERAL CONSIDERATIONS The art of buying. Philosophy of buying. Personality in buying. Some present-day methods. Purchasing an interesting economic problem 1 CHAPTER II FUNCTIONAL POSITION OF PURCHASING CONSIDERED Importance of good buying to the success of an undertaking. Rela- tion of buying to cost and selling. Influence of buying on profits. Literature on the subject 11 CHAPTER III ETHICS OF BUYING Ethical standards in purchasing. Buyer and seller. Misrepre- sentation and its results. Contracts and price fluctuations. Competitive bidding. Advantage of prompt payments. The offer system 19 THE PURCHASING ORGANIZATION CHAPTER IV THE PURCHASING AGENT Factors and conditions connected with his work. Information and knowledge which he must possess. The principal functions covered by his activities. His authority defined. Relations with other department heads 26 X CONTENTS CHAPTER V THE PURCHASING DEPARTMENT Its sphere of usefulness. Size of department. Employees neces- sary. Relations with other departments. Subdividing the department. Traffic division. Inspecting. Receiving and storing 41 CHAPTER VI ORGANIZATION OF DEPARTMENT Organization of personnel. Linking up the employees. Informa- tion clerk. Requisition clerk. Price clerk. Order clerk. In- spectors. Invoice clerks. Traffic clerk. Storekeeper .... 53 CHAPTER VII SYSTEM OF PROCEDURE General outline. Procedure to be followed in collecting information. Purchasing procedure. Invoice procedure. Stores procedure. Inspection procedure. Traffic procedure 62 OPERATION OF PURCHASING DEPARTMENT CHAPTER VIII OBTAINING AND TABULATING PROPER RECORDS Collecting and recording data and information. Catalogues. Sources of supply. Record of past purchases. The purchase record. Prices and quotations. Specifications. Inspection reports. Analyses and tests 73 CHAPTER IX WORK CONNECTED WITH REQUISITION AND ORDER Examining and checking requisitions. Pricing requisitions. Ob- taining quotations. Final negotiations. Placing orders. Following up orders. Tickler systems. Recording shipments. Emergency orders 94 CONTENTS xi CHAPTER X INVOICES AND METHOD OF HANDLING General considerations. Recording invoices. Preliminary work. Checking with order. Checking with material received. Checking prices. Freight charges. Extensions. Classifica- tion. Approval 116 CHAPTER XI OPERATION OF STORES General remarks. Receiving material and supplies. Properly storing. Delivering from stores. Stores accounting. Stores tickler systems. Scrap. Fixing the maximum and minimum 133 PURCHASING AS PRACTISED CHAPTER XII PURCHASING FOR RAILROAD CONSTRUCTION WORK AND FOR OPERATION OF ELECTRIC RAILROADS 162 CHAPTER XIII PURCHASING FOR A MANUFACTURING AND CONSTRUCTION COM- PANY 191 CHAPTER XIV PURCHASING FOR CONSTRUCTION AND OPERATION IN WIDELY SEPARATED LOCALITIES 202 CHAPTER XV PURCHASING FOR A SMALL MANUFACTURING ESTABLISHMENT. . 220 INDEX 233 LIST OF CHARTS, DIAGRAMS AND FORMS FIGURE NO. PAGE 1. Comparison of consequences resulting from inefficient buying and competent buying . 3 2. Diagram illustrating the building up process of the cost of 'an article until the selling price is reached 13 3. Diagrammatic synopsis of the various matters on which a purchasing agent should be posted 30 4. Diagram showing in tabular form the main divisions of a pur- chasing agent's work 35 5. Chart of the functional organization of a purchasing depart- ment 48 6. Chart of the organization of personnel of a purchasing depart- ment 57 7. Chart of system to be followed in obtaining and recording data and information 66 8. Chart of procedure to be followed from time requisition is received until order is completed 67 9. Chart of method of procedure for invoices 68 10. Chart of stores procedure 70 11. Arrangement of shelves for catalogues 76 12. Card for indexing catalogues under name of material .... 77 13. Card for indexing catalogues under name of manufacturer . . 78 14. Sketch of bookcase for catalogues 79 15. Form for keeping record of sources of supply 81 16. Record of material purchased form 83 17. Record of material purchased form 84 18. Purchase record form 86 19. Purchase record form 88 20. Record of quotations form 90 21. Purchase requisition 95 22. Form of inquiry for obtaining quotations 99 23. Comparison of quotations card 101 24. Form for notifying bidders that order is placed 102 25. Purchase order form 106 26. Purchase order form 107 xiv LIST OF CHARTS 27. Acknowledgment of order 108 28. Card for tickler system 109 29. Card for obtaining promise of shipment 110 30. Form of request for information regarding shipment .... 112 31. Invoice record 120 32. Attachment for invoices to indicate date discount expires . . 121 33. Form for certifying invoices 122 34. Form used in checking and approving invoices 123 35. Method of recording shipments and invoices on order .... 125 36. Inspection report 126 37. Material received sheet for use in purchasing department . . 128 38. Notice of freight charges 130 39. Material received sheet for use* in stores *L35 40. Material received sheet for use in accountant's office .... 137 41. Receiving report 140 42. Requisition on storekeeper 142 43. Requisition on storekeeper 143 44. Requisition on storekeeper 144 45. Credit slip for goods returned to stores 145 46. Credit slip for goods returned to stores 146 47. Material budget . 147 48. Material budget 149 49. Perpetual inventory for stores 151 50. Perpetual inventory for stores 153 51. Bin ticket for use in stores 154 52. Temporary bin ticket 156 53. Stores tickler ticket 157 54. Stores tickler ticket 158 55. Report of low stock 159 56. Notification regarding scrap 160 57. Requisition used on Underground Railways construction work 165 58. Requisition similar to Figure 57 but a different series . . . 166 59. Order form, Underground Electric Railways 167 60. Record card, Underground Electric Railways 169 61. Reverse side of record card showing method of recording invoices 170 62. Notice accompanying invoices sent out for approval .... 171 63. Card for recording sales of scrap, old equipment, and tools . . 172 64. Reverse side of sales card for invoices 174 65. Method of keeping analyses of coals offered for sale .... 177 LIST OF CHARTS XV 66. Reverse side of Figure 65 showing method of recording quan- tities available and prices 178 67. Advice to shippers of actual weight of coal received 179 68. Requisition on purchasing agent, used in operation work . . 180 69. Inquiry used in obtaining quotations 181 70. Purchasing agent's order form used in operation work ... 182 71. General record of orders . 183 72. Tickler card 184 73. Reverse side of tickler card 185 74. Reminder card 186 75. Requisition on storekeeper 187 76. Credit for material returned to stores 188 77. Sheet for listing goods received into stores 189 78. Bin card for stores 190 79. Requisition from factories 192 80. Requisition from departments 194 81. Purchase order form 195 82. Reverse side of order arranged for recording receipt of goods 196 ' 83. Branch office order form 197 84. Quotation request form 198 85. Follow up on orders 199 86. Purchase order record 201 87. Requisition on purchasing agent 204 88. Purchase order form 207 89. Copy of order showing method of recording invoices .... 208 90. Request for price after order is issued 209 91. Specification and blue print request 210 92. Inspection notice 211 93. Request for information regarding shipment 212 94. Temporary follow up memorandum 213 95. Advice sent to construction office 214 96. Instructions to ship '. 214 97. Tracer request 215 98. Request for correct invoices 216 99. Memorandum sent out with invoices 217 100. Purchase order record 218 101. Invoice register 219 102. Purchase requisition 221 103. Price card . . 222 104. Purchase order form 223 105. Invoice approval form 224 xvi LIST OF CHARTS 106. Index of orders 225 107. Foreman's requisition on storekeeper 227 108. Foreman's credit requisition 228 109. Perpetual stores record 229 110. Storekeeper's notice of low stock 230 111. Pattern record card 231 112. Movements of patterns record card 232 PUECHASING CHAPTER I PRINCIPLES OF PURCHASING GENERAL CONSIDERATIONS The Art of Buying THE steady advance in the art of buying has been one of the determining factors in developing scientific salesmanship. It is no longer possible for a salesman to walk into a modern purchasing office, and carry away an order on the strength of a few persuasive arguments and statements regarding his goods. Today the buyer sometimes knows more about the material than the salesman. He should certainly be better posted as to its suitability for his particular requirements. He has his inspection reports, labora- tory analyses, and physical tests to guide him. He has records regarding past performances of material, quantities consumed, and probable future needs, also estimates as to the available supply in the market. This information can be collected, tabulated, formu- lated, and reduced to exact knowledge which is sci- ence. With this equipment the purchasing power is at its maximum, while the salesmanship required is at its minimum. Under these conditions the advan- tage is with the buyer, and the best results in the 2 PURCHASING matters of price, quality, terms, and delivery are obtainable. To put this into practical effect, therefore, it is necessary to apply systematically the knowledge which the purchaser must possess. The information from which this knowledge is gleaned is acquired and stored by the purchasing department and will be dealt with in later chapters. To emphasize the importance of this subject, ref- erence should be made to Figure 1, where the conse- quences proceeding from a policy of indifference or carelessness are compared in parallel with the results which can be achieved by the efficient direction and operation of the function of buying. A glance down the first column will demonstrate that severe losses must be incurred by the absence of a scientific system and the use of improper methods, while the economic benefits and larger profits to be derived from a reversal of this policy are set forth in the second column. To secure these advantages it is essential that certain methods pertaining to and peculiar to the art of buying should be in force. These features are made a special object of study and an exposition of them is given. Coupled with these special features it is imperative that a proper system be adopted and put into practical effect and the activities connected with purchasing be governed with wisdom, intelligence, and sound judgment. These conditions prevailing, the highest standard of efficiency can be maintained and the complete benefits and advantages secured. The illimitable ramifications of business are supported by their interdependence. It is an essential concomi- Promiscuous Buying Regulated But/ing Poor Prices L owest Prices for Quality Purchased Inferior Quality Highest Quality for Prices Paid Purchases made in Excess or short of Requirements Exact Quantities needed are ordered Articles substituted for those actually bought Articles purchased are those actually Delivered Investment in Materials and Supplies excessive Minimum Investment in Materials and Supplies Erratic Deliveries Deliveries made 'in accordance with needs Unchecked, incomplete or excessive Deliveries Exact Quantities ordered are Delivered Im nproper/y Checked nd delayed Invoice, Pro per /y checked and Promptly approved Invoices Loss of Cash Discounts Cash Discounts .secured by passing invoices promptly Duplicate Payment of Invoices Security against over payments Inefficient Service, Losses Extravagances Adequate Service. Economical Operation FIGURE No. 1. A comparison of the consequences ensuing from inefficient buying and competent buying. 4 PURCHASING tant to the building up of this complicated structure that the specialist in any one of its interrelated func- tions should acquaint himself, to as large an extent as possible, with the workings and accomplishments of the others. Purchasing is intimately associated and iden- tified with many branches and divisions of business. It is incumbent therefore on the man who specializes in it to maintain his general knowledge on lines of the broadest conception to enable him to practice his art to the greatest perfection. The Philosophy of Buying Too often the question of price is made the deter- mining factor in making a purchase without due con- sideration being given to the other phases of the transaction. Price and quality must be considered to- gether. One sometimes bears an inverse relation to the other. High cost was formerly considered an indication of high quality, but for one's special and particular needs, the highest quality may be the cheapest. Conversely, a material which graded higher than the specification might not be equally serviceable for the purpose and prove the most expensive. Its exact measure of utility and therefore its value, is now determined on a more scientific basis than formerly. The action of materials, during the manufacturing process and in the finished product, has been made the object of accurate study, and the information and knowledge gained from this study have enabled the engineers to draw specifications, which, when issued by the purchasing agent to bidders, have brought offers of material that will give the most effective results and be most serviceable. PRINCIPLES OF PURCHASING 5 The prime essential therefore is to purchase at the |X lowest possible price, the material which answers most fully to these requirements. Definite methods of testing should be stated. Specifications not enforced are worse than useless. A substituted material which had characteristics of higher intrinsic value than speci- fied might not be equivalent to the specified material from a utilitarian point of view. These are approximate definitions, and must neces- sarily be so in reviewing the subject in its relation to the whole field of buying, but each individual purchase can be weighed and examined with these considera- tions in view. If requisitions are received, and orders are placed without reviewing them, it is an inadequate method of procedure and is merely doing a commission house business. An indefinite number of specific in- stances could be given illustrating the importance of obtaining the right material at the right price, but each individual case has to be decided on its own merits and surroundings. Common-sense, however, must be used in deter- mining just what is to be done in the case of each purchase. With supplies of all kinds down to the most infinitesimal thing, there is always some one thing which is the most economical as a purchase for one's particular needs, but the amount involved may be trivial, and not warrant the expenditure of more than a very limited amount of time. There have been exhaustive experiments made with lubricants, when the annual purchases did not amount to as much as the cost of the experiments in the same period. But, where the consumption is large, it is imperative that the cost of the lubricant, the cost of material 6 PURCHASING worn from journals and brasses, and the cost of power to overcome friction, should all be carefully computed to arrive at the actual value for the specific purpose. A large number of instances could be cited, but the above illustration will suffice to show that if a curve was kept of the usefulness of an article to the pur- chaser a curve of the proper price to be paid would bear a parallel relation to it. Where the purchases of one class of material are sufficiently large to warrant it, the orders should be distributed between two or more concerns, as a meas- ure of safety. For obvious reasons it is not advisable to have all one's eggs in one basket. This should not be done, however, at a sacrifice of price or quality unless there are extremely urgent and imperative con- siderations warranting such a course of action. If the material in question is one of the essentials in production work, and the supply is coming entirely from one source, a serious dislocation of operations might ensue from the failure of this one source of supply from any cause, even if only temporary. For this reason, it is advisable, wherever possible, to draw supplies from as widely separated localities as the conditions will permit. The risk is then minimized from such causes as strikes, lockouts, and breakdown of transportation facilities. Dependable sources of supply being necessary to successful buying, it is im- perative that the reliability and standing of the seller be known or investigated and his ability to perform the obligations he is entering into determined. This brings into the subject of right buying the question of buying in such a way and in such places and from such sources as can be definitely and posi- PRINCIPLES OF PURCHASING 7 tively relied upon to furnish the goods and materials required at the time they are required, and in the quantity required, both of which are important eco- nomic factors in the operation of any establishment, or in the carrying out of construction work. Buying at inopportune times or in excess of require- ments is liable to entail severe losses unless there are compensating advantages in the matter of price. An accumulation of goods or supplies beyond what is req- uisite to keep the business moving along its appointed way, means that the following losses are incurred; de- preciation, insurance, value of space occupied, and loss of interest on investment. Personality in Buying Personal contact between buyer and seller is not the potent factor it once was. This is due to the preva- lence of more scientific conditions in buying. A perfectly satisfactory purchase can be put through without the two principals in the negotiation ever seeing each other. Personality is just as powerful as ever in the consummation of the deal, but it works on different lines. Business men will probably never cease meeting each other to discuss and close transac- tions, but personal contact in business is like personal combat in war, it is a waning influence in arriving at a decision. The tendency is in this direction in buy- ing. Salesmanship is on a more impersonal basis than formerly. The great mail-order houses are examples of this, so are the slot machines. A good buyer soon gets to know whether the seller has scientific and exact costs. If he has, the buyer can always tell when he has reached his bottom figure. A 8 PURCHASING man uncertain of his costs is uncertain of the price he quotes. In the case of the man who has exact costs, the buyer in negotiating might think he could call a bluff on him, and offer him the order at a reduced price. It would not be successful; there was no bluff; it did not exist. Probably every successful buyer recognizes the prin- ciples of good buying, and although he may not have formulated and arranged them in his mind, neverthe- less, he has undoubtedly a standard by which he does his buying, and maxims which he instinctively lives up to. Some Present Day Methods There are thousands of manufacturers in this country today who are doing hand-to-mouth buying with no well-developed scheme for making their pur- chases. They have some local jobber or near-by manufacturer supply their needs as required, some- times almost day to day, with such things as a gross of files, or some emery paper, or a few bars of steel. Their contention is that it is not worth bothering about; the local jobber carries the stock for them, and that is worth the little extra money they pay him. They will also say they want to patronize the local dealers. It is possible for them to continue to place their orders locally, but let them do it intelligently. Let them keep an accurate account of everything they use during one year, and the following year ask for quotations from the biggest and best manufacturers in the country. They will find they can save enough money to enable them to carry their own stocks and have a handsome profit left. They will not have to PRINCIPLES OF PURCHASING 9 place their order for a year's supply to be delivered at once, the sellers will make shipments almost as required. However, most of their orders will probably still go to the local jobber, because the result of this policy will be to awaken the jobber to the fact that he has not been buying right, and he will be able to get better figures, which will enable him to retain the business. It all resolves itself down to this, that thousands of manufacturers are letting some one else do their buying instead of doing it themselves, and that some one else may be a good buyer, but the chances are he is not. Purchasing an Interesting Economic Study The interest in the subject of buying is not confined to the inherent satisfaction which any man experi- ences when he has brought a negotiation to a success- ful conclusion. It is heightened by the wide field there is and by the constant changes taking place in all classes of goods as they pass through one plant after another. The numerous processes through which various materials go before final consumption, cause these to be considered by one manufacturer as fin- ished product, while to another they are raw material.. This is due to the great complexity of our manufac- turing industries. The enterprises not strictly of a manufacturing character, such as public utilities, mining, etc., cover a very wide field, and their activities require the purchase of supplies and material, equally as varied and complex as the manufacturing industries. For this reason a study of the subject offers great diversity 10 PURCHASING and is of particular interest and attractiveness. Men have specialized in various phases of the work, just as engineers and doctors have in their professions. The fundamental underlying principles, however, governing the conduct of the work and the methods employed for its accomplishment remain the same, whatever the nature and scope of the undertaking. Economy of time and materials will never go out of fashion, and the saving which can be effected in the purchasing of materials, supplies, merchandise, and equipment, is an economic problem, the investigation of which will amply repay any person interested in it. CHAPTER II FUNCTIONAL POSITION OF PURCHASING CONSIDERED Importance of Good Buying to the Success of an Under- taking NO great commercial enterprise has been built up, or is continued in active operation, without the expenditure of large sums of money. Comparatively, this is equally true of every business large or small. This expenditure is in a measure a foundation, in a sense it may be said to be the corner stone, for without this the erection and superstructure of the enterprise cannot progress. The purchasing depart- ^ ment of a business is the instrument through which a large proportion of the expenditure is made, and the success of the business will be affected by the amount of correct thought given to this department, and the judiciousness with which the purchases are made. The success or failure of a business may be the direct result of good or bad buying. This is easily conceivable if one studies the consequences which either one or the other involves, as set forth in paral- lel in Figure 1. The importance of the function of buying can be readily understood from it, and any establishment indifferent to it would need to make enormous profits, have little competition, and unlim- ited capital to survive any length of time. There is too great a tendency in some concerns to belittle the purchasing and treat it in a negligent and 12 PURCHASING offhand manner, but this is a very narrow view. It is, however, held by the heads of many of the medium sized and smaller industries who have perverted ideas as to the relative importance of the various sections of their business. They will not spare expense in an endeavor to in- crease the results obtainable from the sales depart- ment, or to develop the effectiveness of the production division. There they can see tangible results, whereas their vision does not penetrate far enough in the other direction to appreciate the benefits to be derived from the scientific control of purchases. Without such con- trol the advantages are intangible, but they can be brought out forcibly and succinctly by a complete and concise system, and the proper regulation of the buying and all that pertains to it. Results can then be set forth as clearly as in the sales or production department. Many thousands of manufacturers hold views of buying which are detrimental to their interests, but fortunately opposite views are held by our national " captains of industry " and by all men who give business organization close attention. Studious reflec- tion and investigation by others cannot fail to bring to them a realization of the importance and relative standing of this vital function of their business. While stress has been laid on the importance of the function of buying, it must not be forgotten that it is a component part of the activities of the concern as a whole. Any purchasing agent having a distorted or exaggerated idea of the importance of the functions of his department, will not be able to do the most efficacious work in his sphere of usefulness, and will FUNCTIONAL POSITION OF PURCHASING 13 unconsciously hamper the efforts of the heads of other departments, resulting in an unbalanced admin- istration. The Relation of Buying to Cost and Selling The great importance of good buying is empha- sized by the fact that a large percentage of the profits of any concern is absolutely and undoubtedly due to the ability of the purchasing agent to buy the bet 22 % Indirect* ; Expense' FIGURE No. 2. This diagram illustrates the building up process of the cost of an article until the selling price is reached. Perhaps no two articles would show identical rises for each step but all would show a succession of unequal advances from zero to 100%. 