p IP \w p i nil ^ lift j i ■! mmmm ill I! SI! I isi! I lii II ! TS 155 "41 — Mat e rials and supplies. Southern Branch of the University of California Los Angeles Form L-l TS 155 This book is DUE on last date stamped below 'JAN I3T931 f£B4 1949 NOV 1 8 185ft DEC 16 1959 MATERIALS and supplies today are handled in such quantities that every detail is lifted into ' VI importance. The tendency to refine quality by exact chemical tests is indicated by the Pierce- Arrow laboratory, and the tendency to arrange deliveries so that material can flow into production almost without pause by the Ford method of receiving and handling small parts in standardized boxes SHAW FACTORY MANAGEMENT SERIES MATERIALS AND SUPPLIES PURCHASING METHODS— STANDARDIZING YOUR MATERIALS— STORES KEEPING— STOCK RECORDS— INVENTORIES A. W. SHAW COMPANY CHICAGO NEW YORK LONDON 1921 THE SERIES: BUILDINGS AND UPKEEP; MACHINERY AND EQUIPMENT; MATERIALS AND SUPPLIES; LABOR; OPWION AND COSTS; EXECUTIVE CONTROL. Copyright 1915, by A. W. SHAW COMPANY Entered at Stationers' Hall, London HUNTED IN THE UNITED STATES OF AMEBIC* TS \ 55 M + CONTENTS I— PURCHASING METHODS Chapter Page I BUYING BY THE PROFIT TEST 11 Finding the final cost (11) — How managers calculate savings by capitalizing the economies (12) — When equipment may profitably be increased in proportion to the force (13) — How the United States Government balances final economy against first cost (15) II KEEPING IN TOUCH WITH THE MARKET ... 17 C Developing sources of supply for quick delivery (17) — Find- s ing the plant to handle the exceptional job (18) — How one purchasing agent organized his sales literature (22) — Learning the trade customs (25) Si III SUPPLYING THE FACTORY'S ROUTINE NEEDS . . 26 r Continuous purchasing of raw materials enables the buyer to • J build on experience (26) — How standardization gives oppor- tunity for economies (27) — Four ways of purchasing for routine needs (33) IV SPECIAL PURCHASES 36 J Buying on a service-proved-by-test basis (40) — How to place orders in an unknown and limited market (40) — Getting in touch with supply sources for special needs (41) — How Edison purchased under emergency conditions (43) V DECIDING WHETHER TO BUY OR MAKE ... 45 When to purchase minor parts outside at a price higher than the factory's cost (45) — Why home manufacture may be ad- visable (47) — How buying may build up your competitor (48) — Does it ever pay to manufacture an article at a loss? (51) VI HOW PRICE AND SERVICE ARE SECURED ... 53 Analyzing the supplier's attitude (53) — How one manager dealt with competitive prices (54) — Keeping purchases on a merit basis (57) — Developing a proprietary source (59) VII RECEIVING AND INSPECTING PURCHASES ... 65 How to provide for incoming shipments (65) — Keeping tab on deliveries (66) — Checking in purchases by departments (67) — Making reports on goods when they enter the plant (68) CONTENTS VIII PURCHASE FORMS AND SYSTEMS .... 72 How a definite policy for handling requisitions prevents losses and controls waste (76)— When committee purchasing pays (78) — Handling purchasing details with a minimum of clerical labor (78)— How to check invoices and receipts in the purchasing department (81)— Recording purchases in the small concern (83) II— SETTING UP MATERIAL STANDARDS DC ELIMINATING GUESSWORK IN BUYING ... 89 Protecting quality by purchasing to specification (89) — Where specifications originate (94) — Giving the supplier a definite idea of factory needs (95) — How to prevent adulteration or substitution (96) — When to purchase on the strength of the supplier's reputation (97) X PROVING MATERIALS IN THE FACTORY ... 99 Making the shop a laboratory for studying materials (99) — Submitting material to a service test (100) — Checking service tests by the laboratory (101) — When shop tests are the only means for insuring quality (102) — Testing for quality with inexpensive equipment (103) — How one concern protects it- self by unique tests (104) XI OUTSIDE HELPS IN SETTING STANDARDS ... 107 How the manufacturer profits by the experience of the con- sumer (107) — Working out a comparative complaint chart (108) — Cooperating with the specialist (111) — How the gov- ernment, educational institutions, and associations advance factory practice (115) XII HOW TO DRAW SPECD7ICATIONS 119 What the specification should contain (119) — Knowledge of the various sources prerequisite (120) — Prescribing the sam- pling (126) — Twenty-four standard rules for drawing sound specifications (129) III— STOREKEEPING XIII CONTROLLING STORES LIKE CASH .... 135 Losses due to lax control of supplies and materials (135) — Centralization essential in storekeeping (137) — Working out an adequate system for the small factory (138)— How office records are used for checking the storekeeper (138) — Holding the workmen to strict economy (142) XIV HOW TO IDENTIFY AND INDEX STORES ... 144 Does the classification of stores pay? (144)— Requisites for a good indexing system (147)— The mnemonic system (147) —The numerical system (149)— Physical arrangement of the storeroom (151) CONTENTS XV WHERE TO LOCATE THE STOREROOM .... 154 Why many storerooms are located haphazard (154) — How manufacturers find the strategic position for raw materials and finished goods (155) — Plans that make the badly placed storeroom more efficient (157) XVI DELIVERY METHODS THAT EXPEDITE WORK . . 160 Meeting routine needs by setting standards of consumption for each department (160) — Securing flexibility in the delivery system (161) — How manufacturers link the supply room with the workmen to prevent loss of time of employee or machine (162) XVII HOW MUCH STOCK TO KEEP ON HAND . . 171 Regulating the amount of inactive stock (171) — Why a stock specification is desirable (172) — Determining the manufac- turing quantities (174) — How to prevent overstock (177) — How one manufacturer solved this problem by making finished units for stock (179) XVIII FORMS AND SYSTEMS FOR STOREKEEPING . . 184 Storekeeping principles for large and small factories (184) — Keeping track of materials, supplies and tools by depart- ments (186) — How to handle for orders for special tools and fixtures (190) — Classifying the duties of the storekeeper and stock clerk (192) XIX HOW INVENTORIES ARE HANDLED IN TEN PLANTS . 198 Taking the inventory in minimum time (198) — Holding each foreman responsible for his department (201) — How to list obsolete material (203) — How the Chalmers Motor Company handles inventory in one day (207) — Keeping perpetual in- ventories (210) — Making inventory valuations (211) PLATES Passing of the Rule of Thumb in Handling Materials . . Frontispiece Winning the Cooperation of Salesmen ....... 19 How to Keep Purchase Records 19, 38, 91 Getting a Perspective on Items and Sources ...... 20 How to Handle In-Shipments 73, 74 Testing for Quality 92, 109, 110, 127, 129 Storage Methods Which Cut Costs 37, 38, 55, 56, 74, 145, 146, 163, 164, 199 Identifying Stores 56,164,181,199 Delivery Methods Which Facilitate Production . . . . 87, 38, 182 Keeping a Record of Stores 164, 800 Well Arranged Tool Departments 181,199,200 FORMS I Checking against an Overstock of Material . II Listing the Materials for One Machine III-V Card Index Records for Every Item Purchased VI-VII Short-cut Records for Incoming Shipments . VIII-IX Recording Quotations on Staple and Special Articles 31 31 61 67,69 75 8 CONTENTS X-XI Requisition and Purchase Order Forms XII-XIII Receiving Notice and Order Record XIV An Invoice Register for the Purchasing Department XV Perpetual Inventory Record for Each Class of Material XVI Scoring Service on a Quotation Card . XVII-XVIII Keeping Records without a Stock Clerk XIX-XXI Standardizing Purchasing Forms . XXII-XXIII Reporting on Tests of Materials or Supplies XXIV Uncovering Economies by Service Tests XXV How the Government Handles Specifications XXVI-XXVIII Cutting Down Routine in Buying XXIX A Record that Indicates When to Order XXX Filing Suppliers' Quotations XXXI How Executives Approve Specifications XXXII A Final Check on the Cost of New Work . XXXIII Getting a Finished Stock Estimate XXXrV An Assembly Chart for Machine Parts XXXV Estimating Available Stock XXXVI Watching Every Stock Account . XXXVII Accounting for Receipts and Withdrawals . XXXVIH-XL A Three-Form Record System for Raw Materials XLI Simplifying the Stores Requisition XLII Keeping a Daily Inventory on Material XLIII How to Handle the Requisition for Special Stock XLIV Weekly Reports on the Consumption of Supplies XLV Card Records of Stores Carried in Stock XLVI-XLVIII Checking on the Deliveries to the Storeroom XLIX How to Watch Shortages Every Week L Teaching the Correct Use of an Inventory Tag LI-LIV How Four Forms Reduce Inventory Work . LV-LVI Taking Inventory in One Day LVII-LIX Classifying and Checking Materials and Product 76 77 79 79 79 82,83 84 93,95 103 121 139 141 141 173 173 175 175 175 175 177 186 187 189 189 191 195 201 203 205 211 FIGURES I How the Purchasing Agent Keeps Up with His Markets . . 