14 PURCHASING from a utilitarian point of view for the lowest price. This is the first step in the profits. Figure 2 indicates the five main stages by which a product reaches its selling price. Subdivisions of each stage could be given, but as an illustration for the present purpose the above is sufficient. It is made up from actual conditions existing in a manu- facturing establishment, and serves to show the im- portance of starting right by buying right. The acquisition of raw material is the initial step incurred in the cost of making anything and the rela- tion of its percentage to the final selling price will depend on the nature of the output of the factory. If valuable metals are used for raw material the first step would be an exceptionally high one, but the reverse would be the case if cheap crude raw material was used and a highly finished product turned out. The production of almost any finished article means that the material in it has been bought and sold many times because manufacturing industries are interre- lated to such an extent. This causes great variation in the cost of the raw material one starts with, but emphasizes the importance of closely watching the price and scrutinizing the quality. It must not be forgotten that the activities of the purchasing agent do not end with the first step shown in Figure 2. Indirect expense includes considerable quantities of material used in maintenance and repair work. There are supplies of all kinds, such as oils, brooms, packing material, and office supplies. The selling expense includes stationery, catalogues, etc., therefore, buying is a factor in each of the stages shown. FUNCTIONAL POSITION OF PURCHASING 15 Reference has already been made to the importance of so directing, arranging, and controlling all purchases, that without an undue accumulation of materials there should be at all times sufficient stock on hand to enable the production department to maintain its activities in unbroken continuity. This has a direct influence on the cost of a manufactured article, for the losses incurred through overstocking increase the in- direct expense, as do likewise the losses sustained from an insufficient supply of materials and the consequent decrease in the output of the factory, Influence of Buying on Profits Regulated and right buying is a study in economics. If one looks over the field of endeavor connected with production and manufacturing, and observes its ten- dencies during the past few decades, it will be noticed that intensive economical operation is applied more closely as time goes on, until a condition exists with many concerns, where they save their profits instead of making them, or rather they make their profits by savings. It does not appear that there will be any lessening of this tendency. This country, rich in natural resources, with a nation of born salesmen and advertisers, has, heretofore, solved the problem of getting more profit by making more sales. Conserva- tion of natural resources and competition have forced a realization that an increase of advertising and selling expense will not continue to increase the business, in proper proportion to this increase of expense. Hence the necessity for reducing costs. Right buying strikes at the very root of the problem as its economic value has a vital bearing on the cost of production. 16 PURCHASING The profit on any manufactured article is not de- termined by the price as much as it is by the cost. The selling price is fixed by the demands of the public and competition. The first effort usually made to widen the difference between cost and price is to increase the output by encouraging the demand through advertising and more scientific salesmanship. When the limit is reached in this direction, recourse is had to investigating reduction of costs. In cost reduction, the principal attack is made on the labor item. In the days of primitive manufacturing, labor and material were the only two items considered in computing costs, but today labor costs frequently hold third place, indirect expense and material being the two which rank ahead of it. Efficient methods of reducing these should go hand in hand with the efforts directed at labor costs. To reduce the cost of materials, an effective system of buying is compulsory, if the best results are to be obtained. Literature of Buying If the catalogues of any of the well-known pub- lishers of technical and scientific books are consulted, one can find plenty of books devoted to the problem of reducing labor costs, but comparatively little litera- ture can be found on the subject of scientific methods of buying. It is an economic study which is deserv- ing of more attention than it receives. In some of the books published on business management, due recogni- tion is given to the subject, while in others it is treated in a cursory manner. The paucity of literature on the philosophy of buy- ing is further accentuated by taking a concrete case, FUNCTIONAL POSITION OF PURCHASING 17 which will illustrate the relative importance of this subject to other allied economic studies. It has already been pointed out that, in any fin- ished manufactured article, the value of the raw material may have been insignificant compared with the labor costs. The opposite may be the case, espe- cially where valuable metals are manipulated. The labor costs are then much lower than the cost of the raw material which enters into the product. Take for instance an article, the actual cost of which is sixteen dollars, that is, without any percentage added for indirect expense. Assuming that these sixteen dol- lars comprise nine dollars for material and seven dollars for labor, why should there not be an equal amount of educational literature directed to effecting a saving on the nine as on the seven dollars? It is apparent that this is not done, yet it will in- variably be found that the application of scientific methods in purchasing is equally beneficial in affect- ing a reduction in raw material costs as similar methods are hi labor costs. No two industries will show the same proportion of labor and material entering into a finished product, but the foregoing is a fair assump- tion, and it seems incredible that one item is selected for criticism and discussion, and is made the subject of profound study with many volumes devoted to it, while the other is treated as a negligible quantity. Constructive thinking in its application to the pro- duction department has been elaborated on in many volumes, and in the technical journals and periodicals. The literature on the art of salesmanship is volumi- nous and highly scientific. The problems connected with accounting methods have been analyzed and dis- 18 PURCHASING cussed exhaustively. The intricacies of finance have been sifted and examined, and placed before students of the subject in an interesting and attractive form. This is in contradistinction to the literature devoted to the philosophy and art of buying, which is neither extensive nor exhaustive, although it is a subject of equal importance and is an attractive and alluring study. CHAPTER III ETHICS OF BUYING Ethical Standards in Purchasing ALL undertakings and enterprises which work in the field of manufacturing, transportation, or merchandising, whatever their scope, character, or nature, are divided into departments for administra- tion purposes, and the greatest success which can be achieved in the conduct of the whole, is by the prac- tice of the Golden Rule. It naturally follows, that to make this policy potently operative, each depart- ment must work in unity and conformation with it. In no section of the business is it more essential to keep this strictly in view than in the purchasing. The maintenance of a high standard of conduct in purchasing raw material will have its influence on the conversion of them by the production department into the finished product, and on their final disposal by the sales department. The influence of this policy will permeate all transactions which may take place subsequent to the actual purchase of materials and supplies, or of goods for resale. The old saying, " Goods well bought are half sold" has been interpreted in many ways, the construction placed on the word "well" being the bone of conten- tion. It has frequently been asserted that "well bought" means cheaply bought, the inference being that, if bought cheap enough, a ready market can be 20 PURCHASING found at a profit. Also it has been construed to mean that it was a good buy, because a market existed where the goods could be quickly disposed of. Again it has been defined as obtaining material which was needed for manufacturing purposes, and of which a limited supply existed, the buyer congratulating him- self on securing the articles in competition with another purchaser. The expression "well bought" means all of these things and something more. The best has not been done, the maximum efficiency has not been reached, unless the purchase has been made with the knowl- edge, that there is a channel for its disposition, that the price paid is the lowest obtainable for the quality bought, and that some good purpose has been served both buyer and seller by the consummation of the transaction. To those who think this idealistic, it is none the less true, and particularly is it true where the other fellow's extremity is your opportunity. A policy such as advocated does not preclude the use of every maneuver which has for its object the consummation of the purchase of goods and materials at the lowest possible price, or rather of the right goods at the right price. Until this object is attained every move which good diplomacy may suggest should be brought into play. The accomplishment of the desired end along such lines will redound to the credit of both buyer and seller, to the department, to the concern as a whole, and to the universal standard of business dealings. ETHICS OF BUYING 21 Buyer and Seller When the man with whom a negotiation is being carried on knows he is going to receive a square deal, his inclinations will tend towards giving one. There are skeptics on this point who will quote instances where contrary results apparently ensued from the adoption of this policy, nevertheless, if it is consist- ently followed, it will win in the long run. If what is generally known as " sharp practices " are resorted to by one party to a negotiation, it is not necessary for the other party to use similar tactics to combat them. One frequently hears the expression, " There is no sentiment in business." Too often the meaning im- plied is that no unselfish motives exist. But this is not so. Evidence is abundant to the contrary. Many true friendships have been formed between buyers and sellers, but ulterior motives have been ascribed to them. Business acts are always accompanied by feel- ings and motives of some sort, and these are not wholly selfish. It must be remembered that there are ethics of selling as well as of buying. Business houses of estab- lished repute will jealously and assiduously protect their reputations, and in dealing with them, mutual suspicion and distrust can have no place. The buyer with the highest standards of honor and conduct governing his motives and actions is going to be met in like manner, for the fundamental principles of both parties to the transaction will be identical. Honesty is interpreted in Webster's dictionary to mean "A nice sense of allegiance to the standards of one's profession, calling, or position," and this is about 22 PURCHASING as good a definition as can be given of the purchas- ing agent's attitude, to his coworkers in the establish- ment, and to all men he meets in his multifarious duties and transactions. Misrepresentation and Its Results If by some trick or misrepresentation a seller has been inveigled into accepting an order by which he stands to lose money, he will invariably begin to figure how he can evade the terms of the contract either in quality or quantity, in such a manner as to deceive the buyer, to enable him to break even. A loosely worded inquiry has been known to give a false impression as to quantity of goods required, and when sent out broadcast, has brought so many salesmen, some from long distances, to the buyer's office that the combined value of their time and expenses exceeded the value of the order. This expense must eventually be charged to the cost of goods and paid for by the buyer. It is a prob- lem which can be met by more scientific methods. There should be no intent to deceive, nor should the inquiry be sent for spectacular effect to firms who are not prepared to bid. Contracts and Price Fluctuations Every arrangement or agreement made between buyer and seller is a contract, and is in force until completed in accordance with its terms and condi- tions or until mutually abrogated. Price fluctuations have been the cause of many failures to live up to agreements, as have also other conditions, which have ETHICS OF BUYING 23 arisen and intervened to the advantage of one party and the disadvantage of the other. Unfortunately we cannot do business in the same manner as it is still practised by the Chinese in some parts of their country, where obligations to buy and sell are entered into verbally and the fulfilment strictly and rigidly adhered to even if the life of the agreement extends over a period of years, and factors have arisen in the meantime which are detrimental to one of the parties. Competitive Bidding The principle of competitive bidding must be kept alive; if it is abused it will react on the buyer and destroy this useful and necessary function to the general scheme of buying. Competition is the life of trade. If manufacturers and others quoting by solici- tation are not treated fairly and impartially, they will soon become acquainted with the fact. Eventually this will prove detrimental to the buyer and render it impossible for him to maintain the highest standard of efficiency. Quotations made by the seller to the buyer are for him alone and should be regarded as confidential. To disclose these prices to a competitor may seem to serve a temporary advantage, but eventually such a practice will hurt the purchaser and his concern. Advantage of Prompt Payments A purchase is always made with an agreed date for payment, and a scrupulous regard should be had for this and the obligation liquidated as specified. A 24 PURCHASING seller is entitled to his money exactly in accordance with the agreement, if he has fulfilled his part of the bargain. A concern whose purchases were very large, and who habitually held back payments even for a limited time beyond the agreed date, would be taking an unfair advantage and possibly putting the seller to considerable inconvenience. Some slight advantage might be gained by the financial department of the buying concern, but this would be more than lost in the purchasing department. It is a known quantity of power on the side of the purchasing agent, when the seller positively knows that the agreed date for payment will be strictly adhered to. The Offer System There are innumerable expedients familiar to every experienced buyer, the knowledge of which can only be gained by contact with the actual work. It would be impossible to enumerate them all, only some broad governing principles are given. Some are to be avoided. As an illustration there is the " offer" system. This is when a quotation has been given and it is the lowest that can be obtained and the order is offered at a still lower price. If habitually practised, all prices quoted will eventually be on a basis that can be scaled. Purchasing and selling have built up the complex structure we call business, with its interminable rami- fications. A finished article ready for consumption or use is the result of successive buying and selling just in proportion to the numbers of its component parts. This process goes back, widening and spreading until it reaches the original raw material. Is it too much to ETHICS OF BUYING 25 ask that through all these transactions a standard of honesty should be maintained which will be recog- nized and accepted by everybody concerned? Every purchase concluded on right lines strengthens the position of the establishment it is for, and is helping towards the attainment of perfection in busi- ness intercourse, the upbuilding of national industries, and international trade and commerce. CHAPTER IV THE PURCHASING AGENT Factors and Conditions Connected with his Work THE development in the art and importance of buying has brought into prominence the men in charge of this work, and they now hold a recog- nized position of distinction and consequence in all commercial undertakings. It has been stated that there is no such thing as scientific buying, but that good buying is the result of intuitively knowing when and how to do it, which, with a combination of luck, makes a successful buyer. It can be admitted that with this equipment a suc- cessful gambler may be evolved, but intuition is too vague a qualification for the purchasing agent of any establishment, large or small. There is a great deal more necessary in the make-up of any man who has charge of such work as is being considered here. He should have good judgment, be well balanced, shrewd, sagacious, andwell fortified with the knowledge which he can sci8!iTOalry accumulate; this, broadened and improved by a close study of local and national con- ditions, will make a purchasing agent a valuable asset to any concern. The unique position occupied by the purchasing agent brings him into close touch with all depart- ments of a business. For this reason he is often more intimately acquainted with its life, growth, and devel- THE PURCHASING AGENT 27 opment, and has a better knowledge of its needs and requirements, than probably any other department head in the concern. From this it can be deduced that the purchasing agent has opportunities enjoyed by few other men in the organization for attaining the highest executive positions. In some large cor- porations the purchasing agent is created a vice- president and director in recognition of his abilities and owing to the importance attached to the opera- tions of his department. One man is not always wholly responsible for the purchases made by any large establishment, but on one man the responsibility does rest to a much larger degree than on any other, and that man is the pur- chasing agent. The engineer or the expert specifies the material required in many cases, while in others the man who actually fabricates the article may have to be consulted in the selection of the most suitable grade. In the purchase of tools and implements, the nature of the work, the conditions under which they are to be used, the material they are to operate on, and a knowledge of the men who are to use them, must be a predominant consideration in making a purchase, and consultation would be necessary with the man who is to have charge of \fobir operation. In buying goods for resale, other consraewhjpns must necessarily be thoughtfully and thoroughly weighed. It is axiomatic, therefore, that the man in charge of these purchases must be tactful and diplomatic in his dealings with the other men interested, and in addi- tion he must, to obtain the best bargains, possess good business training and be a keen student of market values. 28 PURCHASING The general principles which should govern the ac- tions of the purchasing agent are the same, whatever the nature and size of business. To obtain the best results, he must be a man who is able to meet other men without arousing their animosity, for to be on a good footing with the men with whom deals are being made is a great advantage. Men will do for friend- ship what they will not do for financial gain. One of the surest ways of arriving at a good understanding with the salesmen is to be able to talk with them about their own goods, and a man who can do this intelligently will be able to make better deals. While the methods in vogue, the organization, and the routine work of the purchasing agent's office, are of great importance to its successful operation, it is essentially through the character and make-up of the man in charge that the best results are obtained. In appraising the services of a purchasing agent, the assertion has frequently been made that he buys as low as is possible, the assumption being that this qualifies him as a most capable man for the position. Outside of the purchasing agent's office, and in other departments of the business, the matter of price is too frequently looked upon as the great or only de- sideratum. While admitting that this is a considera- tion which must never be lost sight of and is of supreme importance, nevertheless it is imperative that in conjunction with the question of price other questions must be brought into the calculations when a deal is being made. The quality and suitability of the goods for the particular purpose for which they are needed must be considered. The reliability and standing of the seller must be known or investigated, THE PURCHASING AGENT 29 and his ability to perform the obligations he is enter- ing into, besides many other factors which will be referred to in a later chapter, and which need the calm appraisal of a well-balanced mind. Shrewdness is essential to the purchasing agent, and tactfulness will help him over many rough places and assist in the consummation of many advantageous transactions. Tact has been described as doing the right thing at the right time, and is probably more essential in this department of the business than in any other. Technical knowledge is a great advantage, but can- not be relied on to develop a successful buyer. The vast amount of technical knowledge acquired by ar- chitects, engineers, physicians, and lawyers, carries them to certain fixed points or niches in their profes- sions; but the men who have achieved the greatest successes, or rather who have acquired the greatest financial gain, are those who haye had the commercial instinct working in their make-up in Combination with their scientific knowledge. Technical knowledge without common-sense would be of little benefit. In fact, common-sense is perhaps the highest requisite for a purchasing agent to possess, and this qualification combined with energy, direct- ness, honesty, and hard work will prove irresistible. Matters on which the Purchasing Agent should be Posted To formulate anything like a complete statement of what a purchasing agent should know, would be some- thing like compiling an encyclopedia. Some of the points on which he should be informed have been 30 PURCHASING SUPPLY Available sources from which materials can be obtained, whether production from these sources shows a tendency to increase ordiminish. Probable quantities which will be produced and from which needs can be supplied. Quantities purchased in the past. Estimated future needs with probable dates on which deliveries will be required. 1 QUALITY Detailed specifications ofallmateriaJs. Results of inspection, copies of reports. Laboratory reports and tests of material. Reporkon material during man'fg process. Action of material in finished product. PRICES Prices paid in past. Date prices were paid and for what quantities. Quotations received, past and present. FIGURE No. 3. A diagrammatic synopsis of the various matters on which the purchasing agent should have information when he is making a purchase. already alluded to, but in actually making a purchase there are certain fundamental facts upon which he should be well posted, and which are categorically set forth and tabulated in Figure 3. His organization and system will keep this information and these data in a state of efficient preparedness and ready for reference at all times. But it must be remem- bered that there is no finality to this work. Some- body has said that " Acquired knowledge is only elementary compared with the vast fund of infor- mation which is yet undiscovered." This applies with force to the information necessary in a purchasing agent's office. THE PURCHASING AGENT 31 Purchases can be divided roughly into four great classes: 1. Purchases for productive work. 2. Purchases for resale. ~ 3. Purchases of supplies, tools, and implements. 4. Purchases for capital account. In all of these the purchasing agent is an important determining factor. In the first three he should be the final arbiter and have the deciding voice. He should conduct and conclude all negotiations affect- ing price, terms, and delivery. In the matter of capital outlays, the purchasing agent should always be consulted. If he is a man who has a broad conception of his job, his judgment should be valuable in arriving at a decision as to the advisa- bility, the manner, and the most opportune time to make an investment, whether it is in additional real estate, a new building, or better facilities for carry- ing on the business of the undertaking, should it be a trunk-line railroad, manufactory, or mercantile busi- ness. In this connection a knowledge of prevailing financial conditions will be of service, the causes which have brought those conditions about, and the proba- ble future tendency. This opens up a very wide area for research work by the purchasing agent, and an un- limited scope for the acquirement of knowledge useful in his field of endeavor. If information is on file as indicated in Figure 3, it means that the purchasing agent is posted and ready to go into the market to buy at any time fully pre- pared. He knows exactly 1. Where he can obtain what he needs, 2. The quantities he needs, 32 PURCHASING 3. The quality he must have, and 4. The price he should pay. These are the four main considerations to enable him to make a satisfactory purchase. Further ex- planation a little more in detail follows. 1. Statistics are compiled of all those commodities which affect the prosperity of the country and are deemed of national importance, such as wheat, cot- ton, copper, etc., and information as to the visible and invisible supply is kept on file by those houses trading in them. Most purchasing agents are inter- ested in some particular material or commodity, about which he should have information as to the probable quantities on the market and what will be available in future. It may not be possible to obtain exact data, still much information that is valuable can be accumulated and put on record. This will be essential to him in negotiating for additional purchases, for a surplus or shortage in the supply will affect the price. 2. All facts connected with consumption in the past should be on record, as on this will be based some calculations as to future requirements. Additional information can be obtained from other departments of the business as to the estimated quantities that will be needed and probable dates on which deliveries will have to be made. There will also be the maximum and minimum limits for guidance. These data can be ready for reference at any time a question should arise as to the advisability of making a purchase. Whenever a requisition is received the exact quan- tities and delivery dates will be definitely known. 3. In some plants there is an engineer of materials, who inspects standardized material and also approves THE PURCHASING AGENT 33 substitutes which may be offered. He may also have control of testing machinery and laboratory. This may be independent of production or purchasing de- partments. Individual conditions will determine the advisability of this, but full information should be on file in the purchasing agent's office. In other cases one of the many firms of reputable inspecting engi- neers may be employed to inspect and furnish this information. Through these sources the purchasing agent can be accurately and fully informed regarding the physical and chemical properties of almost any- thing he buys largely. Such things as coal, steel, cement, varnish, paint, etc., are constantly tested by large buyers. 