23 n Finding the Right Time to Buy 28 III How Much to Buy at Once 29 IV Adjusting the Terms of Purchase to Market Conditions . . 30 V How to Purchase for Routine Needs 33 VI Buying under Emergency Conditions 43 VII Special Factors in the Problem of Whether to Buy or Make . . 47 VIII Storing Data for Specifications 123 IX Eleven Ways to Link Supply Room with Workmen . . .165 X A Blueprint Plan for Taking Inventory 204 Part I PURCHASING METHODS AUTHORITIES AND SOURCES FOR PART I Chapter I. D. R. Swinton, mechanical engineer, of the Tuthill Spring Company, H. M. Wilcox, formerly of Miller, Frank- lin & Company, and Mr. Porter contributed this chapter. It is based upon a study of purchasing methods in the Kohler Com- pany, the Bureau of Docks and Yards of the United States Navy Department, a textile mill, machine shop, and other plants. Chapter II. Contributed by Johnson Heywood, former assistant in purchasing with Stone and Webster, and Mr. Porter. Chapter III. Contributed by Mr. Rockwell and Mr. Porter' who have drawn on the experience of Miller, Franklin & Com- pany, efficiency engineers; Irving A. Berndt, head of the better- ment department of Joseph T. Ryerson & Son, F. A. Marsh, purchasing agent, Link-Belt Company, A. B. Farquhar Com- pany, a Brockton shoe manufactory, a New York paint company, and others. Chapter IV. Written by Mr. Porter. The plants from which the instances cited are drawn are the Lamberson Japanning Com- pany, A. B. Farquhar Company, Edison Storage Battery Com- pany, a Connecticut brass company, and a printing company. Chapter V. Contributed by Ford W. Harris, consulting en- gineer, formerly with the Westinghouse Electric and Manufac- turing Company, and Mr. Porter. The specific lines of manufacture referred to are household utensils, hardware, umbrellas, electrical devices, engines, chains and automobiles. Chapter VI. Contributed by George H. Cushing, of the Black Diamond Publishing Company, and Johnson Heywood, in collaboration with Mr. Porter. The chapter presents the pur- chasing methods of the Commonwealth Edison Company, A. B. Farquhar Company, an ore-boat line, and other concerns. Chapter VII. Contributed by Sterling H. Bunnell, works manager, Griscom-Russell Company; Chas. W. Bane, and J. W. Wiley, assistant secretary. The Meyercord Company. Chapter VIII. This study of purchase forms and systems is drawn from the experience of Mr. Porter; J. V. Hunter, mechani- cal engineer; A. J. Borget, Velie Motor Vehicle Company; N. Cannon, purchasing superintendent, Joseph & Feiss Com- pany, and W. J. Miskella, president, Lamberson Japanning Company. Written by Mr. Porter. I BUYING BY THE PROFIT TEST SOUND buying for any of the factory's needs — construction, equipment, material, supplies — means, except in a few emergencies, buying what will return the greatest permanent profit. Purchasing as well as production is only a step towards the factory's final goal of dividends. But to buy into profits demands foresight; good purchasing calls for the ability to cal- culate ahead and anticipate savings or advantages from invest- ments not yet made. Before a contract is signed covering the raw material for many months ahead, the purchasing agent and those working with him must determine what material gives the most suitable product with the least outlay. To do so involves not only comparative tests of greater or less intricacy, but also difficult estimates of future direct and indirect charges. Comparative figures were recently made on the cost of a wood constructed factory with engine drive, as against a fireproof construction, with electric drive and automatic sprinkler protec- tion. The cost of the former, including all machinery, was $28,000, as against $38,300 for the latter. The difference in insurance premiums, however, amounted to more tha^i two thousand dollars per year in favor of the more expensive plant. This saving, it is seen,' is almost a twenty per cent dividend upon the difference in cost. Thus, without taking into considera- tion numerous other economies which the higher class structure is certain to give — such as less maintenance expense, less wear and tear on equipment, reduced depreciation charges on both buildings and machinery, a higher marketable value, the attrac- tion and holding of a better grade of help, better sanitation, less 19 PURCHASING METHODS cost to heat— the more expensive building was amply justified. And so it is in many instances. Capitalizing the real economies shows the higher priced article — be it a building, a piece of equipment, a system of heating and ventilating, a paint for interior use, metal window frames and sashes and factory ribbed glass, permanent roof covering, power units, fuel, supplies, raw materials of manufacture, or what not — to be actually the cheaper, though the first cost be ten, twenty or even fifty per cent greater. "The best is the cheapest in the end" almost invariably; and a shrewd mathematical forecast will usually prove the rule. Those manufacturers who have shown themselves most progres- sive do not spend their money on high-class construction, equip- ment and stock for the love of spending it or because their innate sense of the artistic compels them to. It is a case of matter-of- fact utility, prospects of greater actual returns on their money, pure and simple. Every manufacturer will recall how a grade of steel, of lumber, of oil, of varnish, cost more but saved double that excess when it came to actual use. Take window construction. Manufacturers have come to realize that metal. frames with ribbed glass pay, regardless of the requirements of the fire-insurance companies. These should be provided throughout, even though the purposes of fire-protec- tion do not so require. The practice formerly was to put metal frames and sashes only where absolutely required and wooden frames and sashes elsewhere. Regarding the actual economy of the metal frames and sashes, a manager who recently completed a new plant thus fitted throughout, commenting upon the comparatively small amount of heat required in his new factory, states : "We attribute this result largely to the use of metal sash, properly grouted into the walls, thus making them absolutely air-tight and heat leak-proof. Our experience leads us to believe that we may safely figure the exposure of metal sash properly grouted into the wall at the same ratio as solid brick walls. "Ordinary brick is quite porous. Window glass, on the other hand, is non-porous, so that, while it may offer greater radiating surface, the outside wind pressure cannot penetrate and the leakage is nil. At any rate, be that as it may, the fact remains BUYING FOR PROFIT 13 that we are heating our building with less than half the theoret- ical amount of radiation, based on tests made with wooden sash. It seems fair to assume, therefore, that it requires more radiation to overcome the leakage around the ordinary wooden sash than it does to take care of the glass exposure." This manager found that, capitalizing the savings in fuel con- sumption for heating purposes alone, he was more than justified in using metal frames instead of wood. For every dollar saved on the coal bill he could afford to invest sixteen dollars and sixty-seven cents in permanent improvements, one dollar being the interest at six per cent on $16.67. So if he saved only one hundred dollars on his fuel, he would be justified in outlaying $1,667 more for steel windows than for wood. The numerous other advantages — more light, greater durability, less mainte- nance cost, better fire protection, hence decreased insurance premiums, if also capitalized, would swing the balance very heav- ily in favor of the more expensive article. In addition there is the saving on the investment in heating equipment and the re- duced operating expenses, another clear gain in favor of the steel frames. Thus questions of construction and equipment purchas- ing need to be solved in connection with the larger items of materials and supplies. REAL ECONOMIES FREQUENTLY JUSTIFY GREATER FIRST COST CIMILAR considerations go into every decision to purchase for the factory. Take prismatic glass. Though more costly than plain glass, it is, properly set, much superior. Plac- ing the ribs outside catches the rays of light, diffuses them and throws the light into the room without shadow. With plain glass there is no diffusion ; the light passes through and strikes the floors and walls with a blinding glare. Shadows are always prevalent and the light in general is not to be compared to the soft, penetrating and shadowless light of the prism glass. Real economy again appears, based on greater first cost. Sometimes the line of economy takes the direction of increasing equipment in proportion to the manning. This instance of an automatic grinder is typical. Both roughing grinding and 14 PURCHASING METHODS .. . . finishing grinding were being done on one machine. The method was to run a lot through the roughing process; then reset the machine and run the same lot through a second time. A time- study disclosed much lost time. So a different arrangement, based on the use of two machines, both tended by the one opera- tor, one to work exclusively on the roughing grinding and the other on the finishing grinding, was worked out. Analysis showed that a saving of forty-four and one-half per cent in the time per piece could thereby be effected. But would this increase in the output be sufficient to bring justifiable returns on the investment in one additional machine? Also what percentage of time would the machines be idle between the time the grinding is automatically completed and the operator gets the machine started again? It was found that it took the man 0.33 minutes to complete his round of motions from the time the machine was started until he returned to unload and load it again. The automatic part of the operation took 0.30 minutes. Thus, with two machines, 0.03 minutes would be lost on each machine on each operation of grinding. Hence the machine efficiency would be ninety-one per cent as compared with the old method. It was assumed that there would be enough work to keep two machines busy. The cost of a machine was about two hundred and fifty dollars. It was estimated that twenty per cent would cover the yearly charge for interest, depreciation and repairs. The operation charge per machine per year figured out fifty dollars. A twenty-cent-per-hour man was doing this work. Thus, the expense of the man per year, working full time, would be $572.00. Deducting twenty per cent from this to cover non-productive time, that is, time spent on set-ups, adjusting machines, "rest," personal needs, and so on, and taking forty-four and one-half per cent of the balance, the saving in labor by the new method figured $210.00 per year. Against this was a charge of fifty dollars for the additional machine, leaving a net saving of $160.00 per year, which is the interest on $2,667.00 at six per cent. When the wisdom of making a purchase of new equipment, or, for that matter, any item entering into manufacturing from the "roof over the processes" on down to the ore, leather, wood, BUYING FOR PROFIT 15 clay and glue, or the brushes used to paint the product, is figured out in this way, when in each instance the economies are capitalized, purchasing is put on a true scientific basis. Senti- ment, prejudice, favoritism, circumscribed vision, ultra-conserva- tism, snap- judgments, lowest first cost — in fact, all the "bogies" of unscientific buying, are automatically ruled out when the wisdom of purchases is so tested. This is the method very generally followed by the Government. In the Bureau of Docks and Yards of the United States Navy De- partment, for instance, before any purchases of new machinery are made, the difference in original cost is balanced against the difference in economy guaranteed by each bidder. If in the market for steam machinery, for instance, the Bureau requires the bidders to guarantee the steam consumption of the several outfits proposed, and assuming ostensible values for the cost of fuel and rate at which it will evaporate water in the boilers, they calculate the probable saving in fuel per year. The differ- ence in cost of fuel is taken as an annuity for a term of years conservatively estimated to represent the life of the machinery, and the present worth of this annuity is then used for comparing bids. It is merely a matter of arithmetic to show that the payment of one dollar a year for fifteen years would be equivalent to a capital in hand of $9.71, if that capital were earning interest at six per cent, compounded annually. Hence, it is assuredly justifiable to spend $9,710 for an outfit that will save $1,000 a year for fifteen years, capital valued as above. Almost invariably, too, the equipment designed for most economical operation would be the most smoothly running and in every way the most reliable outfit. Similarly, small differences in the operation of an outfit, in a plant of any size, will on occasion show even greater savings in favor of one or another of the outfits tendered. The makers are required, according to the specifications of the Bureau of Docks and Yards, to guarantee the saving claimed, and if on test the plant shows a less saving, an amount equivalent to the shortage, calculated on the basis of an annuity as explained, is withheld. This arrangement makes the bidders extremely careful not to overstate the case in favor of their own equipment. 16 PURCHASING METHODS How the government handles these matters contains sug- gestions for the manufacturer. He cannot perhaps apply the method in exact detail to all his purchases, but it would seem that he could adopt it with regard to competing sources of raw materials and standard equipment, which represent so large a money outlay, in view of the wide range of choice offered and the keen competition among rival suppliers. Or, the problem may be whether to buy his power of a central station, or make it himself. Sentiment or trivial considerations should not lead him into making the wrong move. It is per- fectly possible to reduce the matter to a cold business proposi- tion. Sometimes it works out to the advantage of the central station ; other times, when offhand the advantage seems to lie in that direction, capitalizing the relative economies will show the advantage to be precisely the reverse. So, in the matter of every large purchase, and especially those materials and supplies which figure large month after month, tests and figures should decide. The manager should insist on estimates being worked up for the various competing items, and so learn their respective merits unbiased by the enthusiasm of the moment. If the calculations have been made properly, the best course to pursue in purchasing will be evident II KEEPING IN TOUCH WITH THE MARKET ONE week the purchasing agent for a Chicago factory nodded a deferential salesman his routine order for a thousand pounds of solder; the next he crowded into a market flanked with sales managers directed to discourage heavy buying, and at the earliest moment pledged various suppliers to contracts for ten tons. "War had been declared in Europe. To purchase well in and out of season calls for the foresight, enterprise and thorough knowledge of markets which enable the buyer to save his concern in no matter what crisis among prices and deliveries. The morning