4. The three considerations mentioned will influence the price to be paid. The fourth is the prices on record, and in conjunction with the first three, it will form a sure basis and guide. Quotations received should be recorded and kept up to date. If it is necessary a price curve should be kept, as this is much more illuminative than a tabulated list of figures. It is still more instructive if a price curve and quan- tity curve can both be kept. A later chapter will give more details with forms for keeping and record- ing these data so as to make them available at any time. If a diagram is made showing the steps by which the selling price of an article is arrived at, it would show a progressive but unequal series of rises from zero to 100 per cent. This is shown in Figure 2 in the last chapter. Each step represents a percentage of the selling price, and a purchasing agent should know enough 34 PURCHASING of the cost accounting of the factory to enable him to trace the part the purchases play in fixing the sell- ing price. It is better to have an intelligent idea of this than to be working in the dark. All persons in the organization do better work if they are interested in the final result, and this creates an ambition to make the best showing in their share of its activities. Another problem which is constantly before the purchasing agent is the question of dealing intelli- gently with the many substitutes which are offered constantly in place of materials in use. He should, therefore, be sufficiently well posted about the busi- ness to know whether those offered are worthy of being tried out. No buyer can afford to ignore the many things which are offered at apparently attract- ive prices, and a knowledge of the products manu- factured is necessary to enable him to discriminate. The Principal Functions Covered by the Purchasing Agent's Activities It has been intimated in the earlier portion of this chapter what the purchasing agent has to do in gen- eral, but in the actual carrying out of his executive duties it is necessary to be specific. Figure 4 illus- trates the main divisions of the work which he must supervise. In large establishments the stores and traffic may be entirely separate departments, but even so the pur- chasing agent has an interest in their work. The economic value of a good purchase might be lost, if no adequate means existed for receiving and storing the goods, or if an excessive freight rate was paid, or if delayed in transportation. THE PURCHASING AGENT 35 PURCHASING Regulate the purchasing. Buy at lowest prices . Obtain highest quality for prices paid. Order only exact quantities needed. RECEIVING &> INSPECTING Articles bought are ones actually delivered. Quality purchased Is delivered. Exact quantities ordered are delivered. Insist on specifications being complied with. | TRAFFIC ] STORES Secure lowest freight rates Prevent delays in transit. See that payments for freight are correct. Get quick adjustment of claims. Keep investment in stores at mi n't mum. Have deliveries made in accordance with needs. Keep goods secure from pilfering (^deterioration. Have proper stores accounts kept. INVOICES INFORMATION Have invoices properly and quickly checked. Insure security against over- payments. See that cash discounts are not lost by delay. Obtain information regarding markets. Tabu late records of prices and quotations. Have correct specifications & keep data of all materials. \HDMINISTR ATI ON\ Operate the department economically. Render efficient service. Perfect his organ'i2ation and system. FIGURE No. 4. A diagram showing in tabular form the main divisions of a purchasing agent's work and the principal details of each division. In very small plants one man may have to cover all of this work, but they are still distinct divisions of his activities. In large undertakings the purchasing 36 PURCHASING agent will have the necessary assistance to carry through the work expeditiously and efficiently. By the aid of his assistants he must accomplish the vari- ous functions of his department, and to do this in the right way he must have such men as have suitable characteristics for the division of the work he allo- cates to them. He must organize them into a com- prehensive whole,, and arrange a system that is as simple as possible for the proper execution of the work. If the purchases are for a manufacturing estab- lishment, one thing should be remembered, and that is that rush orders have no place in a well-regulated factory and stores system. Such orders dislocate the work of the purchasing office and are not conducive to good buying. The purchasing agent should at convenient intervals visit his principal sources of supply. This will be found exceedingly valuable as an adjunct to the in- formation he has acquired through his regular chan- nels, and give him a point of view which he could not obtain in any other way. The tabulated list in Figure 4 will not be discussed in detail here. This whole book covers the duties of the purchasing agent, but that tabulation puts them into succinct form for reference at a glance. Definition of the Purchasing Agent's Authority A clear definition should exist as to the authority of the purchasing agent to commit his company to extensive obligations. The writer has before him the copy of the regulations of a large corporation, and in reference to the purchasing agent the wording is as follows: THE PURCHASING AGENT 37 "The purchasing agent is charged with the purchase of all materials and supplies. A requisition signed by the head of a department shall be sufficient authority for the supply of materials which in the opinion of the purchasing agent are necessary for the execution in the ordinary course of the duties with which they are charged." It will be seen from this that the Anus of responsi- bility is thrown on the purchasing agent. He there- fore has to be a man of strong character, and to be able to decide what is necessary. Cases have been known where the "heads of departments," who are sometimes only foremen, have been in the habit of requisitioning entirely unnecessary and useless ma- terial, involving the concern in severe losses. It is therefore essential that limitations should be placed on the men who draw the requisitions and there should be regulations governing the authority of the purchasing agent in the exercise of his duties. In certain circumstances and under certain condi- tions it is possible that no restrictions or limitations need be placed on the purchasing agent, other than those which the size of the business and its well-known requirements and necessities would practically auto- matically enforce. But in such cases he must have a knowledge of the financial resources of the concern. In the case of a large corporation whose finances are a special study, and which is a borrower more or less all the time, limitations must be in force. These limitations should be governed by the nature of the purchases and the purpose for which they are in- tended. An amount can be stipulated for general monthly purchases, and while they remain below 38 PURCHASING that figure the purchasing agent should have a free hand. If there are exceptionally large purchases to be made, and the material to be bought is required for carrying out a contract into which the corporation has entered, then it should be a matter for consulta- tion between or reference to some other officials. The treasurer, sales manager, or production manager may have to be consulted or possibly all three. When large expenditures are contemplated for ma- chinery and equipment, it may be necessary to get an authorization from the directors. A policy of this nature brings together the heads of departments in- terested and the relation of the actual requirements of the corporation to its financial resources are brought into harmony. When the decision has been made to go ahead with the purchases, the purchasing agent should be left in sole charge of the negotiations. The treasurer of a company can only pay out the funds on receipt of a properly accredited voucher, and it does not seem good business policy to place the purchasing agent in a position where he can obligate his company to an unlimited amount on the receipt of a requisition from an irresponsible foreman or de- partment head. Some scheme to regulate this should be outlined in every business, modified to conform to its nature and scope. Relation of the Purchasing Agent to Other Department Heads Mention was made of the advisability of the pur- chasing agent visiting his sources of supply, which enables him to post himself on many things which he THE PURCHASING AGENT 39 cannot get through the ordinary channels, and like- wise gives him an opportunity to study at first hand the manufacturing and business methods of the people he is dealing with. Similarly, it will be of great benefit for him to see at frequent intervals, the heads of departments from whom he receives requisitions and confer with them on their needs and on any matters which arise in connection with the purchases he is putting through for them. A much better understanding is arrived at in this way than through messages and correspond- ence, a mutuality of feeling is created, and a reciprocal tendency established to help each other, which will be found of great advantage. This is particularly the case in overcoming shop prejudices, and in those situa- tions where long use has caused another department to grow accustomed to a certain kind of material, when there are others in the market equally as serv- iceable and by the use of which savings can be effected. The diagrams given in this chapter (Figures 3 and 4) are intended to illustrate in a condensed form the two salient features of a purchasing agent's activities. First he must know certain things and secondly he must do certain things. But on both of these points he can render himself and his department more valuable to the establishment by acquiring from the heads of other departments a more intimate acquain- tance with their requirements and collaborating with them in their legitimate aims. This is something beyond what appears on the face of the ordinary mundane requisition and cannot be tabulated or put into diagrammatic form. This is comparable to the 40 PURCHASING purchasing agent getting better acquainted with the concerns to whom he gives orders. He is then on the best footing with the people for whom he is buying and from whom he is buying. It is the custom in some establishments for all com- munications between departments to be written, but this can be carried to an extreme where it is waste- ful of time, effort, and stationery. For certain matters it is necessary, but beyond what common-sense dic- tates as essential, it should be discouraged. The good judgment of the purchasing agent should deter- mine how far this should be carried. CHAPTER V THE PURCHASING DEPARTMENT IN reviewing or discussing the function and activi- ties of a business or one of its departments, the subject can be divided under four headings: 1. The consideration of the work as a whole, various phases of it, and in what manner it can be divided to obtain the most efficient results. 2. The organization of the personnel of the depart- ment to take care of the work of each division. 3. The system or method of procedure to be fol- lowed by the employees in doing the work allocated to them. 4. The actual operation, with the necessary forms for carrying out the work. In this chapter, the first of these will be dealt with, each of the others being the subject of separate chapters. The Department's Sphere of Usefulness The purchasing of materials and supplies was originally segregated because the activities of the undertaking demanded the undivided attention of or more persons for this purpose. The organization of establishments into departmental formation natu- rally demanded that the functions of buying should be recognized. Thus was created the purchasing depart- ment, and it now has a fixed and permanent position 42 PURCHASING in commercial life. It has enabled the other depart- ments to devote their whole time to their special work, and has proved its own existence to be neces- sary by the economies it has been able to effect, and by the usefulness of its work, and the great benefits derived from the systematizing of purchases. Its growth in efficiency will more fully demonstrate this. There is no manufacturing process so simple that it does not require a great variety of material and supplies to maintain its active existence. This is true also of most of our public utility companies and en- gineering enterprises; and in order that the best in- terests of the undertaking may be served, the purchase of everything needed by each department should be centralized, and never delegated to several persons scattered through the various sections of the estab- lishment. Even where a concern has a number of factories, or work going on in widely scattered parts of the country, there should be central control. In such cases it may be advisable to do part of the buy- ing locally, but there should be a guiding and control- ling hand, to which the local buying bears the relation of fingers. The designation of " every thing" is used in exactly- the sense the word implies, and covers raw material, machine tools, equipment, and office supplies. This policy of centralizing the buying is put into effect through the purchasing department, and it should be the court of last resort. If manufacturers and sup- pliers are allowed to solicit business from the heads of other departments, coming to the purchasing depart- ment for a confirming order, it reduces its usefulness and standing. Salesmen should not be allowed to go THE PURCHASING DEPARTMENT 43 over the head of the purchasing agent. He is then a known quantity of power and any other policy would weaken his position in negotiating a deal. The demands on the purchasing department grow naturally from the needs of the business, and cannot therefore originate with the department itself. For this reason it is essential that the work be efficiently and expeditiously carried through, for on this depends the measure of usefulness it is to the other depart- ments and to the whole undertaking. There are many ways in which this can be demonstrated, and standardization will be given as an illustration. Standardization of materials is generally recognized as imperative, and strenuous efforts are made through- out all production departments to put this policy into effect; but quite often in large undertakings supplies and equipment are of such a variety as to bewilder one accustomed to uniformity. Such things as sta- tionery and office furniture seem peculiarly susceptible to the vagaries and personal predilections of the heads of departments. There will be, for instance, three makes of riling cabinets used when one would answer for all departments. Many cases could be cited in all kinds of supplies. It is particularly noticeable in some of our municipalities. The standardization could be effected through the purchasing department more readily than any other source, as it is the clearing house for all requisitions. Economical considerations and the question of convenience should compel atten- tion to this. Certainly better prices can be obtained if standard articles are bought which can be used in any department, and the convenience derived from their being interchangeable cannot be overlooked. 44 PURCHASING Size of the Department This department of a business may be large or small. It should be proportioned in size and impor- tance to the actual reqi^irenients and necessities of the undertaking. In a large corporation devoted to trans- portation, public utilities, or manufacturing, this will mean a purchasing agent with a staff of assistants necessary to such an organization. In a strictly merchandise business, there will 'be buyers for the numerous departments who act indi- vidually under certain restrictions and sometimes under central control. Some of the large railroad combinations which operate lines in various sections of the country have a system of co-ordinating their purchases through a purchasing agent who has his office in close proximity to the president and directors, and possibly not any- where near the railroad for which he is buying. Manufacturing concerns with factories in widely separated parts of the country have found it to their advantage to have a central control for purchases. This is sometimes done through a supervisor of pur- chases, under him being a purchasing agent for each factory. Good results have been obtained through such a scheme in the matter of price, uniformity of raw material, and better regulation and control of purchases, consequently making things easier and smoother for the financial department. The size of the department can be graduated to meet the needs of every establishment until in small concerns there may be only part of the services of one man required; nevertheless, it is strictly a de- THE PURCHASING DEPARTMENT 45 partment of the business, and the fundamental prin- ciples governing its work remain the same irrespective of its magnitude. The Employees of the Department The staff necessary will of course be governed by the volume and importance of the work passing through the office. There must be sufficient number of employees to carry through promptly and efficiently the daily routine operations. A department has failed because through outside pressure it has been forced to reduce its staff to a point where the work could not be carried through in its normal course, or it has been compelled to employ inferior help with a cor- responding reduction in efficiency. This is not econ- omy, it is parsimony. If the work of the department is worth doing at all, it must be well done or it has no reason for existing. A department may fail in its mission from other causes. It may become overloaded, top-heavy, and encumbered with too many employees, or an un- workable system of operation. Either of these con- ditions will mean a reduction in efficiency, and if its continuance as a useful factor in the business is de- sired, reorganization will be necessary. Greatly increased efficiency can be obtained by effective team work, and among the members of the department there should be engendered a spirit of good feeling and co-operation, which should be en- couraged to spread to all the points where contact is made with other divisions of the enterprise. This is of inestimable benefit in overcoming friction. 46 PURCHASING Relations with Other Departments A staff which is entirely unsympathetic with the particular needs of the users of the material will fail to grasp what is one of the most essential things necessary for this department. They will be dealing with papers and accounts instead of with men and things. It is up to the head of each department to bring about and keep in existence this harmonious relation, and tact, discretion, and diplomacy should be exer- cised by all the staff, for this department is constantly in contact with others. Every purchasing agent has had the experience of being told what is thought of his department when any delay has occurred in ob- taining material. It is assumed at once that the purchasing department is entirely out of sympathy with the legitimate aims of other departments. Every department of a business is a member of one family and although each member must stand on its own feet and work out its own salvation, it should nevertheless be willing and ready to assist and make as smooth as possible the workings of every other department. This can be done without much over- lapping, which should be avoided wherever possible. The duties of each can be clearly defined and the work allocated so that no friction will exist, and happy is the concern which can carry on its multitudinous activities in such a manner, for it is no exaggeration to say that vast sums are lost where these conditions do not prevail. There should be a meeting point be- tween any two departments where no clashing, fric- tion, or jealousy exist, but where the necessary THE PURCHASING DEPARTMENT 47 intercourse and junction between the two flows as smoothly as the traditional village stream. It is a question mainly of being able to meet and handle the peculiarities and prejudices of the human element. Any concern comprising many departments may have to meet this in an acute form, but with the right methods it can be met with the least amount of inconvenience and hindrance to the work of any department with an appreciable resultant gain. The attitude of the other departments of the under- taking will be a reflection of the purchasing depart- ment's service to them, and the criterion by which it will be measured. Mutual confidence and co-opera- tion will be attained by a policy of tact and willingness to help. The lines of demarcation between depart- ments are not boundary lines between two countries, where many formalities have to be gone through before one can cross. Subdividing the Department Figure 5 illustrates in a distinctive manner the method of dividing the work of a purchasing depart- ment. There are really three main divisions of the work connected with purchasing, these being: 1. INFORMATION, which includes: a. Obtaining information as to sources of supply. b. Recording data of past purchases. c. Recording prices and quotations. d. Keeping results of inspections and tests. e. Maximum and minimum quantities and future needs. 48 PURCHASING # I *\ o \ m o^ _ ^ ff -0 P ft ADMIMISTRATIOM or Q FIGURE No. 5. Chart of the functional organization of a purchasing department. 2. PURCHASES, which is subdivided into: a. Work connected with requisition. 6. Obtaining quotations. c. Placing orders and following up. 3. INVOICES, which is subdivided into: a. Recording and checking with order. 6. Checking prices, classifying, etc. c. Approving and passing to accountants. THE PURCHASING DEPARTMENT 49 There is other work which is in some cases included in purchasing department, and in others is entirely separate. This work is connected with: 4. TRAFFIC, which is subdivided into: a. Seeing that shipments are properly classi- fied; b. That correct freight rates are obtained; c. That no delays occur in transit. d. Getting quick adjustment of claims. 5. INSPECTION, which includes: a. Inspection of material before or on arrival. b. Making physical and chemical tests. c. Reports on material in shop and in the finished products. 6. STORES, which is subdivided into: a. Receiving material and supplies. b. Storing in secure and proper places. c. Delivering for consumption as needed. d. Keeping proper and reliable accounts. The first three sections, which are connected with purchasing, are dealt with fully throughout the book; but the other divisions, which are not essentially a part of the function of buying, call for some remarks on the principal features of their activities. Traffic Division In industrial economics the study of problems con- nected with transportation and stores keeping are ex- tremely interesting. The efficient operation and con- duct of the work coming under these designations is vital to the well-being of any concern. They are closely related to the work of the purchasing depart- ment, but owing to the magnitude of the undertaking, 50 PURCHASING or some other good reason, the work connected with traffic and store keeping does not come under the pur- chasing agent's control, but these are organized as sepa- rate departments. This is a matter for solution as found best in each individual case. If the regulations governing the purchasing department require it to buy and furnish materials and supplies, then it is certainly part of its duties not only to buy, but to deliver the goods to the department needing them. This means arranging and controlling transportation, re- ceiving, properly storing, and finally delivering them to departments for consumption when they are ready for them. The main objects which are achieved by the proper and efficient control of the traffic problem are: Goods are received promptly and correctly. Shipments are made properly. Teaming is arranged on most economic basis. Freight charges are lowest obtainable. Claims are quickly adjusted. It is not the province of this book to go deeply into this interesting subject. The brief description given will convey some impression of its economical importance in all transactions involving the move- ment of merchandise, material, and equipment. Inspecting, Receiving, and Storing The proper inspection, receipt, and storing of mate- rials and supplies are of great importance. The prin- cipal ady^aatoges secured by the efficient control of these functions are: 1. The receipt of goods as ordered, both in respect to quantity, quality, weight, and size. THE PI/RCHASING DEPARTMENT 51 t 2. The rejection of excess quantities or those incor- rect in weight or size, or inferior in quality. " 3. The absolute knowledge that, when invoice is checked with material receipt, you are getting exactly what you are paying for. 4. The proper care for material until such times as it is needed for consumption, with the minimum amount of deterioration. 5. The maintenance of a complete and perpetual inventory during the period that goods are at rest in the stores. 6. The delivery for use or consumption exactly as and when required, with a complete record of same. Cost accounting would be practically impossible with- out this. The perpetual inventory serves to show when stocks are reaching, and have reached, the maximum and minimum permissible. The fixing of this limit in both directions is of the highest importance. It enables sufficient material to be carried in stock for the needs of the business, and is a preventive against overstock- ing. There is a monetary value in being able to furnish promptly to the production department such material as they need at the precise moment it is required. Active stocks can be maintained at the minimum consistent with safety. Investment is kept at the lowest possible point. The space occupied is re- duced to the smallest dimensions. All these are gains, whereas if stocks carried are excessive for needs of business, or if track is not kept of the activity of certain stocks and they accumulate beyond requirements, or if "dead" stock is carried, the following losses are incurred: depreciation, insur- 52 PURCHASING ance, obsolescence of money invested, value of space occupied. The perpetual stock record is theoretically a cor- rect basis for periodical inventories, but the human factor must be taken into account, and some dis- crepancies are always shown when actual count is made. The nature of the stock has something to do with this. It is remarkable, however, how closely these check up in well-kept stores. In theory it should balance as accurately as the cashbook. When check- ing the perpetual inventory with stock in stores it is not necessary to make a count of all items at one time, but it can be done in sections while routine work is going on until the whole is covered with fre- quency and regularity. CHAPTER VI ORGANIZATION OF DEPARTMENT Organization of Personnel THE purpose of this chapter is to endeavor to outline the organization of the staff of the de- partment. It is not possible to present to the reader an office completely organized to fit any condition, all the employees at their respective desks with the necessary equipment as a potent working force. Some purchasing departments have been in existence so long that their evolution and growth are shrouded in obscurity. The origin, however, in all cases has been the same: the necessity for a systematic method of making and controlling purchases. From this need the idea sprang and was followed by the apportioning of part or the whole of one man's time or the alloca- tion of several men to the work. This was the nucleus from which all purchasing departments started, and a similar scheme must be followed by any concern desiring to bring its policies into recognized lines of highest efficiency. The purchasing department is an economic develop- ment itself, and therefore its internal management should exemplify this policy. This does not mean that cheap men should be selected for the work, as such a policy would be like buying the lowest priced article which might prove the most expensive from a utili- tarian point of view. 54 PURCHASING The main object to be achieved is to get the work done ably, correctly, and expeditiously at the least cost. Cheap men and mistakes are more expensive than high-priced men and efficiency. The organization should be complete, but at the same time should consist of the smallest possible number of employees. Work can always be carried out more effectively when there is sufficient to keep each person diligently engaged rather than when there is a superfluity of employees without proper .duties to assign to each. In any active business the purchasing department fulfills one of the most vital functions of the con- cern, and its activities cannot be stopped or delayed. In considering, therefore, the number of employees necessary for the department, this must be borne in mind and provision made for the work to continue during the temporary absence of any employee. To provide for this contingency means that each person in the department must have an understudy, or the work allotted to him must be of such a. nature that it can be portioned out among the others for short periods. There should be no indispensable man in the organization. This policy has a beneficial effect in making the force more adaptable, and has a tendency to make a man take more interest and do his work more intelli- gently, because it gives him a broader view of the work as a whole. He sees more clearly where his particular duties fit in, and he may be enabled to see improvements which can be effected. This also brings more intelligent co-operation be- tween the employees which has a direct influence in ORGANIZATION OF DEPARTMENT 55 securing more completely the objects to be attained, and is of inestimable benefit to the conduct of the work. It is also conducive to more enthusiasm, and enthusiasm breeds loyalty and contentment, which beget efficiency. One cannot take the plan of the organization of any going concern and implant it in another estab- lishment as a solution of the latter's problem, and as embracing all the elements necessary for the perform- ance of its work. Circumstances and conditions vary to such a degree that this is not possible even where the nature and volume of the business are practically identical. It is therefore intended that the organization as outlined here should be looked upon more for helpful suggestions. It is one of the constructive duties of the purchasing agent to plan the details of his depart- ment and anything he finds useful in this suppositi- tious organization will have to be adapted to his own surroundings. Theorizing does not accomplish anything, but it is generally 1 the product of experience, and put into prac- tice produces experience. In studying employees, the men selected for the various phases of the work should be chosen with a view to their natural aptitude for the work to which they are assigned. Linking up the Employees Where the organization is large enough to warrant its being subdivided for the better performance of its duties, great care must be taken to form these subdivisions in such a manner that intercommunica- 56 PURCHASING tion is easy and made without perceptible retardation of the work. Another matter to be considered is the linking up of the individual work of each member of the organiza- tion to form a composite whole. An endeavor has been made in Figure 6 to demonstrate this. It is only intended here to briefly outline the duties of the members of this tentative organization for the better understanding of the chart. Their complete activities will be described when each function is dealt with in detail. / Information Clerk A large proportion of the work of the department can be done only by frequent reference to the infor- mation and data on file. It will be necessary for the person in charge of this to keep his records up to date. He must have all requisite facilities for obtaining and retaining the data as to prices, sources of supply, past purchases, catalogues, inspection reports, etc. He must, therefore, be methodical and systematic, and be ready to furnish the information promptly and cor- rectly or have it in such shape that it can be easily referred to. ; Requisition Clerk Requisitions frequently come into the office with incomplete information on them, and it is the duty of the man handling them to see that they are in proper order and that the material is correctly specified. He will have to refer to the information files con- stantly and must be in close touch with the man having charge of these. ORGANIZATION OF DEPARTMENT 57 \lnvoices\ vnfortnat v/ wish [Recordir Clerk ICheckinc Clerk Invoice^ Price Clerk Information ( Clerk Clerk Price Clerk Order Clerk Final {Checking] { Clerk ^ } Traffic Clerk Clerk In Plant ynspecfor\ Outside FIGURE No. 6. Organization of the personnel of a purchasing department. Price Clerk The price clerk will specify the price from agree- ments or contracts which are already in force, or obtain 58 PURCHASING quotations, make comparisons of the prices, and submit them to purchasing agent. v Order Clerk The duties of the man in charge of orders will be to see that they are properly written up from specifica- tions and with correct prices, check them before the purchasing agent signs them, and follow up after they are placed. Copies will have to be sent to parties interested. Inspector The inspector will receive copy of order and inspect material either in the plant or at point of shipment, reporting to purchasing agent and possibly to store- keeper. He may also have to furnish reports on the action of materials during the process of fabrication. Invoice Clerks There will be as many men as necessary on this work, recording invoices, checking with order, check- ing prices, classifying, having traffic man approve freight charges, and finally passing invoices to account- ants. Part of this work is sometimes done in account- ant's office. Traffic Clerk There are many industries whose activities are not of sufficient magnitude to warrant the maintenance of a separate traffic department. Again, some con- cerns whose operations are very large can, from the nature of their work, combine this work with the purchasing organization. This is the case where the ORGANIZATION OF DEPARTMENT 59 orders placed are mainly for construction work and traffic matters all pertain to these purchases, there being no shipments from factory for sales department. A man should be selected for this work who is conver- sant with its character and the problems involved in it. Storekeeper A reference to Figure 6 will show in what manner the storekeeper is linked up with the various activities of purchasing. He is more directly interested in the actual movement of the material itself and its conser- vation. The purchasing agent has indirect connection with the storekeeper through the order clerk, but the storekeeper on his part must have direct access to the purchasing agent, and an effort has been made in the diagram to show how this is accomplished. When the activities of the purchasing department are restricted to buying, the stores organization would be formed independently, but it is sometimes found advisable to combine the keeping of the stores with the purchasing, especially in the smaller manufacturing concerns. A short summary of the organization to take care of this work is given here. As in the traffic division, the volume of the work to be accomplished will determine the number of employees requisite. This will vary greatly with different concerns, but arrangements must be made to cover the following points irrespective of the number of employees or- ganized to do it: Receipt of all material and supplies. Checking to see that they correspond with orders. Counting, weighing,, and measuring. Placing in proper storage compartments without 60 PURCHASING undue delay, or in some cases delivering directly to department for consumption. Entering on receiving records. Making entry on stores record or perpetual inventory. Delivering from stores to various departments all material and supplies required by them. Making entry on perpetual inventory. Keeping stores tickler in force and advising pur- chasing agent. Keeping record for cost accounting. Receiving scrap into stores, counting, weighing, and measuring, and advising purchasing agent. These are the principal points to be covered and a good man should be placed in charge with the neces- sary clerical help for keeping up the records. In handling the material, arrangements must be made to give all the help required. The men engaged in the physical operation will be under orders of the store- keeper. In small factories it is not always possible for these men to be a fixed number and temporary assistance can be drawn from other departments to assist with heavy material. When the cashier receives a dollar he is held ac- countable for it, and has to keep a proper record of its disposition. A dollar's worth of brass tubing is just as much an asset as a dollar in cash. The hon- esty, integrity, and reliability of the storekeeper must be on a par with the cashier. In fact, the storekeeper must be more watchful and careful in guarding against petty thefts. The assets under his control cannot be placed under lock and key and sometimes many per- sons are handling them in receiving into and delivering from the stores. ORGANIZATION OF DEPARTMENT 61 A further reference to Figure 6 will illustrate that the organization of the personnel is dependent upon three main sources for the arrangement given of their work. These sources are shown at the head of the chart. The functions of each member of the depart- ment originate from one of these and the performance of the work of each follows a well defined course. There are however many minor activities which are common to almost any business office but which are too well known to need detailing here. CHAPTER VII SYSTEM OF PROCEDURE General Outline WHATEVER the size or scope of the department, it is absolutely essential that there should be a proper system on the lines of which the work can be carried along, but system does not perform an operating movement. It is simply the well-kept track on which the energy and efficiency of the organization put through the work to be accomplished until the terminus is reached. This track must be kept as straight and level as the nature of the route to be traversed will permit, with the least possible number of curves and grades, and where these cannot be dis- pensed with, they should be gradual and easy. In pamphlets and books on various systems for office, store, and factory management, statements are frequently made regarding what a good system will do. )As a matter of fact, a system of itself will do nothing. It may be inert and useless unless operated. A good system can be compared to a trunk-line railroad with useful and profitable branches. Care must be taken that no unprofitable extensions and branches are added, or they will be a burden and expense and retard and clog the work of the main line with the prospect of rendering the whole a failure. ^ Forms and office implements do not make a system, they are the vehicles or implements necessary for SYSTEM OF PROCEDURE 63 operation and will be described in subsequent chap- ters. They should be as few as possible, for then the work will be expedited. Too many forms are cum- bersome and retard the work. The ami should be to plan or outline a route -for the work of the office, which shall have a definite object in view and be coherent, logical, and thorough. It should expend the least amount of the energy of the organization. Simplicity should be kept in view, and all forms used should be devoid of any features likely to lead to complications. Have the system cover everything essential to gather into concise form the necessary data, and in such a way that they are readily understood and easily accessible. When this object is attained stop, but do not stop until it is attained. If a condition of over-systematizing is allowed to come into existence, it is a menace and will lead to confusion. An abnormal desire by the head of a de- partment to secure and maintain records covering a mass of detail not pertinent or essential to the depart- ment, will eventually crush it by its own weight; while an incomplete system will render the work and operation of the department laborious and inefficient. A good system will help towards order, regularity, and expedition. The justification of a system is its effectiveness in covering with accuracy and dispatch all the points comprehended in the work of the office with the ab- solute certainty of increased economy. It is necessary to design and lay out one's own system. Although valuable suggestions are obtained by studying others, they can rarely be adopted with- 64 PURCHASING out alterations and changes to meet the conditions of one's own case. A good system is really dictated by common-sense. It has to be administered by the organized staff in the office with all the human frail- ties, and the better co-ordination it can bring to their efforts, the greater its potentialities for success. There are thousands of men today at the head of large establishments who look on system as so much red tape, and the observance of any logical routine in handling their business is repugnant to them. Cer- tainly they have their methods of doing work, but they are imbued with the idea that there is some inherent complexity in a correct system. The writer knew of a manufacturer, whose annual business amounted to several hundred thousand dollars, with the following routine for making purchases: A fore- man would need some material and would make a memorandum of it on any piece of paper which came first to his hand. This " scrap of paper " was sent to the office where the bookkeeper would write an order. Price was never questioned, quantities in stock were unknown, and invoices checked from memory. If material was urgently needed, the bookkeeper would telephone for it, not sending a confirming order. If he happened to be out of the office, the foreman himself telephoned. Some men do business with methods such as these and make money, but it is only when their profits are abnormally large, and when brought into the strong light of competition with businesses which have an efficient purchasing system and accurate methods of cost keeping, they would be pushed to one side and probably not know the reason why. SYSTEM OF PROCEDURE 65 A system is a means by which the purchasing agent can put the work through the office by the shortest route, giving the most efficient service at least cost. System of Procedure for the Collection of Data and Information The collection of information pertinent to the ac- tivities of the department is an absolute necessity if it is to be kept thoroughly posted. And, unless the members of the department want to trust to their memories, it is equally imperative that all of this in- formation should be assorted, converted, reduced, or arranged so that it can be placed in convenient and handy receptacles ready for instant reference by the purchasing agent or his assistants. This is the stored knowledge of the department and is a potential factor in its operation. Figure 7 shows the route to be followed in reaching out and acquiring the various items of information, printed matter, etc., which are necessary to make the files valuable for reference. A full description of this work will be found in the chapter on Operation of the Department. On receipt of the information in the office, or in posting it from quotations and orders, an orderly and logical arrangement should be followed by simple processes, so that there may be concentrated in clear and concise form a complete expression of the data required. Except the data and information posted directly from office records, all the other matter relating to this phase of the work can pass through a regular clearing-house system and be sorted and placed in its 66 PURCHASING SYSTEM OF PROCEDURE 67 proper receptacles ready for reference at any moment by the office staff or purchasing agent. Purchasing Procedure The system followed in making purchases is very clearly illustrated in Figure 8. The requisitions com- ing into the office constitute the authority to make the purchases. They should be seen first by the head of Com p feted and placed in "Dead r File" Recording Sh'ipme* Following up with ticKlelr Sending copies to depts interested Copy tolive Fife" &f filing requisition \ Making out order Checking &maili> Final negotiations asto price.terms. ' Requisition Making Receiving Comparisons Quotations Checking for Validation Checking with production order Checking with may. second row T> third row -y, etc. All these methods are distinctive in that they desig- TABULATING PROPER RECORDS 77 nate which shelf the catalogue is on and it can be located instantly. If the shelves are exceptionally long, they can be subdivided by distinctive numbering for each section. This can easily be figured out as the catalogues accumulate. The shelves as described take care of all stiff, bound catalogues, but there will be also a great many pam- phlets, circulars, etc., which it will be necessary to keep and file. These can be placed in folders similar to correspondence folders, keeping as far as possible all printed matter on one subject in the same or adjacent folders. NAME OF MANUFACTURER ADDRESS SHELF CAT. No. FIGURE No. 12. Card for indexing catalogues under name of material. Size 4x6 inches. Color should contrast with card shown in figure No. 13. All catalogues will then have to be cross indexed, filing one card, as shown in Figure 12, under the ma- terial or subject index and the other, Figure 13, under the index " manufacturers' 7 or " suppliers." These two cards should be different colors, as this is a precaution against their being placed in the wrong filing drawer. 78 PURCHASING It is sometimes found convenient to keep the drawers containing these index cards on the desk or within reach of the person using them most frequently. If, NAME OP MAN'F'R. SHELF No. A 48 ADDRESS LIST OF MATERIAL MANUFACTURED FIGURE No. 13. Card for indexing catalogues under name of manufacturer. Size 4x6 inches. however, the bookcase has been built specially, it is possible for it to be so designed as to include these drawers, also the drawers for folders as an integral part of it, making all the catalogues, pamphlets, circu- lars, and their indexes self-contained in one piece of furniture. See sketch, Figure 14, which illustrates approximately the manner in which this can be done. Sources of Supply The record of sources from which materials, goods, and supplies can be obtained should be revised con- stantly and kept up to date. It is not sufficient, to keep a list of manufacturers from whom purchases are regularly made. They may be the ones who have been best able to supply requirements in the past and TABULATING PROPER RECORDS 79 are in the best position to do so at present, but changes are continually taking place and new manu- facturers coming into the market better equipped per- haps than the old ones. If the market seems too narrow or it is felt it is not broad enough for purchases to be made to the best advantage, then persistent J L a O a a a M LJ FIGURE No. 14. Sketch of book case for catalogues showing arrangement for filing pamphlets and circulars, with index drawers. endeavors should be made to obtain information to rectify this. Tabulate any data acquired, make notes from correspondence before it is filed as to character of goods made by concern the letter was from, also notes of anything salesmen say they are prepared to quote on or supply. A great deal of valuable informa- tion will soon be accumulated which can be collected on cards, if the market is assiduously searched. 80 PURCHASING There is a limit to this as a point is finally reached where the supplier is located at such a distance from where the material is to be consumed that questions of freight and time might prohibit their being considered. To make all the purchasing records of greatest value, they must represent good live buying prospects, and not be encumbered with useless and unnecessary in- formation. Some offices rely on the catalogue index cards for recording these data, but it is not advisable. Keep those cards for the one purpose only. The form of card needed, or the one best suited for the purpose, will depend on the nature of the business. A sugges- tion for a card is offered, see Figure 15. A code rating of one's own can be adopted which will signify the financial standing of the supplier, whether he makes shipments promptly, whether there has been any trouble with his goods; in fact, all information that will be useful and which can be put on the card in an abbreviated form. This record of sources of supply is intended to furnish information not given in catalogues. It will keep the purchasing agent posted as to where he can buy cheapest and best and get treated right. A sales- man keeps himself posted as to good live prospects, why not the buyer? Inquiries will then reach only those who are keen for the business, and the quota- tions received will represent the best prices obtainable from the most reliable sources. Undesirable bidders will be eliminated when inquiries are sent out, and a remarkably high percentage of efficiency maintained. TABULATING PROPER RECORDS 81 0} O I K M s c ( 1 J5 1 C -< 1.1 Si 11 1 g P^OJ > 1 II "S g 6 H M 5- _ M o a ^ -b o> g "a OT u 9 5 0) ^ r/^ ^ ^ P 'S.& O aS o *s c H 1 ^ O ^ 1 1 flH bog J o s 5 'a'i H +f> i w 1 l 3 OQ a s ^> i'S 1 "1 3 z l 1 P ^ ^ w d q g F- 1 "e; H < r 1 82 PURCHASING Record of Past Purchases A combination may be effected by some concerns in recording some of the other information. Where a record is kept of purchase orders, it is sometimes done in such a way as to analyze the heaviest pur- chases, by which the totals for the year can be found with the prices paid; but it is not entirely sat- isfactory, for it frequently means a complication of figures which do not convey clearly and concisely the desired information. There are many manufac- turing establishments which do not have the faintest conception of the quantities of each article or material which they buy in a year, or any given period, but just order in a haphazard way for immediate require- ments or when stock is low. Very little work is en- tailed in keeping a record of such purchases, and when the consumption for a given period is a known quan- tity, buying can be done more intelligently and to better advantage. It is patent to any one that if a purchasing agent has definite and positive information, such as indicated, he can face the market with assur- ance and not be buying quantities on guesswork. Such data also would be exceedingly valuable to the persons in charge of the various departments where the goods were used. A record should be kept of everything with prices paid. Simple forms for this purpose are shown in Figures 16 and 17. These can be elaborated on as much as necessary, so long as useful information is being recorded, but duplication should be avoided. In small establishments the stores perpetual inventory may be used for this purpose if it is kept in the purchas- ing office, but if not, one cannot send to the storekeeper TABULATING PROPER RECORDS 83 < & ~ X lO Si i! J II !g 84 PURCHASING 11 'to O a i-s -1 II -s f I *"* * 6 co TABULATING PROPER RECORDS 85 to obtain this information every time it is needed. The main object to be served is to have a correct account of the total quantity, also the total value purchased of each article during three, six, or twelve months, with the prices paid. This will give an excel- lent basis on which to estimate the requirements for a similar period ahead, and one can go into the market intelligently, obtain better prices, and arrange deliveries exactly in accordance with the known wants. The sizes mentioned as suitable for forms shown in Figures 16 and 17 can, of course, be changed to include any additional information which individual conditions demand. The Purchase Record A complete record of all purchases is a positive necessity in some establishments for financial reasons. The purchasing agent may be called upon at any time to say what the exact amount of the purchases is for a given period, and how much will become due for payment in the following month or within a specified time. In other places this necessity may not exist, but nevertheless a record should be kept. It is not wise for the buyer to go along placing orders, not knowing the aggregate value of the material and supplies purchased. He may not be exceeding the maximum allowable, and he may be buying strictly for the requirements of the business, but if the purchases are for delivery one, two, three, or even four months ahead, he should know the value of the transactions he has closed and the man in charge of the finances should know the exact amount of the obligations he has to take care of. 86 PURCHASING ft I 1 N a 1 . 1 3 '| H || *o 1 1 H O bC ^ C J rX *N ^S 1 a ^1 3 -u o SOD 1 fl g |J a 1 s 03 -^3 1 || 1 eg rt rS S 1 bO ^ J W O T3 1 55 I 1 1 TABULATING PROPER RECORDS 87 Figure 18 shows a method of recording orders with a scheme for analyzing the dates of payment over the three subsequent months. The totals for each of these months can be kept in pencil figures each day and a summary of the three at end of the month will be the grand total of the purchases for that month. This information, also the information on past pur- chase record, would be posted from the copies of purchase orders in much the same way as invoices are posted into a ledger. There have been forms designed which combine the four following records on one sheet: Purchase order record. Invoice record. Stores record. Material price record. It is possible there is a business the nature of which would permit this to be done, but it has never come under the notice of the writer. The idea is to enter the amount of order in first column, in the second column a record of invoice, the third and fourth columns being for stores record. But such a scheme makes it imperative that there shall be only one in- voice for each order issued, one entry into stores, and the whole material delivered from stores at one time, because there is only one line used for each order. It is an impossible condition in any ordinary business, but is given here as a suggestion, as some might be able to adopt it. Generally, however, it can be demonstrated that separate records are very much better from every point of view. If too many records and figures are kept on one sheet they have a tendency to become so involved as not to be readily decipher- 88 PURCHASING 1 I I g-2 c3 -S i es TABULATING PROPER RECORDS 89 able. Practically little additional work is necessary in keeping separate records. Record of Quotations The record of quotations, Figure 20, will be com- piled from various sources. Salesmen who call are always ready to quote prices for something they are interested in, but which at the time may have no immediate interest for the purchasing agent. A note should be made to go on the quotation card, also any prices quoted in correspondence. Even if it is some- thing not bought before, keep a record; it is a good thing to know prices of any article. While it is not to be inferred that records should be kept of goods which are absolutely and entirely foreign to the busi- ness one is engaged in, nevertheless the widest pos- sible knowledge of prices is valuable to a purchasing agent. Common-sense should determine how far to go in this direction. When the comparison of quota- tions card is made up from inquiries sent out, turn it over to the record clerk and let him post the prices on this form; they will be valuable for future refer- ence. It is not necessary to duplicate the record of prices already posted on the card of past purchases; that card is a record of goods actually bought. The quotation card should contain quotations from other firms for similar material, together with all other prices which can be collected from time to time. Specifications Standard specifications should be drawn up for all material used in production work, and for supplies of every kind and nature used around a plant there 90 PURCHASING i sj PH % 9 I i ; g . Q : : : i 3 a . M li : : : o > w 3 ; ; ; ; ; s I '. '.'