newspaper needs to speak to the purchasing agent in terms of his supply sources throughout the world. His insurance against high prices, poor quality and shortage is always to keep the entire field of sources available. Thus to study the strategy of your markets merely requires energy and method. It is easy to obtain a list of concerns handling any particular product in any given territory. In the course of several years' experience with them, a buyer can eliminate the unreliable concerns and get a good line on the ability of each to make deliveries. This is slow work, however, and not so conclusive as other and quicker methods. Surprisingly often a purchasing agent will overlook a concern literally ' ' under his nose, ' ' which is able to make quick deliveries from stock on material which he has always bought from a dis- tant source, thereby inviting costly delays. Frequently, too, you can find manufacturing plants that are able to turn out products which they do not attempt to push as their standard lines. There is a wonderful chance at present for further cooperation 18 PURCHASING METHODS in America along this line, between factories which might give service to nearby enterprises and purchasers who might develop sources close at home. Eecently a buyer was in the market for a large quantity of an assembled product consisting of drop forgings, bolts, pins, and so on, all to be galvanized, and each assembly to contain about forty pieces. Inquiries were sent to all recognized manufac- turers in this line, but only two bids were received and these varied widely. As a last resort, the inquiry was sent to a machine shop in a neighboring city, which had no facilities for galvaniz- ing. This shop some time before had turned out several thousand special bolts on which the workmanship and delivery had been excellent. When its bid on the new assembly proved slightly lower than those received from the other bidders, therefore, it was decided to award this shop the contract. The owners agreed to install a galvanizing tank inside of a month and asked that the purchaser provide an inspector in their plant to pass upon the parts in process and the finished product. This was done and where the inspector found shop conditions which could be changed to the end of obtaining better or quicker work, his suggestions were gladly accepted. The contract was delivered strictly according to schedule, the workmanship was all that could be asked and what was more, the manufacturer made a satisfactory profit. By careful investigation, the purchasing agent often finds such small shops which are in a good position to turn out special work beyond their line. Not infrequently, too, he will find some small shop with a re- sourceful manager who will undertake exceptional jobs in his line with which the big fellows will not bother. A large steel mill in the Chicago district was about to refuse a large order for long Tee-irons, furnished with one coat of japan baked on, because it had not the facilities for this kind of work and could not, moreover, locate an enameling shop which was willing even to bid on the job. As a last resort, the purchasing agent called up the head of a small japanning works, only a short time in the field, but which already had come to his favorable attention. "Yes, we will be glad to bid on this order," was the response, after a few moments of calculation. "I shall have it ready for you tomorrow.' ' Nothing gains the cooperation of salesmen like a reputation for discretion on the part of the purchasing agent. The office shown below illustrates how the purchasing agent keeps other affairs out of the way when the salesman calls. The office at the top (Baker-Vawter Company) is equipped with filing room in which the buyer's records are always at hand, but confidential quotations are given privacy DEVELOPING MARKETS 21 True to his word, the manager of the japanning company sent in his bid the next day and the purchasing agent was agreeably surprised at the reasonableness of the figure. He had felt, owing to the lack of competition, that he would be held up for a fancy price. He was in some doubt, however, of his bidder's ability to make good. When the latter explained his method for handling the order, doubt gave way to admiration. The japan- ning man 's scheme was this : Realizing the impossibility of han- dling such a job economically in the city, he planned to put up a cheap structure in the country, handy to a switch, where he would have plenty of room to store the Tee-irons and have no cartage to pay. Then, instead of building an ordinary oven, he proposed to construct one on the hood principle, which could be lowered over a pile of irons. The steam coils he would place in a pit beneath. Another pit nearby would serve for dipping purposes. The operation then would resolve itself into dipping the pieces several at a time, stacking them up on an open plat- form truck and wheeling the truck to a point over the steam coils, then lowering the hood and turning on the steam. By the time the one charge was baked, another would be ready. He had his costs figured out in detail and although he had added a liberal margin for contingencies and profit, his price, owing to the exceptional economy of his method of handling the work, was remarkably low. This may be the only job he will do at the special plant. But the order is large enough so that its cost will be completely absorbed. The chances are, however, that having the facilities he will get many more such jobs, from this and other buyers, for which he will have his plant free of investment charges. Thus it is that persistent and broad-gaged purchasing agents fortify themselves for special requirements, by searching out small shops which can be developed into permanent sources of supply. A purchasing agent thoroughly experienced in buying factory supplies on the Pacific coast recently took the same position with a construction company in the Middle West. His ignorance of many of the tools and materials and his unfamiliarity with the markets staggered him. Before buying for the job must begin, he had a margin of only thirty days in which to learn his markets. 22 PURCHASING METHODS _____ Campaign plans full of suggestions for any purchasing agent were at once launched. His first step was to secure an authentic buyer's directory, the telephone directories of all large nearby cities and to subscribe to several trade papers, the leaders in the fields of electricity, lumber, iron and steel, railway, hardware and building. Then, with the help of the superintendent of construction, a compre- hensive list of materials that would probably be used was drawn up. With this list and the buyer's guide, trade papers and telephone directories to furnish the names, letters were written advising of the work under way and asking for catalogs. This brought a flood of sales literature, all of which was carefully examined by the purchasing agent personally. HOW ONE PURCHASING AGENT ORGANIZED HIS SALES LITERATURE CO many jobber catalogs were found to be identical, that all but the most comprehensive in each line were destroyed to save space. Those covering similar lines of material were grouped, indexed according to the firm name and cross-indexed according to class of material. A list of jobbers and manufac- turers was also made up, classified according to materials handled or produced. This was known as the inquiry list and as time went on other names were added. As experience showed that a concern was unreliable or undesirable, its name was dropped. A small army of salesmen and sales managers responded to the first letters sent out, in addition to the catalogs. Every one who called was given a courteous hearing and the buyer endeavored to get on a personal basis with them all. He realized that as a purchasing agent he would hear only the salesman's talk about his line and the firm, but as "Bill Jones" he would get "Tom Bobinson's" real feelings and intimate knowledge of his particu- lar line. So the human side was developed and each salesman encouraged to talk. Next a trip was taken to neighboring jobbing centers, after appointments had been made with the leading houses in the lines in which he was interested. These visits were made primarily to see what classes of materials were actually stocked and how large the stocks were, and secondarily, to become acquainted DEVELOPING MARKETS 23 with the heads of the firms. It is always best to talk to a man high in authority when bad deliveries or a break-down calls for the use of the long distance telephone. The knowledge the buyer gained of the actual stocks carried by jobbers was of great value in placing orders when a small quantity of material was needed in a hurry. He also visited various manufacturing plants for the purpose of noting the exact kinds of work which they were prepared to do, the character of the equipment and the apparent ability to handle large contracts expeditiously. Copious notes were made of conditions as revealed on these trips and formed part of the buyer's confidential in- formation book. Thus a good general knowledge of supply sources was obtained. To determine the most satisfactory houses with which to deal, it only remained to compare prices and qualities, which was done when the actual buying began. Upon going into the market for lumber, the wide difference in trade customs in different sections of the country was forcibly Catalogs Trade Journals Newspapers and Magazines Technical and Reference Works Government Reports Trade Information Bureaus Buyers' Guides Salesmen and Agents Trade Associations Commercial and Social Clubs Conventions Samples Competitors' Sales Rooms Product at Factories Permanent and Special Exhibits By Reference to How the Purchasing Agent Keeps Up with His Markets By Inquiry among By Inspection of FIGURE I: Three methods by which the_ buyer keeps in touch with constantly changing markets are here charted. Highest efficiency in his office necessitates an accurate ana a flexible system under which he can file for instant reference the information gleaned .from catalogs and trade journals. The value of such a system is greater if it contains records of inquiries among salesmen, agents and other sources, as well as reports of all inspections made t>y the buyer brought to this buyer's attention. His experience had been in the northwest, where white pine and fir were the standards. The rail haul from mill to consumer had been very short and the price of rough lumber had therefore been less than that of 24 PURCHASING METHODS finished. In his new location, yellow pine was the only available wood, and there was a long rail haul from the southern mills. It astonished him to find that finished material was several dol- lars cheaper than rough because the decreased weight made the freight per thousand feet much less. The grades and qualities were also entirely different from those to which he had been accustomed. His first order would require several million feet, all of which would have to be delivered within ninety days. It appeared impossible for him to get any accurate information in the short time available as to the southern lumber manufacturers. St. Louis, one of the largest yellow-pine markets, was within easy distance of the point of delivery, however, so he made a trip to that point, and submitted specifications to a half dozen brokers or mill representatives and also to four or five large lumber dealers who carried heavy stocks in their yards. Prices for mill shipments from both classes of bidders were about on a par, so the order was split to give several mills each a part of it. This not only prevented one mill from being swamped, but also in- sured the purchaser against the chance of accident, flood or strike tying up his shipments. In addition, all the orders were placed through concerns which carried stocks in St. Louis. This was a wise precaution, for the purchasing agent saw that he would need at various times carload lots of lumber on such short notice that they would have to be supplied from stock. His judgment was correct and when his urgent need came, he found the yards in a grateful frame of mind, ready to do everything possible to get his requirements to him in record time; and, what was equally to the point, not to take advantage in the matter of price. PROFITABLE BUYING DEMANDS CLOSE OBSERVATION OF CONSTANTLY CHANGING MARKETS JN getting at the "where" of the markets, class journals and trade papers are of great value ; they put a buyer in direct touch with the manufacturer. Most manufacturers of high-grade products realize the benefit of direct contact with the consumer and know that the surest way to do this is to advertise in the proper class and trade organs. Every wide-awake purchasing DEVELOPING MARKETS 25 agent is habitually a reader of the advertisements and market reports given by these papers, having thus a perspective on price movements from the viewpoint of the industry as well as through the general and special quotations of the individual concerns with which he has listed his wants. It is almost a rule, indeed, that the amount of large buying a man does through a jobber is a sure index of how lazy he is. This applies to large plants only and is not to be construed to mean that the jobbers can be or should be eliminated. On the contrary, the jobber has very real functions to perform. The three greatest ones are to supply stock for quick delivery, to furnish small assortments and to handle the business of the smaller concerns whose individual orders a manufacturer could not handle profitably, but which, in the aggregate, are large. To learn all the trade customs in various lines, there is no short cut. Careful study of catalogs, the willingness to see and learn from all salesmen, and when possible, the personal examination of material for the sake of familiarizing yourself with it, are all essential. Some purchasing agents do not seem to realize the value of familiarity with the details of trade cus- toms and by that failure, fall in the estimation of the salesman. The latter, when he realizes that a purchasing agent has accurate knowledge of a line, is put on his mettle and freed from any temptation to take unfair advantage (Figure I). There are, of course, a multitude of customs which must be learned if one wishes to purchase rapidly and well — many of them apparently arbitrary. Why, for instance, should rubber insulated wire be sold by the foot, while weather-proof wire is priced by the pound? A pound is the unit for steel or iron wire, but a foot is the measure for wire rope, which, by the way, is one of the few standard steel products that is not governed by the pound price. The movement among manufacturers to standardize list prices of many items such as valves, pipe fittings and tools is making the work of the buyer easier. Only a small part of the field has been covered, however, and until this work is completed, the successful purchasihg agent must not only be a keen business man, but in addition a mental encyclopedia covering many trades. Ill SUPPLYING THE FACTORY'S ROUTINE NEEDS DOES the shop receive exactly what it wants without delay and without the creation of a burden of carrying charges, depreciation and obsolescence on an unnecessarily large lot of supplies and materials? This is the chief problem in supplying the everyday needs of the factory. The elimination of items and qualities that prove expensive, of high prices, of express transportation rates, and of telegraphic orders for rush deliveries due to "shortages" are its factors. The solution lies in knowing your sources, your specifications and requirements and the conditions in the shop. Experience tables of past quotations, prices paid, service and quality are to be built up as the first requisite. They enable the buyer to tag unreliable concerns and inferior material. More- over, this information carefully tabulated and filed is invaluable, if the purchasing agent is changed. Standardization of his experience means that his successor can steer out around his once-paid-for mistakes. To buy when the market is naturally low is basic. This point may to advantage be visualized graphically. In the office of a New York buyer, for example, the market prices of all the