.'. w p* j fo 00 4 PH ; S '. '. '.'.'. ] a t w . 1 g 11 Mi B Q H 3 H c 1 i ; '.'.'. ^ & a \ '. '. i '. g s RER'S NA - '.'.'. I P fc 3 ! 2 S TABULATING PROPER RECORDS 91 should be a proper description, clear, concise, and worded in such a manner as to leave no misconcep- tion in the mind of bidders or suppliers as to the article mentioned. When this information is obtained and understandingly collected for easy reference, it serves many good purposes. It will enable the pur- chasing agent to secure prices without any doubts arising among the bidders as to what is actually wanted, and will prevent references being made back to him for more definite information. The purchasing agent will positively know when he receives bids that they have all figured on the same grade of material, and his comparison of quotations will mean real com- petitive prices. This procedure will also enable the various supplies used in a plant to be standardized. One department may requisition a certain size and kind of broom, another department may requisition the same kind but a different size. It may be found that one size of one description will answer for the whole estab- lishment. All office furniture and stationery should be standardized. The furniture is then interchange- able and can be bought to better advantage. One can go into many large offices and find two or three makes of filing cabinets, whereas one manufacturer would have been glad to supply all that was required, and at a lower price than was paid for the separate purchases. The specifications of material used in production can be drawn by the engineers, based on scientific knowledge of what is required, and on the action of the material in the course of its manipulation through the shop and in the finished product. These specifica- tions may be short or lengthy. They should be type- 92 PURCHASING written or printed according to the frequency with which the orders are issued and the quantity used, and kept ready to send out with inquiries or orders. The original copy with copies of all changes, modifi- cations, or amendments should be kept in folders and indexed. The description of supplies can in many cases be condensed, and entered on the heading of the card recording past purchases. Inspection Reports; Analyses and Tests All reports made by the inspectors on material dur- ing progress of fabrication and before shipment to the buyer, belong to the division of the office having charge of the routine work in following up the orders; but these reports should pass through the hands of the record clerk so that he can note on his records any items in them which would make his information more complete. Some establishments keep an in- spector for examining all material on arrival at factory and his reports should be sifted in like manner. A large amount of valuable and instructive data can be gathered from these to be posted on the sources of supply record, Figure 15. A form of inspection report is shown in Chapter X, Figure 36. In construction work inspection and tests are made of all important purchases of material before shipment and where this is not done samples are taken after delivery, of such things as cement, steel castings, etc. for the purpose of analyzing and testing. Copies of these analyses should go to the purchasing agent's office and be put on record. In a manufacturing plant, if a laboratory is main- tained for making chemical analyses and machines TABULATING PROPER RECORDS 93 for physical tests are available, it puts a powerful weapon in the hands of the purchasing agent. He can have recourse to these and determine positively that he is being supplied with what he bought. These analyses and tests are also exceedingly helpful to the engineering department and the ability to determine the composition and strength of materials is of great utility and economic value to the produc- tion department. Many manufacturers depend on the suppliers to make tests and suggest to them the most suitable composition of their raw material, thus placing themselves under obligations to them. With one's own laboratory the experiments can be carried on in the plant and without outside assistance, which leaves the purchasing agent a free hand in buying. The tests made for production, engineering, or purchasing department should go on record in a similar manner to the specifications. This applies also to all reports, tests, or observations made on material and supplies during progress through, or use in, the whole establishment. Consistently kept up, it will result in a remarkably high degree of efficiency in securing the very best materials and supplies for the satisfactory and economical operation of any plant, and the maintenance of its product at a fixed standard of excellence. A CHAPTER IX WORK CONNECTED WITH REQUISITION AND ORDER Examining and Checking Requisition THE requisition is in some respects the most im- portant document which comes into the pur- chasing department. It is the basis for all purchases; from it emanate practically all the activities asso- ciated with every purchase ; in fact no purchase should be made without a requisition. Owing to its impor- tance it is absolutely essential it should be thoroughly checked and examined to enable the subsequent work connected with it to proceed with accuracy and dis- patch. After perusing the remarks which follow in regard to the preparatory work on a requisition, it will be fully realized how necessary it is to have the information records described in the last chapter in good shape and fully up to date. A form of requisition is shown in Figure 21 which would answer for a manufacturing establishment; for some kinds of construction work it is not so suitable. Modifications can be made in any of the forms illus- trated here as the needs of the case dictate. Whatever the nature of the business there must be a requisition for every purchase made. It may be in duplicate or triplicate according to the method of procedure. In most cases it is in duplicate, the original going to the purchasing department, and the copy being kept in the department where it originated. In such cases a THE REQUISITION AND ORDER 95 copy of the purchase order would be sent to the maker of the requisition. An alternative method is to send two copies to the purchasing department, where one is marked with order number, date of deliv- ery, and other particulars, and returned to the maker. PURCHASE REQUISITION DATE- REQUIRED FOR- REQ. No.- Accr. NO- DELIVERY WANTED- QUANTITY IN STOCK. .DELIVER TO- -MAX.- -MlN. APPROVED. . SIGNED- THIS SPACE FOR USE IN PURCH'G DEPT. CHECKED BY PRICE TERI ORDERED FROM .SPEC. No _ ORDER No. FIGURE No. 21. Purchase requisition. This form is suitable for a manufacturing establishment and can be of a size convenient to describe the goods usually requisitioned. The former method is usually preferred as it involves less work. It is absolutely imperative that the requisition should be signed by some authorized person, and that the quantity and description of material required be clearly and distinctly stated; also date delivery is wanted. These things are indispensable in any 96 PURCHASING requisition; other information is necessary in some cases, but optional in others. Requisitions for ma- terial going into storeroom should state quantity on hand, maximum and minimum allowable, and for what purpose required. These particulars are not always available in construction work, but other details, depending on location and class of work, would be necessary. The requisitions must be numbered. If the busi- ness is a very large one with many departments, they can be numbered when printed and a letter placed before the number to distinguish the department, or they can be numbered as they arrive in the purchas- ing department. In the latter case the copy kept by the department making the requisition can have its number inserted when they receive copy of order, as it will appear on that. Requisitions for some materials and always for supplies should be made at regular and stated inter- vals. This will enable the purchasing agent and store- keeper to keep better track of the quantities being used, will enable the purchasing agent to buy fixed quantities at stated periods, and will simplify the work of both offices and make the course of procedure easier. All requisitions should, if possible, go through the purchasing agent's hands. In some offices this is not feasible owing to the large number of requisitions which come through for small items. These can be dealt with by an assistant, but the more important requisitions should have the personal attention of the head of the department. All requisitions will first be examined to see whether they have been signed by THE REQUISITION AND ORDER 97 some person with the necessary authority to do this. A list of the persons authorized to make requisitions should be kept in the department. They must then be checked with production order and with the maxi- mum quantity or amount the purchasing agent is allowed to order. They should then be compared with record of past purchases. The object of this being to ascertain the quantity used in a given period, and to determine whether they should be bought in larger or smaller quantities. In this connection the unit cost of delivery has to be considered. The purchasing department is not a commission house and some lati- tude must be allowed it. Always, however, strictly in conformity with the known requirements of the business. It will also be necessary to see that the material is properly described or specified, and if necessary a copy of the standard specifications must be attached to the requisition. It has already been pointed out that standard specifications and proper descriptions are very essential, in fact they are indispensable to good buying. Pricing Requisitions It may be found that the requisition is for material for which a price has been agreed for a fixed period with a supplier, also terms and time required for de- livery. In such cases the order can be made out at once, provided the requisition has passed the prelimi- nary checkings and examinations satisfactorily. Frequently arrangements can be made to have the material carried in stock by the manufacturer and taken as required by the purchaser. The prices 98 PURCHASING would of course have been arranged to cover a period of probably six or twelve months, the buyer being protected on an advancing market, with the benefits of a declining market accruing to him. It may look as if the seller is taking big chances of making losses instead of profits, but it is an economical possibility for such business to be done with advantages for both sides, and probably all good purchasing agents secure in some way the benefits of this form of buying. In determining whether the quantities requisitioned should be increased or decreased, there are many factors to be taken into consideration. The larger quantity might be bought cheaper with lower trans- portation charges, but against this must be balanced the disadvantages of stocking too much material and the losses it would entail in unremunerative invest- ment, additional insurance, space occupied, possible depreciation, etc. There are many other considera- tions also to be carefully weighed which were gone into fully in previous chapters. Obtaining Quotations When a requisition covers material for which there is no agreed price with the supplier, or when the price agreement expires, new quotations must be obtained. For this purpose a form similar to Figure 22 can be used. Reference should be made to the sources of supply card already described, and the inquiries sent to as many firms as are necessary to get the lowest prices, best material, and suitable delivery. A copy of this inquiry with a list of all people it was sent to must be kept with the requisition until finally disposed of. THE REQUISITION AND ORDER 99 JOHN DOE & COMPANY 360 CANNON STREET NEW YORK CITY 191 To. Please quote on this sheet in space indicated below for the articles described. If you are unable to furnish same in accordance with our description and wish to offer a substitute, please give full details. This inquiry is in duplicate, original must be returned to us properly filled out, duplicate to be retained by you. No charges will be allowed for packing or cartage. This is not an Order. Quotations must be in ITEM QUANTITY DESCRIPTION LIST PRICE DISCOUNT NET PRICE To JOHN DOE & COMPANY. We quote you as above F.O.B.. -Shipment can be made in Terms- Date .days from receipt of order. FIGURE No. 22. Form of inquiry for obtaining quotations, letter head size. Regular 100 PURCHASING When these quotations arrive in the office, they should be entered on a card or sheet similar to Figure 23. It may be found more convenient to enter the names of all the people who have been invited to tender on this card at the time the inquiries are sent out. It can then be readily seen when all the quo- tations are in. These quotations will have to be very carefully considered and analyzed and scrutinized from all angles; questions of freight and time of de- livery must be taken into account, as well as the reputation and past performances of the bidders. There may be substitutes offered which deserve in- vestigation. Having weighed all these matters care- fully and everything else being equal, the question of price should be the deciding factor. All of these points would of course be passed upon by the pur- chasing agent himself, the comparative statement of the bids having been drawn up and submitted to him by the price clerk. Final Negotiations It may be necessary at this stage, if the order is an important one, for the purchasing agent to interview some of the bidders in reference to certain phases and details of their quotations, which will enable him possibly to obtain better terms, arrange shipments to fit in accurately with the known requirements, and in doing this make it easier for the financial department. When formal invitations have been sent out asking for quotations, then letters of declination should be sent to unsuccessful bidders. Business courtesy de- mands this, and time and trouble can be saved by THE REQUISITION AND ORDER 101 O ^ c i c > fc c ^ ? | ^ < g | [ p J i \ tf CD l-s Please ship to , , > s * Shipment to be made via chase Order Number must appear on Shipping Receipt, or any communication connected with thi TEEMS PRICE 1 Purchasing A ,gent. FIGURE No. 25. Form of order. THE REQUISITION AND ORDER 107 ment, still the whole economic value of the purchasing department might be lost if the goods were not de- livered on time. If they were for a factory, it might JOHN DOE & COMPANY 360 CANNON STREET NEW YORK PATE PURCHASE RF,Q No ORDER No* To PLEASE SEND us THE UNDERMENTIONED GOODS : Shipment to be made vii Acknowledge receipt of this order stating whether you can ship on date named. IMPORTANT Invoices must be rendered in duplicate and bear above order No. Purchasing Agent. FIGURE No. 26. Form of order as a substitute to Figure No. 25. 108 PURCHASING have to work overtime to complete a contract or perhaps lose it altogether, and in construction work the non-arrival of material of only one class might delay the work of every class of mechanics. It is very important therefore that this phase of the work receives close attention. There are many schemes in vogue for taking care of it. A good one is given here and suggestions regarding others. A tickler system, to be efficient in securing results, must be prosecuted with energy. It comes into being with the placing of an order, has a short and vigorous life, and dies when shipments on order are completed. DATE. This acknowledges receipt of your Purchase Order No.- Dated For Shipment will be made SIGNED- FIGURE No. 27. Post-card to be enclosed with order to secure an acknowledgment. Size 4x6 inches. Tickler Systems Many concerns send out with the order some form of acknowledgment which usual) y contains a space in which a promise can be inserted regarding ship- ment as already suggested (see Figure 27). It may be advisable in some cases to send a copy of the order with the original and have an acceptance indorsed on its face. In any case the date of shipment should THE REQUISITION AND ORDER 109 be recorded on the tickler card, Figure 28. This card should then be placed in the tickler file under the date goods should be shipped, or in advance, to en- able a clerk to send a notice to the party holding the order. The date should be noted on copy of order to insure locating the card promptly. If these cards are kept in force, no shipment dates can be overlooked, because they come up automati- cally each day. Under the space headed " nature of tickler " or " promise " a memorandum should be made DATE OF TICKLER NATURE OF TICKLER OR PROMISE DATE OF PROMISE FIGURE No. 28. Tickler card for following up orders. Size 4x6 inches. of each inquiry sent out regarding the order and each reply. This obviates looking up correspondence. Some purchasing departments keep a tickler system by using thirty-one pigeon holes, one for each day in the month, and placing the cards or an additional copy of the order in them, but the file system is pref- erable. It can be made to cover as many months as desired, takes up less space, and is more convenient. When an order is completed the card is of no further value and can be destroyed. 110 PURCHASING Another scheme for. a tickler system is to have an additional copy of the order made and file it in a date file, such as already described, sufficiently in advance of the actual date of shipment so that a follow-up notice can be sent to shipper in time to insure its dispatch on the specified date. This extra copy need only be made of those orders on which a follow-up is necessary, and it can have special rulings on back if desired for the purpose of noting promises regarding shipments. If the card system is not adopted this To- GENTLEMEN, Our records show that you have our Order No.. Dated- Calling for Please advise when shipment will be made using return portion of this card. Yours very truly, DATE. FIGURE No. 29. Reply post-card to obtain promise as to date of shipment. scheme will be found excellent; it dispenses with the work of making out the tickler card and all informa- tion regarding the follow-up is self-contained on the copy of the order which is a great advantage as with the card system there is sometimes a necessity to refer back to the order. It is necessary to remind the seller of the approach- ing date of shipment. Some orders are so important that inspectors have to be on the ground and report progress. In other cases a strong letter from the pur- chasing agent is sufficient, but for the ordinary run of orders a printed form will probably answer the THE REQUISITION AND ORDER 111 purpose. It can be simply a request for date of shipment or worded imperatively as occasion de- mands. The reply post-card scheme brings very good results (see Figure 29), and an advantage connected with this is that the reply half of the card can be filed with the acknowledgment card, Figure 27, and the tickler card, Figure 28, thus keeping all cards together pertaining to following up the order. If it is desired to send out a printed letter form of inquiry regarding shipment, something similar to Figure 30 is suggested. This would answer the pur- pose for those concerns who object to the use of post- cards. If a form similar to this is used it can be done in conjunction with the scheme outlined above for using a copy of the order for the tickler system. By having the form shown in Figure 30 the same size as the order it can be filed with it which is a great advantage. Recording Shipments There are innumerable schemes for recording ship- ments made against an order. The best for any par- ticular case will largely depend on the nature of the orders themselves. If they are mainly for articles which will be dispatched in one shipment, it is easy to arrange the copy of the order, which remains in the purchasing agent's office, with a space on the face of it which can be used for recording the shipment. But where the orders are mostly for large quantities and the execution of them involves many shipments, the back of the copy of the order can be ruled for keeping the record (see Figure 35 in next chapter). It is of great importance to obtain prompt advice 112 PURCHASING of these shipments and have the traffic man follow them up, particularly in those cases where a manufac- turing establishment is not carrying a heavy stock of raw material, but working on a very close margin. JOHN DOE & COMPANY 360 CANNON ST. NEW YORK CITY 19 To Please advise us immediately when you will make shipment of our order No dated using space below for reply. Yours truly, Purchasing Agent. NOTE. If whole or partial shipment has been made give particulars of same. DATE. The material referred to on above order will be shipped on. f rom via REMARKS : Shipper. FIGURE No. 30. Request for information as to shipment of an order. Size should be the same as the copy of order with which this will be filed. THE REQUISITION AND ORDER 113 In these cases the supplies must come in regularly and promptly. There are also certain raw materials which from their nature cannot be carried in stock any great length of time, and frequent and regular de- liveries are necessary. When the information regard- ing a shipment has been properly recorded in the purchasing office, the advice or a notification of it should be turned over to the traffic man and to the storekeeper or receiving clerk to enable them to take care of their duties in expediting delivery and in re- ceiving and arranging storage. Frequently the ship- ping advice, invoice, and bill of lading will all come in together. After all material has been received as called for on v the order, and the invoices have been checked against it, it should be withdrawn from the "live" file and placed in the completed or "dead" file. The orders can be kept indefinitely for reference at any time and owing to the manner of filing them very little space is required to store several thousands with their accom- panying requisitions and other records connected with them. The method outlined will fit with modifications a great diversity of businesses whose activities are widely different. There are some, however, in which the procedure would have to be varied from that described. Take for instance a concern which issued comparatively few orders, but each order involved considerable correspondence and there was a large accumulation of papers in connection with each one. In such a case it would not be advisable to scatter the correspondence and reports through the general file, but all of the documents connected with the order 114 PURCHASING should be collected in a folder, including copy of order, comparison of quotations, etc. It would be found that reference to such papers would be much easier if kept in this way. Emergency Orders Even in the best regulated establishments there will be occasions when orders have to be given for material and supplies without going through all the various procedures usually regarded as necessary and prudent and which are outlined in this chapter. No amount of foresight on the part of the purchasing agent is a protection against a lapse by a member of some other department to remember something. A break- down in the shop or an accident to, or failure of some material being fabricated may be the occasion of rush orders. If there is no time to obtain quota- tions a well organized purchasing office can confi- dently issue an order, knowing that the complete and authentic records which are in the office will enable the clerk who checks the invoice to do so intelligently and not approve it unless a fair price is charged. In such cases as cited in last paragraph it is the practice of some purchasing agents to send a form letter to the party with whom the order is placed asking them to name the price. On receipt of this the regular official order is issued. This enables the order clerk to insert the price on every order issued, which is a regulation strictly adhered to hi some offices. Probably, however, the material would be shipped before price was received and it is no protec- tion against an excessive price being charged. There are some purchasing offices who from the very nature THE REQUISITION AND ORDER 115 of the business must issue a great many such orders daily, and in those cases dependence must be placed on the records of prices kept in the offices to secure fair and just treatment. This emphasizes the im- portance of keeping all information and data in good shape and up to date. CHAPTER X INVOICES AND METHODS OF HANDLING General Considerations THE work in connection with invoices ranks with the most important operations of the depart- ment. The order may have been placed to the very best advantage as regards quality, price, delivery, and terms, but all of these benefits may be lost if the invoices are not dealt with in such a manner as to insure their being permanently secured. This is done by careful and prompt checking. Careless check- ing might mean that prices were approved in excess of those stated on the order, and delay in handling the invoice might cause the loss of cash discount, and in addition the loss of indirect and contingent advantages which accrue from the prompt approval and payment of invoices. It is the custom of some offices to insist on the use of uniform invoice forms. These are sent out with the purchase order, and the order itself con- tains a clause to the effect that they must be used when invoices are rendered. It is a proceeding which has been milch criticized, and great difficulty has been experienced in getting it adopted. All the advantages of such a scheme are on the side of the buyer. To the vendor it is a source of trouble and annoyance and interferes with his accounting methods. To a limited extent all business houses get a certain amount INVOICES AND METHODS OF HANDLING 117 of advertising from their stationery and are recognized impersonally from it. There is no individuality for the vendor in the uniform invoice, and unless it can be brought into universal use it will be very unpopular with some houses. To any person unaccustomed to the handling and paying of invoices it might seem inconceivable that any large establishment with an up-to-date account- ing system could pay an invoice twice. Yet this is an occurrence of more or less frequency with both large and small businesses, and will probably never be entirely overcome while the human element is a factor in dealing with the invoices. If the method outlined here is followed, it should be impossible for duplicate invoices or invoices covering the same ma- terial to be approved twice. If it was just a ques- tion of duplicate invoices, that is invoices bearing same date, for the same material and the same amount, the matter would be simplified because these are more easily detected. But there are other complications, such as two invoices being rendered for the same material but inadvertently bearing different dates; also where, say a party has an order for 120 articles with instructions to ship twenty by express and bal- ance by freight. The twenty are supplied and invoice mailed, the balance of 100 may be shipped by freight the same or next day and another invoice rendered, this time for the full quantity of 120. There are several other ways in which invoices can be made out im- properly but inadvertently and containing charges for material and supplies, not actually shipped. But these illustrations will suffice to show that it is entirely the province of the purchasing department to prevent 118 PURCHASING approval of them, for if they once get through there they will probably be paid. An accounting depart- ment vouching many thousands of invoices each month will look to the purchasing department for protection against such errors as cited, therefore, the safeguards must be foolproof. In small offices where proper precautions are not taken invoices frequently get through and duplicate payments are made. Han- dling the smaller quantity makes no difference in this respect for the bookkeeper receives the invoices daily and probably posts them in his ledger without con- sidering the order of date. At the end of the month he may make out a pay statement of the invoices for which check is to be sent and does not perceive that he has two similar amounts of the same date. Many purchasing offices do not keep a register of invoices as it is looked upon as an unnecessary ad- dition to the work with no compensating advantages. In some cases, however, it is indispensable, particu- larly where invoices have to be sent out of the office to some other department for approval. If a record is not made and the invoice cannot be traced, it may be side-tracked and payment delayed. The seller is entitled to his money in accordance with the terms of the contract, and the purchasing department must do its part in the routine work by passing his invoice promptly. Where a cash discount has been arranged, it is important to see that the invoice is passed through for payment before the expiration of the time the discount is available. Where the purchases are large and are of a nature in which cash discounts are customary or have been agreed upon, it is very expedient that the fullest advantage should be taken INVOICES AND METHODS OF HANDLING 119 of the arrangement and the economic benefits secured. During the course of a year the amount saved by discounting invoices will be considerable, in addition to which it adds to the reputation of the concern and puts more power into the purchasing agent 's hands when buying. Any business house will give pref- erence to and favor relations with buyers from whom prompt settlements can be positively relied upon. In some cases it is the practice for the accountants to receive the invoices and check them against ma- terial received and in all other respects, with the ex- ception of price, which is checked in the purchasing department. It is a matter of the most suitable ar- rangement for the smooth and economical operation of the whole establishment, but it certainly should be up to the man who buys the material to certify that the price is correct and the quality right. Whatever course the invoices take in passing through the various stages of certification, these two things distinctly be- long to the purchasing department. It is the opinion of many that the department should be made entirely responsible for the invoice up to the last stage when it is vouched for payment. This, however, is not feasible in large establishments where the ramifica- tions of the work of the accounting department cover the bookkeeping functions of stores and production costs with which invoices are closely allied or inter- related. Recording Invoices In every case, irrespective of the nature or magni- tude of the business, the invoice should go in the first place to the purchasing department and a record 120 PURCHASING o! & t H H "> RECEIVED a 'S g IS .s H a O | CS H Q 1 SENT TO ACCOUNTANT "6 ' ' I i T3 DATE RETURNED O> ' . . '- 1 SH 11 P02 T3 SENT TO DEP'T No. S CD O *O RECEIVED g 7 rH CO 1 e o fe 3 5 2 1 o I fe INVOICES AND METHODS OF HANDLING 121 be made of it on some method similar to that shown in Figure 31. This is a loose leaf ledger arrangement, and the pages can be as wide as occasion demands, repeating the ruling as necessary. When the in- voices are listed in this record, a watch should be kept to detect duplicates, and if any are discovered bearing the same date and for the same amount, an investigation should be made, for this is the first test the invoice passes through and improper or irregu- lar ones should be immediately suppressed. Preliminary Work After recording the invoice the first thing neces- sary is to scrutinize the date when payment will be due to secure the cash discount and an effective method adopted of keeping this date prominently before all persons with whom the invoice comes in contact. It is customary in some offices to paste a small sticker, similar to Figure 32, on the invoice, calling attention to the date the invoice must be paid to make the dis- DISCOUNT EXPIRES DATE FIGURE No. 32. Attachment for invoices to indicate date on which discount expires. Size about 2x2 inches. 122 PURCHASING count available. This should be preferably a striking color which can be readily seen, and serves to call the attention of everybody who handles the invoice to the fact that it must be through by the specified date. It is also necessary to adopt some uniform method of providing space for certifying the invoice. If there was room on the face of every invoice a rubber stamp would answer the purpose, but this can be done only with a limited number. In small offices the practice DATE FROM PURCHASE ORDER No. QUANTITY DESCRIPTION OF MATERIAL QUANTITY- QUALITY PRICE EXTENSIONS- F.O.B FREIGHT- CLASSIFICATION AMOUNT APPROVED- FIGURE No. 33. A form similar to this can be attached to each invoice to insure proper certification. No invoice should be vouched for payment until this form has been properly initialed in each space by the persons checking invoice. Size about 5x5 inches. INVOICES AND METHODS OF HANDLING 123 of rubber stamping the invoices on the back is re- sorted to and answers admirably, but in large estab- lishments this is not feasible. It is impracticable to turn every invoice over to examine its many certi- fications, and when they are in voucher form the audi- tors must be able to get at these features clearly and quickly. A form is shown, Figure 33, which can be pasted along one edge and affixed to the invoice without obliterating any part of it. Sufficient information is written on this to identify it completely with the invoice, and spaces can be arranged on it for all the signatures required by the auditing system of the company. A much smaller form can be used, similar to Figure 34, and this may answer the purpose of some small accounting systems. It has one great objection in that it is not positively identified with the invoice. One of these forms could be detached from an invoice INVOICE CHECKED FOR GOODS REC'D QUALITY PRICE EXTENSIONS CHARGE TO APPROVED BY FIGURE No. 34. An alternate to Figure No. 33 to be used in checking and approving invoices. Size about 2x3 inches. 124 PURCHASING for 50 cents and attached to one for $1000 without detection. As a measure of protection, where in- voices are handled by several people, no claims can be made for it and it should only be used where the clerical work on it is done by one man. Checking Invoices With Order In all properly organized systems the checking of invoices follows a well-defined and consistent course, which should be well planned, avoiding laboriousness and undue delays. The invoice should be checked against the order to see whether it corresponds with the price and terms stated, and should be recorded on the order itself. This procedure should entirely eliminate any possibility of the material or any part of it being paid for twice. If the instance already quoted is taken, of an order which was placed for 120 articles, twenty to be shipped by express and 100 by freight, it will readily be seen that when the invoice for 120 articles came in and the clerk went to record it on the copy of the order he would find that an in- voice for twenty had already been passed and imme- diately detect the error. This method of entering invoices on the copy of the order itself is a check against over shipments. An order may be placed for 5000 pieces of goods or ar- ticles which are to be shipped in comparatively small lots, and unless a record is kept the supplier might continue shipping indefinitely if it suited his purpose long after the 5000 were actually delivered. Figure 35 shows a scheme for ruling the reverse side of the copy of order kept in the office and an entry of all shipments and all invoices should be INVOICES AND METHODS OF HANDLING 125 made here, or if the order is one which involves only one shipment and one invoice it can be recorded on the face of the order. The majority of orders sent out by many purchasing offices are probably filled in one shipment, and the ruling on back of the order, would be used at rare intervals. In a case where a very large number of shipments are made on an order, additional sheets printed similar to Figure 35 can be inserted in the binder with the copy of order, and should be given the same number for purposes of identification. In checking and comparing the invoice with order not only the price and terms are checked, but it SHIPMENTS INVOICES REMARKS DATE QUANTITY VIA DATE QUANTITY AMOUNT FIGURE No. 35. Reverse side of copy of order which is kept in pur- chasing agent's office. This is used for recording shipments and invoices made against the order. 126 PURCHASING should be seen that the description corresponds, that the size and weight are correct, also the quality specified. In cases where the material is subject to inspection before delivery the inspection reports must be referred to, to see if it complies with the speci- fication and has passed a satisfactory test. There are various forms of inspection reports and some of them may come from one of the firms of inspecting engineers engaged for the work. If the reports are made by men in the employ of the establishment a form similar to Figure 36 can be used. When com- pletely checked with the order a distinctive check COPIES TO INSPECTION REPORT JOHN DOE & COMPANY 360 CANNON ST. NEW YORK CITY MATERIAL PURCHASED FROM INSPECTED BY , AT DATE INSPECTED DATE REPOHT PF-NT TIM TJ'FPn'RT APPROVED BY DATE OF APpp nvAT ' NATURE OF INSPECTION AND TESTS FIGURE No. 36. Inspection report. If the original does not go to the purchasing department a copy should always be sent there. INVOICES AND METHODS OF HANDLING 127 mark should be made on the invoice to show it has been done. Checking Invoices With Material Received The checking of invoice with material received is the third preventive against approving invoices twice for the same material, and should be just as sure in its operation as the check against the order. There is always some method of recording the receipt of ma- terial and Figure 37 shows a sheet which can be used by the receiving clerk, storekeeper, or whoever re- ceives the material and makes the record. It can be seen that when an invoice is checked with the material received and initialed by the person doing so, it should be impossible for this operation to be repeated for the same material. This form, Figure 37, is a duplicate of the one kept by the storekeeper with the exception of the last column. The copy going to purchasing or accounting department is arranged for checking invoices, and the storekeeper's copy for his perpetual inventory record. In some establishments the receiving clerk or storekeeper has to sign the in- voice, but it involves additional traveling around for the invoice and loss of time. Invoices seem peculiarly liable to get lost and mislaid, and the elimination of any possibilities in this direction is desirable. In some establishments the purchasing department has nothing to do with checking the invoice with ma- terial received, this work being done in the account- ant's office. The organization of the work of the various departments should govern this. If the stores are entirely separate from the purchasing, it would probably be done in this way. 128 PURCHASING BECKED WITH NVOICE s ! O S2 h m 1 g Q 1 C I i I 3 1! d. 2 1 P H 2. CQ 8 a 11 g si | jil o H bo H *S rt ffl r/D E Q b a o | g , s -5 * ^ ^ *4M 1 II i '"2 S 1 2 j Q ^? O CH g 11 s if PURCHASE ORDER No. il O O INVOICES AND METHODS OF HANDLING 129 A scheme adopted with success in some plants is for the receiving clerk to list the articles or material received on the reverse side of his copy of the order which is ruled specially for that purpose. This is then attached to the invoice and serves the same purpose as the form shown in Figure 33. This method has one great drawback which is that orders having many shipments and invoices rendered against them must have supplementary forms for approval of all in- voices before the final one to which copy of order is attached. Checking Prices There are always some orders sent out on which the price is not quoted, and the invoices received against these must be carefully checked to see that price charged is correct. The order may have been a confirming one to cover an emergency purchase and no price arranged. It must be examined therefore and if the price charged is not a fair one it should be taken up with the suppliers. In doing this and in going through the invoices for errors in prices, changes in list or net prices, also in discounts, must be noted and recorded on the price cards. Emergency orders are probably issued by every purchasing department. This is done by telephone or letter and sometimes the official order is not mailed until a price has been fixed. This is to enable the price to appear on every order, but it is doubtful whether any better prices are obtained than those se- cured by a good man checking the prices on invoices rendered against such emergency orders. There are some establishments where the character of the business 130 PURCHASING necessitates the issuance of a large number of these orders daily, and the holding back of the regular official order until a price were arranged would lead to endless confusion. Checking Freight Charges If there are any freight charges or freight allow- ances in connection with the invoice, the traffic man must check and approve these. It is quite customary for the shipper to sell his product f.o.b. the shipping point, but with freight allowed to a competitive point or to destination. These charges are sometimes paid NOTICE OF FREIGHT CHARGES PAID There has been paid by. $ For freight charges on. Shipped by From Car Nos.- Purchase Order No Reads F. O. B.. This freight should be charged back to shippers. Date FIGURE No. 38. Notice regarding freight charges. Size 5x8 inches. by consignee, and in other cases an allowance is made on the invoice. If the consignee's factory is located, or material received, at some distance from head office, an advice should be sent to the purchasing office of any freight paid to enable the traffic man to check it and see that the proper credit is obtained. Figure 38 indicates a form of advice to accountant regarding INVOICES AND METHODS OF HANDLING 131 this. If the invoice has already gone through there should have been a notation on it about the freight allowance, and this advice will be a confirmation of it. Express charges are another thing which should be closely watched. When delay has occurred in mak- ing shipment and urgent calls are sent for the material, a shipper will frequently send it by express, but omit to pay charges. If the delay is the fault of the con- signor he should be debited with the charges, or the difference between freight and express charges. Checking Extensions The checking of extensions is done more often by the accounting office than by the purchasing depart- ment, and when it falls to the latter to take care of it the work must be designated to some person who is familiar with trade discounts as these appear very frequently. Classification The classification of an invoice or the allocating of the amount among several accounts will also probably be done by accountants, but if done in the purchasing office it must be seen that it appears on the slip in the space shown in Figure 33 or Figure 34, whichever is used. Approval The approval of the invoice as far as it concerns the purchasing department may be covered by the various checks it has already had, each of which will have been initialed by the clerk who handled it at the time. The final approval required by the auditor will prob- 132 PURCHASING ably be the accountant's to certify that the proper charges or credits have been made to the factory accounts. Its final exit from the purchasing depart- ment should be recorded on the form on which it was first entered (see Figure 31). CHAPTER XI OPERATION OF STORES General Remarks THE operation of the storeroom may or may not come under the jurisdiction of the purchasing agent, but whether it does or not, the receipt and con- trol of raw material and supplies are so closely allied to the purchasing department, that some description of the duties pertaining to the work and the course taken by the material until its final consumption or disposition is necessary to complete the object of this book. If the purchasing agent is held responsible for pur- chases to keep a manufacturing plant running, it does not seem right that he should have no voice in the maintenance of stock, and, in conjunction with the heads of departments interested, a voice in deter- mining the maximum and minimum quantities kept on hand. For on the latter depends quite often the price to be paid. There are always losses in producing anything in each stage of its development. There is a loss in the labor item from " soldiering " or some other cause, and there is a loss in material from waste, pilfering, etc. It is the mission of the stores department to pre- vent this. A loosely kept storeroom without a proper system, is one of the most fruitful causes of losses, but it can be eradicated altogether, or reduced to an 134 PURCHASING imperceptible minimum by the receipt, control, and delivery of all material used through a well organized and systematized stores system. There are four points to consider: 1. The receipt of materials and supplies into stores and their accurate recording. 2. The storing in convenient and safe places and receptacles. 3. The delivering of the right materials to the right persons. 4. The keeping of an account of the stores in an accurate and efficient manner. Receiving Materials and Supplies In some establishments the storekeeper receives all materials, but in the larger ones there will be a re- ceiving clerk, whose duties will be to receive and receipt for all articles coming into the establishment and deliver them to the stores and sometimes directly to the department. He should not receive anything unless he has a copy of the purchasing agent's order, which he should refer to and compare with the arriving material. If this is not done he is liable to receive goods not ordered, or which have been canceled, thereby getting the pur- chasing department in trouble and probably causing loss to the establishment. Quantities in excess of those ordered should never be received without con- sulting with the purchasing agent. The receiving clerk will probably report directly to the accounting department, sending copies of his lists of materials and supplies received to the pur- chasing agent and storekeeper. Whether the store- OPERATION OF STORES 135 ENT'D PERP'L INVEN'T si i s \ "S^ a \ s fe | ,\ 8 M ^ co o i ll fc o H .ff 1 ^ o3 Tfl p Sj -*^ VTH cc Q 02 f .fl - a O O p .2 a 1 i P! *o i OQ -** 93 2 ^ Q 3 ^ S3 o fl pfl 1 8 . ca < 1 1 g K ,^,- . || 1 B| 1 1 1 a H 11 31 J. g Si p PnO Si .a-S O 136 PURCHASING keeper received the material or not when it first arrived into the establishment, he has to receive it into the storeroom with proper checks and records. If reference is made to the forms shown in Figures 37, 39, and 40 a clear understanding can be had of the method outlined for recording receipt of material. All three of these forms are not always necessary, but two of them must be used whether there is a re- ceiving clerk in the establishment or not. The store- keeper must have one list to enable him to enter the material on his perpetual inventory and another list must go to the purchasing or accountant's office for the purpose of checking invoice. Figure 39 illustrates a method of listing the ma- terial. This is arranged in a similar manner to the copy sent to the purchasing agent, Figure 37, the only difference being in the last column. This is used by the storekeeper when making his entry on the per- petual inventory, whereas in the purchasing department the duplicate form, Figure 37, is used when checking invoice with material received. This sheet represents to the storekeeper what the journal does to the book- keeper, and he debits each account on his perpetual inventory, which is his ledger, with each item on the receiving sheet. The copy of the report of materials received into stores which goes to accountant's office will probably need a column for inserting the value of the goods, as shown in Figure 40. If three copies are made, they should register with each other, the only difference being in the last column. This difference is caused by the fact that the storekeeper is mainly interested in quantities, whereas the accountant's interest is prin- OPERATION OF STORES 137 02 a y So PUR ORD 138 PURCHASING cipally in values. This is the chief distinction in the results accomplished by their bookkeeping. Having checked the material with copy of purchase ing agent's order, any mistakes on the part of the shipper as to quantity and size can be detected. Should the shipper have exceeded the number of ar- ticles or weight ordered, this will also be discovered. If it is decided to return the excess quantity or wrong sizes, this can be done much more conveniently before the material is placed in storage bins than after- ward. In large plants there will probably be an in- spector to examine materials, but in many cases the storekeeper himself will examine material on arrival and determine, as far as such an examination can do so, whether or not it conforms to the description and specification on order. If the material is to be subjected to tests, samples must be sent to the laboratory which is maintained in the plant, or to one outside. These samples must be so marked or separated that identification is posi- tive with the shipment they were taken from. Any questions which arise regarding freight on goods in or out of the establishment must be taken up with the man in charge of traffic, or reported to him. It will be appreciated from this brief description that the man in charge of receiving goods fills a responsible position in connection with the orders placed by the purchasing department. Among his duties will be the receipt of goods returned from customers, and he should have specific instructions whether to accept or refuse these. After the material has been received and properly counted, weighed, and measured, there may be some OPERATION OF STORES 139 articles which are sent directly to the departments in- stead of to the stores with copy of receiving slip, which should be signed and returned to the stores. The entry is made on the stores record exactly as if the material went into and was delivered out of the stores. This keeps the cost accounting department straight. Another method of reporting receipt of goods, al- though not generally considered as good as that out- lined, is to report each arrival separately and, instead of making a daily list of materials as already indicated by Figure 39, to make out a slip for each shipment as it comes in, somewhat on the lines shown in Figure 41. A copy of this should go to the storekeeper, a copy to purchasing agent, and another to cost depart- ment. The last named will require to know des- tination of material, in order to charge it to proper account. Another scheme adopted by some is for the copy of the purchasing agent's order to be signed by the re- ceiving clerk as a notification of receipt of material, making out no receiving slip. This has many objec- tionable features, however, and it would be only in most exceptional circumstances where it would answer satisfactorily. A method in which the copy of pur- chasing agent's order is used to report receipt of ma- terial is shown in Chapter XIII. Wide experience led to its adoption in this case. It is important that the material-received sheets, or receiving slips should be numbered, as they are liable to get lost or mislaid, and any break hi the sequence would at once call the attention of the pur- chasing or cost department to the fact. 140 PURCHASING o ! | 1 . 1 1 bJD t>. x -j 1 M .2 ^ 1 1 s s -3 .^ rf 3 | 1 o ta g g fe 1 PH OP o PH " 1 1 g 1 1 I S I g 1 S J 1 : S G3 *-. t 02 ^ ^H Tt< 6 yr QUANTITY i f~\ HH OPERATION OF STORES 141 The Proper Storage of Materials and Supplies The proper storage of materials and supplies is of equal importance to receiving and delivering them. When adequate provision has been made for receiv- ing goods, examining them, reporting poor quality or deficiencies, there is the problem of storing them for varying periods. There are several things to be con- sidered. One hundred dollars in the cash drawer would be locked up; there may be one hundred dollars' worth of copper bars in the stores which should be just as secure from theft, or one hundred dollars' worth of rubber which must not be allowed to de- teriorate. The stores, therefore, should not be entered by any unauthorized person and proper receptacles should be provided for all material. It is not possible to give a description that would fit the needs of every business, but generally the stores must be equipped with racks, shelves, bins, drawers, and boxes to suit the nature of the materials. Some considerations are common to any stores; for instance, material which is constantly called for should be within easy reach, and heavy material should be at a convenient height for loading onto a truck. The alleyways should not be too narrow, as the racks darken them, and insufficient space makes it awkward to get material out promptly. Some shelves and racks are built narrower at top than at bottom which is an excellent scheme for some stores, giving more light and elbow room with no loss in storage capacity. A scheme which has been adopted by some and may 142 PURCHASING commend itself to others, is to have duplicate bins or bins extending through from one aisle to the next, the object being to place new material in one side and take the old out from the other side. This is to pre- vent an accumulation of old stock. Not all estab- lishments can afford the room for this, but it has its advantages, particularly with stores which are liable to deteriorate with age. In large plants it will probably be necessary to have several storerooms located near departments where material will be used. This may entail some dupli- cation of stores, but will be fully compensated for by the saving in men's time in obtaining stores. Some material can be stored outside, including such things as heavy castings, lumber, fuel, etc., but all should go on store records. REQUISITION ON STOREKEEPER This Requisition will not be accepted if order No. is not given, if it is not signed by foreman, or if material is to be charged to more than one order. ORDER No. QUANTITY DESCRIPTION SIZE OR PATTERN No. DATE. SIGNED. Foreman FIGURE No. 42. Requisition on storekeeper. Size about 4x6 inches in duplicate. OPERATION OF STORES 143 Deliveries from Stores Not less important than the receiving and storing is the delivering of stores. There must be a properly authorized list of foremen or others who are em- powered to sign requisitions for withdrawing material or supplies from storeroom. Irresponsible persons should never be given the power, and if the material is small in bulk and high in intrinsic value the fore- man's honesty should be dependable. Even then, and with precautionary measures instituted in the shop, some losses will occur from pilfering. There will also always be some losses through waste, but with close watching and safeguarding it can be reduced to the smallest dimensions. There are two methods of obtaining goods from DATE REQUISITION For Material or Supplie ORDER No. QUANTITY DESCRIPTION SIZE OB SYMBOL No. Pep'tNo, Foreman Delivered To Delivered Bv FIGURE No. 43. Requisition on storekeeper. An alternate to figure No. 42. 