prod- ucts in continuous demand by the factory are charted for the preceding ten years. A glance at the chart shows that the price of this material is, as a rule, lowest in August, of that in Novem- ber, and so on. Close study of market conditions and the bring- ing of the chart down to date weekly have given this purchasing agent an unusual insight into price trends (Figure II). On the other hand is the trend of demand. The purchasing ROUTINE BUYING 27 agent must have his similar mechanism for foreseeing the wants of the organization itself. He needs to be intimately familiar with and even actually a part of the operating system. Knowl- edge of peculiar needs in both product and equipment will scarcely be gained in any other way (Figure III). To know the why and wherefore behind the specification means more intelligent buying. Every purchasing agent bargains on the basis of specifications and, in the course of supplying stock needs, these become standardized. Quality once attained is per- manently assured. The buyer's knowledge of what raw materials are to be had, with qualities and costs and how suppliers stand on deliveries and so on, needs to be capitalized and included in the specification. Opportunities for large economies in standardization also await the live purchasing agent. A buyer of this sort in a New England machine-builder's plant, within a month after replacing an ' ' old style ' ' purchasing agent who spent most of his energies in dickering over prices, more than earned his salary by having the bolts and screws in the product fixed at a standard size and gage. Similarly a purchaser in a large factory in the Middle "West standardized the oil. Previously, seven different kinds of oil were used in the various departments, due to the prejudices of the men. By the use of an oil-testing machine, he found the one best oil. The resultant saving netted several thousand dollars annually. In another instance, some forty-odd different kinds of files were reduced to seven, without in any wise inconveniencing the shop. A much smaller stock in aggregate was thus made pos- sible, with a decrease in investment and in storage space re- quired. Because, too, a larger quantity of each style and size of file could be carried, the purchasing agent obtained better prices. The saving was thus two-fold. It is necessary to be on the watch constantly for new ideas, new materials or supplies which may increase production, lower costs, or enhance quality, says H. A. Russell, of the buying staff of the A. B. Farquhar Company. In order to make sure of the result, however, most new things must first be given a thorough tryout in the factory. Verbal reports seldom are suffi- cient and may lead to disputes later on. Accordingly, a definite 28 PURCHASING METHODS form has been devised (Form XXIII) for getting a report from the foreman in whose department the material will be used. When the salesman calls again, if the report meanwhile has been returned, it is shown to him. This indicates where the material is falling short, if at all, and why. Whether he will be given an order depends on a sample which will receive a favorable report. Every progressive buyer, in fact, today takes the "show me" attitude with respect to the things he pays out the company's money for — materials, supplies, services, tools, construction. He insists upon what he has found to be the fit standard of quality tem m fhl ■» «m wr m m m. urt. tcr. «*. « ■" Z"S j£ L S 3 _ ^-_ „„ _ _3z: £ _ _ 3=:Zj=I £ I = rl SZ j £.zl±Z-\ I \ *, 25 30 35 40 45 50 FIGURE II: New York wholesale prices in cents and fractions per pound on granulated sugar are here shown graphically by weeks for four years, (A), (B), (C), (D). Such figures may be gleaned from government bulletins, newspapers and trade magazines. In handling these figures, prices were used for the fifty-two or fifty-three successive Thursdays of each year or performance and sees that he gets it by testing. He buys nothing on chance or somebody's say-so or out of friendship. For he realizes that standardized conditions, low and stable costs and uniform quality of output are impossible unless the materials and instruments of production are likewise standard. TESTING RAW MATERIALS IN THE LABORATORY KEEPS A CHECK AND BALANCE ON PRODUCTION CO the large manufacturer equips his plant with laboratories — physical and chemical — wherein such tests as are necessary may be made with every facility. And he does not leave their location and arrangement to after-thought, but provides for them in his original plans, in order that they may function to the best possible advantage. ROUTINE BUYING Nor does he stop at providing for routine testing, but equips his laboratories to reach out into the future and develop new and better methods and processes, materials and equipment. Every pis the item in Constant Demand or Casual or Open to Substitution? - Demand - - List Your Future Needs as to « — - Are Markets Uncertain as to Quantities Sorts Qualities Changes in Product Quantity? Quality? Delivery? How Much to Buy at Once - Supply - Will Supplier, on Conditional Orders, Anticipate Your Needs ami Maintain Sources? - What Alternative Sources of Supply Do You Have? - How Does Price Vary with Quantity? - How Does Quality Vary with Quantity? -How Does Final Cost Vary with Quantity? ■ Price L How Does Delivery Affect Price? FIGURE III: Demand, supply and price must be taken into consideration in deciding how much to buy at once. The questions listed under each head suggest the factors that enter into the problem. Right buying is based on definite knowledge of the conditions suggested in the chart big item on the purchase ledger is constantly under the micro- scope which searches for more value and lower cost. If the plant is small and a private laboratory is not feasible, close connections are established with commercial laboratories whose services can be secured for a small fee. Many times, however, such tests as can be devised in the workrooms of the factory, out of the experi- ence of the men, answer every purpose. These methods have a double value. As a part of his inspec- tion system, testing his raw materials provides the manufacturer with the necessary check and balance on production to hold it up to standard. As a factor in creating demand and holding trade, it is primary and fundamental ; nothing is so potent in this respect as a standard of quality. One does not buy a certain favorite brand of soap solely because advertising has made its name unusually known, but also because in quality it is satis- factory and uniformly good. A careful buyer also watches the other end — the consumption and output of the factory. These he gages by keeping tab on so PURCHASING METHODS equipment, plant capacity and sales. If there is a breakdown of machinery or interruption to production, the consumption of course is decreased. Sometimes, this allows an opportunity for advantageous delay in placing or pushing a contract. Moreover, definite and vital relations exist between the pur- chasing and sales departments, though frequently they are not recognized. The purchasing agent buys when the market is low and often several months in advance of the needs of the factory in order not only to get the best price but also to give the supplier - Single Contract for One Lot Simple Transaction without Uncertainties Periodic Deliveries at Agreed Prices Insures against Price Advances at Cost of Price Recessions How to Adjust Terms of Purchase to Market Conditions Periodic Deliveries at Prices Then Current Assures Seller against Loss and Frees Him from Temptation to Scant Quality or Service Deliveries at the Then Prices, between Fixed Limits Agreed Maximum Price Protects Buyer and Minimum Price Enables Seller to Carry Stock At Cost Plus an Agreed Per Cent Supplier Protected and Warranted in Unusual Developments to Serve the Buyer FIGURE TV: Five methods of adjusting terms of purchase to market conditions are here shown. Each method has one or more distinct advantages, as indicated at the right. .The choice should reflect the best possible adjustment between the demands of the business and