144 PURCHASING stores, the one principally in vogue being carried through by the foreman making out and signing a requisition for what he needs for the product his men are engaged on. Several illustrations of these are given (see Figures 42, 43, and 44). They should state clearly the exact quantity required, with size or other necessary particulars to enable the stock man to deliver material promptly. They should give order number and any details which are essential to the work of the cost department where they will eventu- ally go. They should be in duplicate of contrasting colors, the object of this being that when they arrive in the cost department the originals are easily dis- tinguished from the duplicates. Some cost depart- ments require the requisitions to be ruled with a column for pricing the articles, others do not; this DATE REQUISITION For Material or Supplies ORDER No. QUANTITY DESCRIPTION SIZE OR SYMBOL PRICE VALUE Dept- No.- Foreman. Delivered To- Delivered By. FIGURE No. 44. Requisition on storekeeper with column for inserting value by the cost accounting department. Same size as Figures No. 42 and No. 43. OPERATION OF STORES 145 column is for use only in that department (see Figure 44). In some plants it might be advisable to give each department requisitions of contrasting colors, and in large plants the numbers of the requisitions should be prefixed by a distinguishing letter for each department. The original only is sent to the storeroom, the copy being sent by the foreman, after he has received the material, to the cost department. When the original finally reaches there, they can be checked against each other, preventing falsification on the part of either foreman or storekeeper. The original having been presented at the storeroom, material received and receipted for, it is also sent to the cost department after the necessary clerical work is done in stores. Al- though not essential, it is advisable to have the CREDIT MATERIAL RETURNED TO STORES ORDER No DATE QUANTITY DESCRIPTION SIZE OR PATTERN No. j j Dep't No Foreman ... Delivered By Received By FIGURE No. 45. Credit requisition for material returned to stores. Same size as Figure No. 42, but a contrasting color. 146 PURCHASING requisitions numbered, as it facilitates the work of sorting and comparing them on their arrival in the accounting department. There will be from time to time an excess amount of material withdrawn by foremen, or shop orders may be canceled or curtailed, necessitating the return of some material to the stores. This is effected by the foreman making out a credit requisition, as shown in Figures 45 and 46, the original and dupli- cate of which he sends with the material, and proper credit is given. The duplicate is signed by the stock man and returned to the foreman, who sends it to the cost department. Another method of obtaining material from the stores is by means of the material budget. This is used in some factories very satisfactorily, and for certain kinds of production work it answers splendidly. DATE CREDIT Material Returned to Stores ORDER No. QUANTITY DESCRIPTION SIZE OR SYMBOL No. PRICE VALUE Dep'tNo.- Foreman- Delivered By- Delivered To. FIGURE No. 46. Credit requisition for material returned to stores with column for accountant to insert value. OPERATION OF STORES 147 B 1 B .2 1 ' J" 1 1 || I .a s < O i-"i M to o 5 a B |8 | ^1 I "S o ja '*" ? CO CD fl) j3 fe^ i S) D H jj -a ^ 11 2 CO O 3 t| 6 ^ ^ 3 i 1 i H :s 5 1 3 p Q 1 B 1 < o AMOUNT s DATE ISSUED ISSUED BY RECEIVED BY PATTERN No. DRAWING No. MATERIAL NAME OF PART o w o w ITEM No. 150 PURCHASING Stores Accounts It has been explained in what manner the material goes into and out of the stores, and it is absolutely es- sential that an exact record should be kept of these incomings and outgoings. Theoretically a storekeep- er's account should balance as accurately as a cashbook does with the cash on hand, but this is never the case. It is remarkable, however, how closely the records tally with physical counts in well- kept stores. Well arranged and lighted buildings with honest and intelligent help are all conducive towards this end. There is nothing complicated or intricate in stores accounting, but care and accuracy are essential as in every other form of bookkeeping. With these characteristics the work will be found comparatively easy for any man with only a rudi- mentary knowledge of accounting. The whole scheme of stores accounting centers around the perpetual inventory (see Figure 49). It is the ledger of the system, carrying accounts with each description of material or supplies kept in stock, with debit and credit columns arranged so that a bal- ance can be readily calculated. The location of the article should be given; this corresponds to the ad- dress of a customer in the sales ledger, and the amount of credit he is entitled to is comparable to the maxi- mum stock permitted. The illustration of a perpet- ual inventory shown in Figure 49 is arranged for recording quantities only, which is all the majority of stores are required to do. Some storekeepers have to record values and quantities, but these are exceptional cases. The cost accounting department OPERATION OF STORES 151 1 1 < P5 Q b C? LOCATI 6 3 c 2 | 1 - 6 12 g O '5 ^ Q j Z '" (3 tq 1 i i - <& i 00 s I ceived, date of advice of shipment, and finally a com- plete list of the invoices (Figure 61). These invoices were recorded on the reverse side 172 PURCHASING CO oe CO II Z Ul oe OUNT 5 < Ul ^ h j u oe 8 oe u a ui / 1 i U a a f V | \ / K U DC oe c u h z IP oe u O o z Ul | j 111 N H i u h o oe X - ! Z 8 PURCHASING AS PRACTISED 173 of this card (see Figure 61), including date sent out for approval, date checked, and when finally approved and passed for payment. Where an order was for a large number of articles, such as 10,000 malleable iron castings, it was possible for so many shipments to be made that one card would not contain a record of all the invoices, in which case an additional card was inserted, spares being kept for this purpose. Such cases were rare, however, and applied princi- pally to such things as air compressors, motors, etc., which w^ere ordered in large quantities and delivered a few at a time, as required during progress of the work. The regulations of the company called for the ap- proval of the invoices on their face by the engineer in charge of the particular work where the material was used, and also by the purchasing agent. When an invoice was received in the purchasing agent's office it was checked with the order, recorded on the card, Figure 61, and sent at once to the engineer who drew the requisition f accompanied by a notice as illustrated in Figure 62. It was approved by him for quality and quantity, and returned to the purchasing agent, who approved it for price, terms, etc. If material had been inspected, inspection reports were checked with invoices which were finally passed to accountant. This is briefly the manner in which the purchases were effected and the records of them kept for this vast enterprise. In a small filing cabinet a succinct history could be obtained of nearly 40,000 transac- tions. An index of the orders was of course kept both under the supplier's name and name of material. The requisitions were filed in loose-leaf post binders, 174 PURCHASING 1 I .g it d indicates SENT TO UNTANT8 INVOICE i i i s d UO u. \ v 1 s, 8 < Q< Oft C i_f 1 .3 D | O ^ h S a i .2 DATE OF INVOICE URE No. 64. recorded. o PURCHASING AS PRACTISED 175 the posts being arranged to take exactly 1000 requisi- tions. If at any time complete information as to wording of requisition or order was required or the cards did not give enough details, the copy of order and original requisition could be referred to without the slightest delay. There was a tickler system main- tained on similar lines to the one described in an earlier part of this book. During the progress of the work, scrap accumulated and had to be sold, one of the principal items being copper; also, as the work neared completion, portions of the equipment and tools used in construction were disposed of through the purchasing department. A record of these sales was kept on a card (see Figure 63), the reverse side recording particulars of material and date invoiced by accountants. Purchasing for Operation As portions of the work were completed, the con- struction company operated trains on those sections and also operated the generating station. This neces- sitated a modification in the form of the requisitions and orders as they covered requirements for the per- manent stores at the car shops and generating station. The inauguration of a system was therefore essential to take care of these functions until the completed undertaking was taken over by the operating staff. The coal for the power house was the most important purchase effected at the commencement of the opera- ting work. The generating station at that time consumed ap- proximately 300 tons of coal per day, which had to be supplied in regular quantities at short intervals 176 PURCHASING owing to the limited storage capacity and the charac- ter of the coal itself. It was found that a screened and washed coal of a certain size with a restricted range in B. T. U.'s gave the most economical results on the automatic stokers, and any deviation from the size or heat units of the coal selected as most suitable seriously affected its calorific value during consumption, and correspond- ingly affected the output of the generating station. A specification was drawn embodying the desirable features required in the coal. The size was specified by naming the mesh of a screen it would pass over and through. The allowable range in B. T. U.'s was specified, and the maximum percentage of ash, sul- phur, and foreign substances. To obtain sufficient coal of this character it was necessary to visit many collieries and inspect their screening and washing ar- rangements. Samples were obtained and subjected to analyses in our own laboratory. On the strength of these analyses the orders were placed. It looked a fairly simple proposition to buy such coal, but it was far from being that. There was no physical connection at the generating station with any railroad and all coal had to be lightered up the river after being brought from the north of England and Scotland in coasting steamers. As a result of this, the coal was handled four times after being screened at the pit mouth, causing breakage and an excessive amount of dust. Different grades and coal from widely separated mines could be mixed in one barge when steamers were discharged in the river. The discrepancies in weights as given by the colliery, by the steamship owner, and as loaded on PURCHASING AS PRACTISED 177 the barges and as finally weighed on arrival at the generating station were beyond understanding. To overcome these disagreeable features it o \ i i ! | i 9 o i i 4 i Q r A J i S / 1 * CO i | fp CD E e o "a. District 1 Shipping Pot c C 1 Moisture "as 2 = 1 o .O E ri O 1 u_ c. a. 3 CO 1 5 d 1 Remarks was 1 >J Q ?*> 1 a; c3 S w> 9. II-! O r^ M 8 ^ $ M a - & > 1 1. 3 1 finally stipulated that the only weights recognized would be those registered by our own automatic scales when discharging barges at the generating station, and 178 PURCHASING the only analytical tests as a basis for payment would be those made of samples taken from barges while being unloaded. The breakage and dust could not a *d be altogether overcome, but by insisting on more careful and better methods of handling, this was con- siderably reduced. PURCHASING AS PRACTISED 179 Q 5 h C j 1 Z a 1 O Q oj Q * a O I 1 Ik I 1 I Q. ^ O O i j unload o | o ^ o jj h ej 5J 6 ^ J hi e ** mm h m z u .f ! X i^ a o o t^ *r-j E Z a ^ " H o s 'S o < u ^ 6 u J u f! < J 1 s S f o z D I!- ? 2 ** -IS o o E oJ I o Jg Z K J I o < * u o J }8 3 J p 1 I 1 1*8 t! 8 I i i 180 PURCHASING A record was kept of the analyses of all coals of- fered, as shown in Figure 65. On the reverse side of this card were entered the name of the firm offering g i o C5 1 o i "I 1 c ^ 1 i i c 1 1 * ^" a oo ^i (-4 i I l . P -d a. (^ ^ c 1 O ^ c8 o c o H! * Oj 'E, ! ^ I ' 00 | s " S 'S J ! g ti i S . * 3 _l 1 1 I < " L 1 1 s s ^ M i t, ^ t a o a 1 g ^ ^ I 1 s '3 I ; i ! I j| ^ 1 1 00 CO ? S i 1 1 1 6 I c t ' ^ i ^ |, g. a 1 . * ^ 1 ^ ^ p i ove goods on the FIGURE No. 69. Form of inquiry used in obtaining quotations. 182 PURCHASING the purchases and what they implied can be gathered without detailing the processes which each passed through. The legend accompanying each illustration describes briefly the form and its uses. r.K* t (.v_^ M ). R*9.N | LON Of^MNo. DON ELECTRIC RAILWAY. 10655 OFFICE OF THE PURCHASING AGENT. ELECTRIC RAILWAY. HOUSE, BROADWAY, WESTMINSTER, LONDON, s.w. nMOMMIIM AGENT TMMUM:. ItaMnum. v. li...n. TiunwM t- VOTWU ioo torn : ION i fxl To Please supply on account of this Company . i. ALL GOODS TO BE DELIVERED TO *. A detailed priced invoice in duplicate, baring order number, to be rendered immediately on despatch of the good's, to the Purchasing Agent, Electric Railway House, Broadway, Westminster, S.W. j. AD pattern! must be returned on completion of order. 4- Accounts paid monthly leas . J%. 5. V|is9ittbi4v|MiMwli^|tosW4pitMMBteMH*im EXAMINED PURCHASING ACINT. 1-E.R. o^/frJLQfiSS- FIGURE No. 70. Official order form. Used in quadruplicate, the original going to supplier, one copy being kept in the purchasing department, one going to the storekeeper, and one to the department making the requisition. PURCHASING AS PRACTISED 183 1 I - ! s a S (/> w ct 111 1 1 s I 1 I i *?? 3 S | S "d i (^ 1 E i 1 a. j i 1 i s 3 1 o" z i 1l o ^ 1 t ? i 1 i I 2 184 PURCHASING a: 1' a { O a .g 1 1 D .2 f j O 1 I S as TJ "a D 1. I 1 cc 1 O 8 g p 1 o JO E I 1 i co 1 D i ; C PURCHASING AS PRACTISED 185 Deliveries Date Invoiced Remarks FIGURE No. 73. Reverse side of "urge card" for recording shipments. 186 PURCHASING * > I z i S ' 0. ?l s li J o ii E 1 i! i i o UJ | i JS ^ E h - i d I LU Ul 1 " 1 1 1 J I Hi e ^ *B a ^ o - * * ' |: . I Q ^ 2 i 1 * ? Z g -5 1 i Jo ^ : J f I I s ! & 41 i i PURCHASING AS PRACTISED 187 g , J* -+j .2 \ CM | J 3 i o I 1 g 1 s QQ 00 1 ' 1 7 "^ 8s g s 1 I i ^ ^J 2 !S i ..._.. #. njim * JC RAILWAY II8ITION AND RE nent with the undermen - ..... f-f " a ^ jr. The original department requ ! i i I i Pi I 6 : N H 1 x< 1 4 3|a ! 00 * 1 s ! o5 -2 OJ ^> z i o 2 Ii |1 m (S 1 j. fOREKEEPER, Please Supply Jpprowdfty. si II x to 1 8 i gs p 2 i fi 188 PURCHASING O . 'l !' { | i rH . : s n ? c | - i S ^ & 1 8 i 8 1 1 V ? 1 6 o c 1 s > *: I c 1 | 1 1 1 i u c 1 t* E } i i V ^' Q JO >> gl o 2 ^ j ,^S in S tlJ g ). 472 (24/50-12-13). [W. * S. LONDON 1 RETURNS Storekeeper, General S E Receive from < 4 I t s l PURCHASING AS PRACTISED 189 i | \ i i 1 I! i 3 3 o C, .2 I I 3 8 2 j J2 '< | i | 8 *r< SIC RAILWAY COM ! j << "S ts 1 o 1 g M g u bO u I 1 .g 2 o. 1 h Q O 73 1 & 1 I j t>- t' T 9 ? i ^ = 4 1 < , h 190 PURCHASING il CHAPTER XIII PURCHASING FOR A MANUFACTURING AND CONSTRUCTION COMPANY AN entirely different proposition in purchasing from that presented in the last chapter is involved in buying materials and supplies for a large corporation manufacturing elevators, escalators, mine hoisting ma- chinery, etc., with factories located in widely separated parts of the country. The product of these factories finds its way into every civilized country in the world, besides having an enormous domestic demand which is disposed of through offices situated in over eighty of the principal cities. The business of the undertaking comprehends not only the manufacturing of machines and apparatus, but also the erection of them, and the construction of the appurtenances necessary for their complete instal- lation. A service department is also maintained which comprises the work of inspection, repair, upkeep, and maintenance of elevators already erected, and the furnishing of necessary supplies. It undertakes the reconstruction of old and partially obsolete instal- lations, to bring them into conformation with the latest developments. The constant additions which are being made to the building laws in cities and the various state requirements governing factory buildings add considerably to the functions of this department. 191 192 PURCHASING It can readily be conceived that the purchasing con- nected with the multitudinous activities of such a concern is a complex problem and one involving an enormous amount of detail. The writer's association RCQ. NO _ OTIS ELEVATOR COMPANY DATE "' ACCOUNT NO. Ct-ASS o J < z o SHIP VIA ASSEM. IN STOCK TOTAL AVAILABLE , FIN. IN STOCK A RFf.'n RINrC AUT. NFFOFO ON ORDFRB . .... TOTAL "n REMARKS FORM 971 FOR MANUFACTURING DEPT. FOR WORKS FIGURE No. 79. Requisition from factories. PURCHASING AS PRACTISED 193 with this work is an interesting and pleasant experi- ence and some of the methods used are related here and may be of service to the reader. The operations of the company covering such a wide area naturally entail the complete separation of all traffic work from the purchasing, and it is a distinct and important department comprising many functions in no way connected with the purchasing depart- ment. In fact, its principal work is related to ship- ments made on account of the sales department. It cannot, therefore, be considered as an integral part of the purchasing activities. An illustration will be given in the next chapter where traffic work is con- fined practically to purchasing alone and forms a constituent part of that department. The stores system is, similarly to the traffic work, segregated from the purchasing department and per- forms its important functions independently. The operations of this purchasing department therefore are confined to buying, and the methods employed are in contrast to the other examples given. The requisitions from the factories are shown in Figure 79. This form is sufficiently clear and needs no explanation; the arrangement and wording convey to any person with only a rudimentary knowledge of what a requisition is, its import and meaning. It has to be properly authenticated by the parties in authority and when thus validated forms the purchas- ing agent's authority for placing the order. Another form of requisition is shown in Figure 80. This is used by all the departments of the undertaking not connected with the actual manufacturing, for 194 PURCHASING supplies used by the construction and service depart- ments and in the offices. The purchase order, Figure 81, is in quadruplicate, REQUISITION ON PURCHASING DEPARTMENT REO No DATE FIGURE No. 80. Department requisition. the original going to the seller, one copy being kept in the purchasing department, one going to the factory, and one to the receiving department. The copy re- tained in the purchasing office is filed in a post binder and on it are recorded the invoices. It should be men- tioned that the copy going to the receiving department has on the reverse side an arrangement for recording the receipt of the goods (see Figure 82) and is retained in that department until the order is completed, when it is attached to the invoice. If more than one in- voice is rendered against an order a supplementary PURCHASING AS PRACTISED 195 form is used for recording receipt of material which is attached to each invoice as they arrive. The final invoice completing the order is accompanied by the form shown in Figure No. 82. o O I o o ORIGINAL PUT THI OTIS ELEVATOR COMPANY ORDER No B 55290 ELEVENTH AVENUE AND N V U " TWENTY-SIXTH STREET INVOICE NEW YOBK M PLEASE DELIVER TO OTIS ELEVATOR COMPANY SHIP VIA PLEASE NOTE! OUR ORDER NUMBER MUST API 1 ' L.ADINO AND THE PLACE TC 1 STATED ON INVOICE. END INVOICE TO THIS OFFICE, OTIS ELEVATOR COMPANY. FIGURE No. 81. Purchase order. 196 PURCHASING Contracts are made for fixed periods by the pur- chasing agent in New York for all materials which can be bought to advantage in this manner. Purchase MOTlCEl A 1 o o FORM *Z3. j M.RROVAI. MUST BE BY MOR OR SUPT. OR ONE DULY APPROVED .UTHOR.ZED. FIGURE No. 82. This is the reverse Bide of copy of order which is sent to receiving department. PURCHASING AS PRACTISED 197 orders are issued both in New York and by the branch offices which apply on these contracts. The order form used by the branch offices is shown uv. "!.... OTIS ELEVATOR COMPANY PURCHASE ORDER orriCB OAT PI-CASE D6LIVEB TO FOP V NO. QUANTITY AND DESCRIPTION OF GOODS WANTED _J 5 OC \ ORDERED BY APPROVED BY FIGURE No. 83. Purchase order form used by branch offices. 198 PURCHASING in Figure 83. If the concern with whom the contract is made has local stocks in the cities where branch offices are located, the material is supplied from there, OTIS ELEVATOR COMPANY PURCHASING AGENT NEW YORK REQUEST FOR QUOTATION TOTAL REQUISITION />UCHS Oaoc* No FIGURE No. 84. Form used in obtaining quotations. PURCHASING AS PRACTISED 199 or from the nearest shipping point. A copy of this order is sent to the purchasing department in New York, where a record is kept of the total amount of material obtained on account of the contract. FOLLOW UP ON MATERIAL ORDERS TO DATE PLEASE ADVISE BELOW WHEN YOU WILL SHIP MATERIAL SPECIFIED ON OUR ORDER * YOUR NO DATE OUR NO SHOP NO. OTIS ELEVATOR COMPANY .OFFICE REPLY (DO NOT DETACH FROM ABOVE) WE WILL FURNISH ABOVE MATERIAL SIGNED. FIGURE No. 85. This form is used in following up orders and obtaining from sellers information as to date of shipment. 200 PURCHASING The branch offices are advised of all contracts made, and all changes and modifications which take place from time to time. As they are engaged in local erection, construction, and repair work, it is an important advantage for them to be able to secure the benefits of these contracts. They are placed in the same position as the largest buyers for such material as they need locally and which can be cov- ered by agreements of this kind. Contracts of this character, which can be arranged by the purchasing agent, are important factors in the general economic operation of the corporation's undertakings. The invoices for all factory purchases go first to the purchasing department in New York, where they are compared with the order and sent to the factories for approval. A record of the receipt of material is made by the receiving department on the reverse side of their copy of the purchase order (see Figure 82). This copy of the order is then attached to the invoice and returned to the purchasing department. It will be noticed that Figure 82 covers all the necessary data connected with the invoice, such as classification, freight charges, etc. A slip is attached to invoices call- ing attention to cash discounts, and each person handling them must perform his work to enable payment to be made on date specified. After prices have been checked, the invoices are passed to the accountant's office. These are the salient features connected with the purchasing system of this undertaking. There are many details associated with it, as there is with any similar work. There are also forms used between the fac- tories, branch offices and purchasing department which it is unnecessary to give here. PURCHASING AS PRACTISED 201 /I s/ Sis n I' CHAPTER XIV PURCHASING FOR CONSTRUCTION WORK AND OPERATION OF PROPERTIES IN WIDELY SEPARATED LOCALITIES THERE are conditions existing in the work of purchasing which are not covered by the de- scriptions given in either of the two preceding chap- ters. As pointed out in earlier portions of this book, there are certain fundamental principles connected with buying which are common to it whenever and wherever its functions are exercised. The methods employed, however, have to be adjusted to meet the varying conditions which surround the work. The writer has in mind one of the largest engineer- ing concerns in the country with whose purchasing he had the good fortune to be connected. This company has carried out construction contracts in practically every state in the Union, also in Cuba, Central America, the Philippine Islands, and its allied companies have executed contracts in all parts of the world. They also act as managers and operators of public utility undertakings and many other enterprises, both at home and abroad. In addition to these important functions, there are many companies who find it advantageous to employ them to act as purchasing agents for them on account of the excellent facilities they possess for satisfactorily taking care of such work, 202 PURCHASING AS PRACTISED 203 From this short resume of the activities of the cor- poration, it can be easily understood that the work of purchasing all the requirements connected with so many undertakings is an exceptionally intricate problem. The proper performance of the work of buying where the conditions and circumstances vary so greatly involves something radically different from the examples given in the two last chapters. The information which reaches the purchasing office and which primarily forms the basis for the purchase may be in a very incomplete and crude form. This necessitates the apportioning of the work connected with the requisition to an experienced man, who takes all the information furnished and beats it into shape. The requisition form used (see Figure 87) is much larger than those previously shown, and the clerk in charge has to write up the requisition specifying and minutely describing every detail and particular requisite to insure the purchase being made and the material shipped exactly in accordance with the re- quirements of the customer for whom they are acting as purchasing agents, or as needed for the execution of work on contracts for construction or operation. In considering a requisition such as this, the nature and character of the purchases as already outlined must be taken into consideration. It is a foregone conclusion that when the material is to be shipped, perhaps half-way round the world, special care must be taken in making the purchase and having every detail connected with it and its shipment absolutely correct. All the work connected with traffic problems in this establishment is an integral part of the purchasing department, and all the particulars as to manner of 204 PURCHASING packing, routing, etc., have to be decided by the traffic clerk if not unequivocally specified by the con- signee, and even then is subject to this checking and approval. 6 6 . THF 1 ft WHITF rNGlNrFRING mfiPOftATinN ..*.*..* ^ PURCHASE REQUISITION. ACQUISITION TO MANAOfcn Or ruftCMAC CNGINCCNS. CONTMACTOH* COHTHACT ,... o.. l _o WIMO ~ m ,~ ro i:.; .r^ MO. OUANTITT T.T. '-XFySUSZ. fS? H Zgrn<* DCLIVCJV AT DATE ffSSfn CHICKED CMA**M O FIGURE No. 67. Requisition form. PURCHASING AS PRACTISED 205 Trivial purchases, such as frequently occur in local construction and manufacturing work, are not as general in transactions of this purchasing department, but they are large and important and practically all of them are subject to inspection when shipments have to be made great distances. It is easily conceivable that there must be positive safeguards against ship- ping wrong material, and an endeavor has been made, therefore, to show the necessity of preparing the requi- sitions so that all questions as to proper description of material, its inspection and routing are adequately covered and accurately specified. In an office handling such a varied assortment of purchases, the information on file is naturally exten- sive and diversified. It is not possible, however, nor could it be expected, that the department should know where to buy to the best advantages everything embraced in its multitudinous activities. Neverthe- less, it must be in a position to obtain at short notice such information as is essential to enable it to make the purchase intelligently and satisfactorily of any- thing unusual which it is called upon to buy. As an illustration, the writer remembers having to investi- gate and find a market in which to purchase machin- ery for harvesting rice and hemp and preparing them for commercial use. This transaction was for the Philippines, while at the same time mules were being bought for construction work in Tennessee and loco- motives for Cuba. In its completed form and when properly approved, the requisition is ready to be dealt with by the pur- chasing agent, who scrutinizes it closely, for the magnitude and importance of the expenditures in- 206 PURCHASING volved would, as already pointed out, entail severe losses, trouble, and inconvenience to both the pur- chaser and the consignee if the transaction was not properly carried through in consequence of the requi- sition being carelessly or incorrectly written up. It is necessary also to verify the authorization of the purchase, and that it is validated by the existing agreements or arrangements for carrying out con- struction work, management, or operation of properties, or in the performance of the function of purchasing agent for corporations who have not got the requisite facilities for doing such work to the best advantage. The requisition is then handed to the price clerk who writes up and sends out the invitations to ten- der. The work in connection with this phase of the purchase, also in comparing quotations and final negotiations before placing the order, does not differ materially from similar work as related in previous chapters. This is also the case with all the features pertaining to the following up of the order, inspecting of the material, and shipment to customer. A few of the forms used in carrying through the routine work of the department are illustrated in the following pages. The nature of the particular section of the work in which they are used can readily be gathered from an examination of the forms them- selves and it is not necessary to detail the method of handling each one. The system of filing the papers in one of the transactions of the character described has to be radically different from that used by the Underground Railways, where over one hundred orders were fre- quently issued in one day, many of them having no PURCHASING AS PRACTISED 207 TK J. (. MUTE EMIIEEnllG CORrWTIOI, ENOINBR CONTRACTOR*. 43 EXCHANGE PLACE NEW YORK. N. 1 ORDER 1C shipment cannot I Invoice, as specified below, must b* cni to this office as soon as material is .hipped from your works. All good* from manufacturers in (irealer New York. sh-inM be held pending receipt at shipping instructions. All material furnished .must conform with our SPECIFICATIONS when Indicated. awl if not In accordance therewith. iame wfll b held at yoar risk. awaiting disposition. Shippers must pay all transportation charges both ways on all rejected material. age or damage will be charged to shipper 7 No charges allowed fnr packing, reels or cartage unless specified on this order. 9. No drafts will be honored. 10. Railroad hill la.linj; sho,n 5 proper classifi- cation, full rouliui;. car miraljer. weights and rates must l>c sent to (as indicated at OU* VT TK J. . WIITt OOKltm OMMK RECEIPT Of THE ABOVE ORDEH I* MCMC.V ACKNOWLf DwO. W* ACCCFT TM OWOWI A PECIF1KC FIGURE No. 88. Purchase order form. 208 PURCHASING papers, correspondence, or documents connected with them to be preserved. But with such orders as these the number is comparatively small, but frequently includes a voluminous quantity of correspondence, Form E XX HEO NO MATERIAL mot* W ICMVI-U THE J. G. WHITE ENGINEERS ENGINEERS. CONTRA 43 EXCHANGE PLACE. NEV COPY OF O CTORS RDER MAS BCCM OPnrBto COHMGNC Ou- OMMMi CEMCMAt. CLASSIFICATION CT- SHIPMENTS MADE ^__.__ ~V T ,JC O ; ,",.".. ovr - """ *""" o FIGURE No. 89. Copy of purchase order retained in oflQce showing method of recording invoices. PURCHASING AS PRACTISED 209 memorandums, quotations, etc., which for easy refer- ence must be kept together. Therefore all papers relating to the order, together with requisition, from THE J. 8. WHITE EIEIIEEI1II COHPOUTIOI ENGINEER* CONTRACTORS 43 EXCHANGE PLACE 19 GBKTUMBNi ORDER Na CONTRACT PUM r.f.r to Mr order of th. tbov. number ud pUc. hreon, in .pc. .llotl, IT** .ry be.t quol.Uon covering ih. item, included in Ike order. Your. T7 nJy. TNC I. & WHITE EJKMEUMfi COPOIATiO f . ft. CMILSON THE J. 0. WHITE ENGINEERING CORPORATION GENTLHUENl We quote below ear rery belt price, cove-inf the item> rneotioned on y FIGURE No. 90. When an order has been issued without first ascertaining the price, this request is sent to the party holding the order. 210 PURCHASING the initial stage to its final completion, are kept in a folder. Such a scheme is not feasible or practicable Form No. 313A 500. 12'J-IO Prints and Specifications to be sent out To ENGINEERING DEPARTMENT Date Number. _ Order has been placed with For , _. To be used on the _ job Please see that all the Prints and Specifications covering this work are sent immediately. Purchasing Department. Domestic Prints To PURCHASING DEPARTMENT Number. Prints and Specifications have been forwarded to _ For To be used on the _ . job Date Engineering Department FIGURE No. 91. When an order is placed which requires blue prints and specifications this form is sent to the engineering department. PURCHASING AS PRACTISED 211 when very large numbers of orders are issued which have few or no papers connected with them to be preserved. HO. JIT. 2M-4- 12-11. INSPECTION NOTICE CONTRACT , ORDER No. ENGINEERING DEPARTMENT OFFICE DATE MANUFACTURER ADVISES THAT MATERIAL ON THE ABOVE ORDER WIL ,5 BE READY FOR INSPECTION AT _ _ DATE PURCHASING DEPARTMENT INSPECTION NOTICE CONTRACT _ ORDER No..... PURCHASING DEPARTMENT OFFICE DATE WE WILL ARRA ,J!vE F R 'NSPECTION OF MATERIAL ON THE ABOVE ORDER. ENGINEERING DEPARTMENT BY FIGURE No. 92. When inspection has been specified on order, this form is sent to engineering department. 212 PURCHASING THE J. t. WHITE EieiREEXin CORPOIUTIOH ORDER TRACER. 4S CHNOE n*ct, NEW YORK NEW YORK RUSH ORDER NO CONTRACT IMMEDIATELY WHEN YOU PROPOSE I YOURS VIRY TRULY. E. N. CHILSON . PLEASE ADVISE: MANAOKR ATE OP SHIPMEh CAR INITIAL* AND NUk FIGURE No. 93. Form used in requesting information regarding shipment of order. PURCHASING AS PRACTISED 213 MEMORANDUM TO ORDER FOLLOW-UP CLERK 1 LETTER ORDER WAS PLACED *{ BY TELEPHONE ( BY LETTER < BY TELEPH' ( VERBALLY DATE- WlTH. MATERIAL CONTRACT. SHIPMENT DUE- SIGNED. COVERED BY ORDER NO. FOLLOW UP RECORD FIGURE No. 94. When an order has been placed verbally and before the official order is issued, this form is used for temporary follow-up purposes. 214 PURCHASING MEMORANDUM FOR FIELD OFFICE CON.TXUCTIOM OFFICt GENTLEMEN Order No_ Shipment of mitt rial covered by our order of the above number hat bec D ,& as followi: FIGURE No. 95. Advice to construction office regarding shipment of material. THE J. I. WHITE EN6IEEBI6 CORPflRlTIOK 41 IXCHANOC PLACC 191. To Please deliver to S.S. now loading at .for shipment to. Please have all packages marked in full, as per In- structions given In our order, take receipt in our name and for- x ward to us when delivery has been made. Please number packages as follows: "Yours truly, Manager of Purchases. FIGURE No. 96. Advice to supplier regarding shipment of an order by steamship. PURCHASING AS PRACTISED 215 : J. I. WHITE EI8IIEEIIII CORf-CUIlM IMPORTANT TRACER REQUEST PLEASE WIRE TRACE SHIPMENT BY CONSIONEE UNDER OATI OF_ THAT *MIPMENT MA* NOT YET BEEN RECEIVED. PLEASE ADVISE IMMEDIATELY r-BILLING REFERENCE*. CONNICTINO LINE*. Vtr, Irulr Tour., THf ). fr WHITE HemCERING CORPOTIOII C. N. CHIL*ON. HAMAOI FIGURE No. 97. Tracer request. One of the forms used by the traffic clerk. 216 PURCHASING Form No. 32n 1-22-13 THE J. G. WHITE ENGINEERING CORPORATION ENGINEERS CONTRACTORS X EXCHANGE PLACE NEW YORK PURCHASING DEPARTMENT .19 ORDER No. CONTRACT- We return herewith jour invoice! as follows: Number Date Please follow invoicing instructions on order of the above number, forwarding and copies la accordance therewith. JHI j. a wmrt CN6mtim COIPOIATKM C. N. CHILSON FIGURE No. 98. When invoices are not rendered in accordance with instruc- tions they are returned with this notice. PURCHASING AS PRACTISED 217 MEMORANDUM FOR FIELD OFFICE INVOICES DATI. CONSTRUCTION OFFICE GENTLEMEN : ORDER No - - CONTRACT. We attach hereto Discount of % ipplie* if payment it m.dc within Vtry truly youn, E, N. CHILSON FIGURE No. 99. Form used in sending invoices to construction offices for approval. 218 PURCHASING J 5 2 X c COMPLETED Ik 2 1 1 * 1 0> 2 >* 8 7 8 o I w - p o - iz i V* o I o 5 1 s II i 1 I S 1 I PURCHASING AS PRACTISED 219 a z il I z si < "= c 1 ORDER NO. < s Z i-H c> B Jz; 9 I 1 o fi n 2g II II i ss 1 -Ir If If ' CHAPTER XV PURCHASING FOR A SMALL MANUFACTURING PLANT IN a small manufacturing plant the conditions surrounding the purchasing and store keeping differ somewhat from those previously related. The fol- lowing brief explanation will serve to illustrate the main features of the system adopted. Owing to the size of the plant and the limited amount of clerical assistance, it had to be simple in the extreme and yet meet the problems of purchasing and store keeping satisfactorily. On this account the forms used were limited in number and any features which might lead to complications or enlarge the work were avoided. The storeroom was in charge of a man who was honest and reliable, but who was not. capable of keep- ing any of the stores accounting records, which were all kept in the main office. He had no authority to issue purchase requisitions, he received material and supplies, stored them, and delivered them on fore- men 's requisitions as required, doing the physical work himself with an assistant. If any additional tempo- rary help was needed it was drawn from the shop. When a production order was issued, the superin- tendent or his assistant made out a purchase requisi- tion, Figure 102, for the material required. This was in duplicate and both original and copy were sent to the office. Here it was checked up with the stores 220 PURCHASING AS PRACTISED 221 G Z hi Z 6 Q 2 z c o z J h 0) w p 10 o < U !2 i c ERIA u z D UJ D U UJ D H C Q. h I isition. o: IL 8 1 HASE RIPTION Purchase O o: 0) Ul 8 D 6 Q. H P g | o Q b, U 1- z hi < K > o UJ D U I H 1- K < Ul < k. Q tt Q o o o o 222 PURCHASING perpetual inventory to see whether any of the mate- rial in stock could be used for this order. It was then numbered with an automatic numbering stamp and investigations were made as to prices, etc. After the order was placed, the original was kept in the of- fice and the copy returned to the superintendent. On both of them the order number and name of seller were inserted. This fitted in better with the super- intendent's method of keeping his records than if a copy of the purchase order had been sent to him, which would only have meant to him an unnecessary addition to his clerical work. Requisitions for supplies for the shop were issued by the superintendent's assistant when he was notified by the office or by the storekeeper that the stock was running low and had reached the limit fixed. When new machinery was designed, the drafting room made FORM 12B MATERIAL- PURCHASED FROM DATE ORDER NO. DESCRIPTION PRICE PER FIGURE No. 103. Card for recording prices of material with names of suppliers and order numbers. PURCHASING AS PRACTISED 223 out a bill of material and a requisition for it at the same time. These requisitions came into the office and were dealt with in the same manner as those from the superintendent. A record of quotations and prices paid for previous purchases was kept on a card index, Figure 103. Reference was made to this to ascertain the latest to ^~ T z 6 6 O z u c z H O 3 u u Z ^ P S rv U Z g o 2 l\ fc ( . h z K M k. o (/) Z 00 Z O 5? i o > ' i * E so 1 S O i- * rH z z ij I i S" O MM n J KB " < h Z = Z Z < g iz 2 K 5 m o O a Z y : ; ? ! ! i ( i t- 1 Z 00 224 PURCHASING price and if no recent quotations had been received, inquiries were sent out for best prices and shipping dates. When a satisfactory price had been secured and shipment promised early enough for the proper execution of the production order, the regular pur- chase order was issued, Figure 104. A copy of this order was sent to the storekeeper (no price was in- serted on this copy); a copy was also kept in the office and bound in a metal post binder. When the invoice was received, it was checked with the order and a memorandum of the date of in- voice, quantity shipped, and amount of invoice was en- FORM 106 FROM QUANTITV RECEIVED DESCRIPTION OF MATERIAL. RECEIVED AS ABOVE QUALITY APPROVED PRICE EXAMINED EXTENSIONS CHECKED CHARGE TO AMOUNT STOCK RECORD APPROVED FIGURE No. 105. Approval form for invoices. PURCHASING AS PRACTISED 225 tered on the face of the copy of the order in the office. This was found an effectual check against approving two invoices for the same material. It also pre- vented more goods being delivered than the order called for. These are two things which need close watching in both small and large establishments. It is a practice of the accountants for large concerns to take all properly approved invoices and make a voucher for them. They may have no effectual means of detecting or knowing that two of them are duplicates. It is entirely up to the purchasing agent to prevent this with proper safeguards. In a small business the same trouble occurs because the bookkeeper takes all invoices as they are ap- proved and enters them in his ledger irrespective of dates. At the end of the month a pay statement FIGURE No. 106. Index card for orders, the supplier's name being inserted at the top. 226 PURCHASING with list of invoices is made out and not being in order of dates it is not noticed that there are two invoices of the same date and amount. The most effectual method of preventing duplication of this kind is to enter the invoice on the copy of the order in the office. Investigations were then made to see if any questions had arisen regarding the quality which would appear when it was checked against the material-received sheet. It was also checked for price, the extensions were checked, and it was finally approved on a form as shown in Figure 105. A record of prices was kept on cards similar to Figure 103 and an index was kept of orders placed on a form as shown in Figure 106. The copies of unfilled orders were kept separate from the completed orders and as they were comparatively few a general tickler system was not necessary, as notes could be easily made of follow-up movements on the copies of the orders themselves. The stores system in connection with this plant was simple in the extreme. The man in charge did no clerical work except make out a list of the material and supplies received on account of purchase orders. A copy of this order was given to him at the time it was issued; he knew therefore what goods were on order, when to expect them, and could stop any coming in which were not properly ordered. The method of procedure was as follows: The material arrived daily from various sources and on arrival was checked, weighed, and examined by the storekeeper, the copy of the purchase order having of course been referred to. He then entered these items on the material-received sheet, which was sent into the PURCHASING AS PRACTISED 227 office every day. He had various shipping mem- oranda and delivery tickets which came with the goods. These he kept for a time in case any question should arise as to quantities, etc., when invoices were checked. During the day the storekeeper was called on con- tinually to deliver goods from the storeroom to various departments. This was done by requisition, Figure 107, signed by the foreman. The first thing the store- keeper did on receipt of this requisition was to num- ber it in the top right-hand corner with an automatic numbering stamp. He then handed out the material and signed the ticket below the foreman's signature. The requisitions were placed in a box and sent into the office daily. The object of numbering them was REQUISITION ON STOCKKEEPER MATERIAL. FIGURE No. 107. Foreman's requisition on storekeeper. 228 PURCHASING that it proved to the office that if the requisitions were numbered in proper sequence none were lost after material was given out. The foremen could not be depended upon to send copies of requisitions to the office to check with the originals as is frequently done. It was essential therefore that close track be kept of them. Material returned to stores was recorded in a simi- lar manner, the foremen sending credit memorandums to the storekeeper (see Figure 108). On arrival in the office these requisitions were charged against the production order and also entered on stores record, Figure 109, which was a loose-leaf sheet. They were then tied in bundles and kept FORM 103 G< ORDER NO. DODS RE TURNED DAT CREDIT TO STOCK ROOM FOR CREDIT PIECES FEET POUNDS MATERIAL ENTERED 1 N STOCK 1 3OOK FOREMAN CREDITED TO ORDER TO6KKKKPCN FIGURE No. 108. Foreman's credit requisition for material returned to stores PURCHASING AS PRACTISED 229 i : 1! f I 230 PURCHASING until there was no possibility of any need to refer to them again. For the size of the establishment a large number of patterns were in use. A record of these was kept on cards, one being a record of the pattern itself, Figure 111; this was a buff card. The other was light blue, Figure 112, and was used for keeping a record of the foundry the patterns were sent to. Enough particulars are shown in the illustrations of . these to make them self-explanatory. DATE. TO THE SUPERINTENDENT, THE STOCK OF PATTERN NO.. THE MINIMUM BEIT .NOW STANDS AT. _. IT TOOK TO GET DELIVERY OF LAST LOT PURCHASED. FIGURE No. 110. Storekeeper's notice to superintendent of low stock. PURCHASING AS PRACTISED 231 z IT Ul t Q. Ul J Uj X z o ID Z 2 * K - 8 IT Ul h Q. ^ k BL 0) or cr Ul Ul I ID ID h s z D D Z Z o o t Ul j X t < C ) Ul i 2 ! ID L L . i J U j I- L j h J h < C (0 h C | z z Q L K 7 L L Q. Z C ) 1 D N ^ Z K 1 J 1 ! I L : < J t ^ OTH E I I 1 1 K D A I 232 PURCHASING Q hi UZ HK U K K Q c Z 3 2 U. li J U I Q <* 2 0) u uz i u 1C 2! o: > u j z L D - ^ IL Z ^ Z a o li ; t < u < ujf 0) 2 0. z INDEX Analyses, relation to buying, 92 value of, 90 Bins and Shelves, construction of, 142 tickets and cards for, 154, 156, 157, 158, 190 Budget System, forms for use in pre- paring, 147, 149 obtaining material from stores by, 146 Buyer and Seller, relations between, 21 Buying, art of, 1. (See also Pur- chasing,) Catalogues, cases and shelves for filing, 76, 79 index cards for, 77, 78 numbering and indexing, 76 utility of, 75 Competitive Bidding, 23 Construction Work, purchasing for, 162, 191, 202 Contracts, for fixed periods, 196 price fluctuations and, 22 Costs, as affected by buying, 13, 14, 15 Data, chart of procedure, in collect- ing 66 collecting and recording, 73 necessary in purchasing office, 74 Discounts, advantage of securing, 114, 116 reminder form for, 121 Ethics of Buying, buyer and seller, 21 competitive bidding, 23 general remarks, 19 Ethics of Buying, misrepresentation and, 22 offer system and, 24 payments and, 23 price fluctuations and, 22 Express Charges, on invoices, 131 Finance, problems of, in purchasing, 37,86 Following up Orders. (See also Tickler Systems) importance of, 106, 107, 108 methods of, and forms used in, 108, 109, 110, 112, 199, 212, 213 Freight, checking charges, 130 notice regarding form of, 130 Information, chart of method for securing, 30 necessary for purchasing agent, 29 which should be on file, 73 Inspection, method of procedure, 71 notice of, 211 receiving material and, 50 reporting, 92 result of form, 126 Invoices, approval of, 131, 217 avoiding duplicate payment of, 117, 225 cash discounts, 114, 119, 120 certifying, 122, 123, 224 chart of procedure in dealing with, 68 checking, extensions, 131 checking, freight charges, 130 checking, prices, 129 checking, with inspection reports, 126 234 INDEX Invoices, checking, with material re- ceived, 127 checking, with purchase orders, 124, 208 classification of, 131 incorrect, 216 method of handling, 116 recording and registering, 118, 120, 219 uniform, 116 Literature, on purchasing, 16 Manufacturing, methods of buying for, 191, 192 Material, budget or list of, 146 form of budget, 147, 149 into and out of stores. (See Stores) receiving, 134, 139 reporting receipt of, 124, 140, 189 sent direct to department, 139 Maximum and Minimum, considera- tions affecting, 60, 98, 157, 159 Misrepresentation, its results in buy- ing, 22 Offer System, its effects on buying, 24 Orders, acknowledgment of, 106 chart of procedure in placing, 67 emergency, 110, 129 filing, 113, 206 following up, 104 forms of, 104, 105, 167, 182, 195, 207, 223 index for, 225 issued without price, 114, 209 method of handling, 103 recording shipments on, 111 requesting advice of shipment, 110, 112, 195, 197, 207, 223 tickler systems, 104. (See also Tickler) Organization, chart of, 57 of department, 53 information clerk, 56 inspectors, 58 invoice clerks, 58 linking up employees in, 55 personnel of, 53 price clerk, 57 requisition clerk, 56 storekeeper, 59 traffic clerk, 58 Patterns, method of keeping, 231, 232 Payments, advantages of prompt, 23 Personality, in buying, 7 Philosophy, disadvantage of buying from one source, 6 obtaining right material, 5 of buying, 4 price and quality considered, 4 Prices, card for recording, 222 checking, on invoices, 129 final negotiations regarding, 100 fluctuations in, 22 for open orders, 114, 129 in connection with requisitions, 97,98 obtaining, after order is placed, 110 Profits, influenced by buying, 15 Purchases, made in the past, 82 nature of, 31 posting from orders, 105 recording, 83, 84, 85, 201, 218 substitutes offered for, 34 Purchasing, an interesting economic study, 9 y art of, 1 as practised, 162-232 comparison of inefficient and competent methods, 3 ethical standards in, 19 /functional position of, 11 ^ influence on profits, 15 literature on, 16 personality in, 7 INDEX 235 Purchasing, philosophy of, 4 principles of, 1 relation to cost and selling, 13 some present-day methods, 8 success due to, 11 Purchasing Agent, character and make up, 28 definition of authority, 36 diagram of his work, 35 factors and conditions connected with his work, 26 functions covered by his activi- ties, 34 matters on which he should be posted, 29 relations with other department heads, 38 synopsis of information necessary to, 30 Purchasing Department, chart of functional organization, 48 communications between de- partments, 40 employees of, 45 inspection division of, 50 organization of, 53 origin of, 41, 53 receiving division of, 50 relations with other departments, 46 size of, 44 sphere of usefulness, 41 stores division of, 50 subdivisions of, 47 Quotations, comparing, 100, 101 declining, 100, 102 keeping record of, 89 negotiations regarding, 100 obtaining, 98 requesting forms for, 99, 198 tabulating, 90 Receiving, materials and supplies, 134, 194 forms for goods, 189 Records, analyses, 92 inspection reports, 92 past purchases, 82, 83, 84 purchase orders, 85, 86, 88 quotations, 89, 90 sources of supply, 78 specifications, 89 tabulating, 73 tests, 92 Requisitions (Purchase), chart of pro- cedure, 67 examining and checking, 97 factory, 95, 96, 192 filing and final disposition, 105, 206 importance of scrutinizing, 203 making, at regular intervals, 96 pricing, 97 remarks regarding, 94 work connected with, 96 Requisitions (Stores), authority to sign, general considerations re- garding, 142, 143 credit, forms of, 145, 146, 188, 228 forms of, 142, 143, 144, 187, 227 Scrap, advising purchasing agent, 160 receiving, into stores, 158 Sellers, recording standing of, 80, 81 Shipments, advice of approaching date, 110 advice regarding, 214 preventing excess, 124, 138 recording, 111, 125 requesting information as to, 112 Sources of Supply, form for recording, 81 necessity for information of, 78 Specifications, essential to good buy- ing, 2 importance of proper, 89, 97 request for, 210 standardizing, 91 236 INDEX Storekeeper, his duties defined, 59 Stores, accounting system, 150 bin tickets, 154, 156, 157, 158 budget system, 146 chart of procedure, 69 credit requisitions, 145, 146 deliveries from, 143 description of, 142 general remarks, 133 losses in, 133 material budget, 147, 149 material received into, 134 material returned to, 146 maximum and minimum, 157, 159 notice of low stock, 230 perpetual inventory, 51, 151, 153, 229 production orders, 160 proper storage methods, 141 receiving materials, 134 recording receipt of goods, 135, 137 report of low stock, 159 requisition forms of, 142, 143, 144 scrap advice to purchasing agent, 160 scrap received into, 158 tickler systems for, 155 verification of, 154 Supplies, buying at regular intervals, 96 standardizing, 43, 91 System of Procedure, in collecting data and information, 65 chart of system, 66 in dealing with invoices, 69 chart dealing with invoices, 68 in purchasing, 67 chart purchasing, 67 in stores, 69 chart of, 70 inspection, 71 traffic, 71 Testing Materials, sending samples for, 138 value of, 92 Tickler Systems, for following up orders, 108 forms for use in, 109, 110, 112, 212, 213 for stores, 155 forms for use in stores, 154, 156, 157, 158 Traffic, checking freight charges, 130 division of purchasing depart- ment, 49 economic possibilities, 49 method of procedure, 50 tracer request, 215 7s$ *> i^r^v5 14 DAY USE RETURN TO DESK FROM WHICH BORROWED LOAN DEPT. |l|i|ff This bookjs due on the last date stampecNbelow, or |TR!r i TR(^thftf^EQr^"bMi^*MiMBu > ri~_ \ Renewid tiMR IreRftbi 'JUN8 w . ^K&- LD 21A-50m-4,'60 (A9562slO)476B General Library University of California Berkeley UNIVERSITY OF CALIFORNIA LIBRARY . ..- , _ ; v .