conditions in the market time to fulfill his contracts. One adding-machine manufacturer, for instance, carries a two and even a three years' supply of his special steel as a protection against some unforeseen interruption in the supply, as a strike or lockout might bring about. To pro- vide intelligently for such basic needs of the factory, an estimate of the volume of sales for the coming year is necessary. The sales manager of one plant makes out this statement in detail at the beginning of every fiscal year. It covers the probable sales for each commodity turned out by the plant. But the estimate is not sent to the purchasing agent until it is examined and ap- ROUTINE BUYING 81 FORMS I and II: A good check against the overstocking of materials is afforded by this stock and order record sheet. A list of all machine parts is analyzed by the purchasing department and all items that must be bought from outside sources are noted on the material-purchase record proved by the president. This serves as a healthy check on the estimate of the sales manager. Long-time purchasing contracts are then made with the statement as a basis. If the product is one that was manufactured in identical form the previous year, the buyer's task is simple, provided he has kept the proper records. Changed or new models, however, will require first a PURCHASING METHODS new list of parts from the engineering department, together with the proper drawings. It then becomes the duty of the purchasing department to analyze these lists and ascertain which parts must be purchased outside. At the A. B. Farquhar Com- pany such outside material is entered on 5x8 cards (Form II) and filed in a standard card-index drawer file. Every essential fact is set down, so that from the cards material can be ordered for machines in any quantity. This information is brought into active use by copying it on the Stock and Order Record shown as Form I, which is an 8!/2xll sheet punched for a standard binder. While on the cards only the material for one unit is listed, on Form I the total quantities that will be required are stated. All columns except the one headed ' ' Quantity on Hand ' ' are filled in by the purchasing department. For this the infor- mation is furnished by the production department. The last two columns headed ' ' Ordered ' ' are for the initials of the firms from whom the material is purchased. A second column is provided in case all of the material wanted is not ordered at the same time. This record (Form I) affords a splendid check against the overstocking of materials. While it is still possible to have a surplus of completed machines, the parts will be evenly balanced. Such parts as are regularly kept in stock are, of course, not entered on either of these forms, but are controlled by maximum and minimum stock limits. Daily the stockkeeper renders a report of items that have reached their low limit, stating also the desirable ordering quantity. This is really a requisition on the purchasing department to buy. If, however, owing to a decline in the demand or the prospect of a lower market or any other reason, the stated quantity seems inadvisable, the purchas- ing department may raise or lower it, as the situation warrants, so notifying the stockkeeper. They may also, in their discretion, alter the stock limits. In this way, the evils of overbuying and underbuying of standard materials are largely avoided. While the value of proper purchasing data can scarcely be over-emphasized, the purchasing agent who, because of reliance on them, lost his practical grasp on the factory situation and its sources of supply, would soon fail. Records after all are only an aid. To view them in their proper light requires the constant stimulus of contact with practice. ROUTINE BUYING 33 "I spend half the time away from my desk," says C. F. Marsh, purchasing agent for the Link-Belt Company. "lam educating the trade to call in the morning; the rest of the day I spend in the shop and outside familiarizing myself with market conditions. I know the requirements of the shop and in supplying its routine needs I do not wait to be requisitioned. When the market is low I ask for specifications, and buy supplies and materials in current demand for a long period." This is the keynote of large quantity purchasing to supply routine needs : Buy when the market is right on contracts cover- ing a considerable period, with frequent, perhaps monthly, shipping directions (Figure IV). Contracts may be in several forms: as straight contracts for a long period, sliding scale contracts, contracts varying with the market price of the raw materials composing the product in demand, or contracts let on a "cost plus" basis. The supplier may refuse to make a straight contract or it may not be to the How to Purchase for Routine Needs Buyer May Purchase in Open Market FIGURE V: In purchasing for routine needs, the common method has been for the buyer to go directly to the source through the open market or to own the source._ The tendency toward coopera- tive buying is evident in the increasing number of buyers' associations dealing with or owning the source of supply advantage of the buyer to tie himself down to an agreement. The buyer may then resort to the sliding scale contract, by the terms of which the price rises automatically at fixed intervals. A Chicago firm has repeatedly purchased materials at a very satisfactory price under such a contract. Three months later, 34 PURCHASING METHODS an increase of nine per cent in the original price was provided for. The purchasing agent, however, stocked up during the first three months at the lower price to meet the estimated needs of the plant during the balance of the year. But this action was Dot taken until the purchasing agent had calculated the real economy — that the interest on capital so invested, with deprecia- tion and storage, were less than the increase in price. FITTING THE TERMS OF THE CONTRACT TO THE MARKET CONDITIONS OOMETIMES the contract provides that the prices of the sup- plies and material will vary with those of the materials of which the commodity to be bought is made. Such contracts may have maximum and minimum clauses which provide that the price cannot fall or rise beyond a specified point. These agree- ments are frequent when the market is unstable and it is often expedient to make them at such a time. If the tendency of prices is upward a straight contract for a considerable period can only be made at greatly enhanced prices, which future conditions may prove unwarranted. Again, orders may be placed on a "cost plus" basis — costs plus reasonable profit. This is often desirable if there is entire frankness between buyer and supplier. The contracts involving large amounts ordinarily are approved by the president. Sometimes the final approval is left to the directorate. There are, however, certain routine needs, to supply which only purchases in small quantities are necessary. In these instances, the final approval is generally given by the shop superintendent. The practice varies with particular conditions, but the point to remember is that there should be a recognized system of approval for all contracts — with the delegation of the authority to approve based on the importance of the contract. The requirements of a purchasing department may, therefore, be summarized as knowledge of : (1) Consumption. (2) Specifications. (3) Markets. And these requirements are most satisfactorily met when it is clearly recognized that the purchasing department is an integral ROUTINE BUYING 35 part of the factory mechanism, and that it is most efficient when in close sympathy with other departments. To supply the routine needs of his factory, the manufacturer may adopt other methods than individual direct purchasing (Fig- ure V) . Sometimes he will join with others to buy supplies and materials or to develop a supply source. The New York manu- facturing bakers, for instance, combined at one time to purchase flour. Such action is seldom taken by factories in general, because the first two requirements of purchasing — knowledge of consumption and knowledge of specifications — are necessarily different for practically every plant. Moreover, the limit of price reduction by the increase of quantity purchased is soon reached. The purchaser of five carloads of coal will probably be quoted nearly, if not quite as low a price as the purchaser of fifty carloads. Still in buying many supplies and materials, there is an advantage in quantity purchasing which manufac- turers may be able to capitalize to a greater extent in the future than in the past through the cooperative spirit developed by manufacturers' associations. The possibilities along this line are shown by the cooperation of certain paper manufacturers to make their own pulp from nearby timber supplies. However, the manufacturer may deem it expedient to develop a proprietary source of supply. Sometimes the chief motive for this move is the desire to cut costs directly. A Brockton shoe manufacturer, for example, to minimize the outlay for packing lumber purchased several small tracts of timber in northern New England. The firm itself cuts the timber and ships the lumber to Brockton. At other times, however, the immediate cause for developing an independent source of supply may not be primarily the desire to reduce costs directly but rather to have alternative sources of supply. Such was the case of a New York concern which imported hard paints from Ger- many. To protect itself against the inability to get foreign supplies the company experimented, and found a formula satis- factory except as to price. The German manufacturer could still supply the paints at a slightly lower cost, but the American firm held the whip-hand. "If you raise the price," they said, "we'll make the paints ourselves." IV SPECIAL PURCHASES HAVING completed a new administration building of rein- forced concrete throughout, a Michigan manufacturer recently faced the necessity of making a one-time pur- chase of material entirely out of his experience. An unforeseen difficulty had developed. As the concrete, without excessive grinding, would not afford a smooth ceiling, it had been decided to apply a thin coat of plaster. Now smooth concrete, particu- larly on an overhead surface, is difficult to plaster ; and although an adhesive bonding coat was first applied, when the heating system was turned out, the plaster had persisted in peeling despite attempts at repairs. This condition finally had become so annoying that the man- ager had the entire plaster coat removed. Then he began to look around for some coating which would not drop off and yet pre- sent a proper appearance. He got in touch with the engineer who had designed the build- ing (and against whose judgment the plastering had been applied). "Can you find us a paint which will overcome our difficulties?" he wrote. The designer, at the time he had drawn his specifications, had not known of a paint which just filled the bill and had counted upon the ceiling coming from the forms smooth enough, with a little grinding, to take ordinary concrete paints. However, he had quietly investigated the subject further and after fruitless conferences with several specialists, had found finally, through a salesman 's suggestion, a firm which had devel- oped a paint adapted to just such conditions. Manager and engineer immediately consulted the representa- Standardized purchases permit storage and delivery methods which cut costs and facilitate produc- tion. In the Eastman Kodak plant paper stock is stored on standard, numbered steel racks. Every section is served by a monorail equipment which transfers the rolls in slings to a special type of truck. This operates on an industrial railway connecting with the production department At the A. B. Farquhar Company, desk drawer card records (top) of past pricer and discounts facilitate comparison with new quotations received by telegram. In one stores department (below) good house- keeping is maintained by piling long bars between uprights set in the concrete floor, and by starring short bars on U-shaped irons. Monorail hoists with tongs and trucks provide quick service SPECIAL PURCHASES 30 tive of the paint concern, who, to reassure them as to the value of the paint, agreed at his firm 's expense to finish a small section of the ceiling with the new product. On the strength of this trial the purchase was shortly consummated with satisfactory- results. Ordinary purchasing records were in this case of no avail. The material wanted was decidedly special. Orders or inquiries had never gone out of the house for anything of the same nature. The fund of records and personal experience by means of which the purchasing agent continually revised and refined his every- day purchases, was totally lacking. The solution of the problem was simple, however. The manager had recourse to an outside specialist who, if not familiar with the class of material wanted, at any rate knew how new sources of supply are located. And once the source was found, by putting the burden of proof on the salesman and taking time for a demonstration, he purchased with practically no chance of disappointment as to quality. This is a problem out of the routine, such as every manufac- turer has at times to solve. From oversight, unlooked-for trade opportunities or some grave emergency, needs arise, it may be for new buildings, fittings, machinery, materials or supplies, which are decidedly novel. Often not even the source of supply is known ; standards are lacking by which to judge quality, and ideas as to the proper price are decidedly hazy. If the need is not immediate, however, the purchasing department has time to investigate, supplement its scant stock of information by methods already indicated and, as in the instance given, arrive at perhaps as sound a purchase as if the item were routine. When plenty of latitude for choice exists, the buyer who, in making a special purchase, will admit to himself his lack of experience and his need for it, has still a better opportunity to follow correct buying principles. Comparison is always illumi- nating. A large manufacturer of cotton-seed oil products in the South found that the acid fumes given off in manufacture had disinte- grated his roofing. He determined to find a roofing if possible which would resist the fumes. So he had his purchasing man send for samples of different widely advertised brands. From these he had his chemist cut uniform strips and place them for a 40 PURCHASING METHODS time in the neck of an exhaust hood over a retort in the labo- ratory which produced acid fumes. When taken down all but one showed unmistakable signs of disintegration. The one that came through comparatively unscathed accordingly was pur- chased with assurance. In both of these instances service proved by test was the abid- ing criterion. Price was secondary "and date of delivery relatively unimportant. Many times, however, one or both of the latter factors are equally important. Then the problem is more difficult. HOW TO PLACE ORDERS IN AN UNKNOWN AND LIMITED MARKET IF SEVERAL good sources of supply are known or can readily be found, competition will take care of prices and, to a certain extent, grade of service. If only one reliable source is developed, or time is lacking to search for more, getting a proper price may be a delicate matter. 1 * Under such circumstances, ' ' says one buyer, ' ' I never let any man know that I am a novice in buying that particular thing or think he is my only source. I act as if it were an everyday matter with me. I tell him I am in the market for so-and-so and want his best price and earliest date of delivery. He knows of the competition, if I don't, and usually responds with a reasona- ble quotation." Few men, however, are so constituted that they can handle the unprecedented offhand without a slip. Often, too, that the buyer is in a tight box is public knowledge. Under such circumstances, says the head of a specialty business which frequently has novel purchases to make, ' ' I try to recall who in my circle of acquaint- ances uses what I need. Then I find out where they get it and what they usually pay. Salesmen friends are also funds of infor- mation on such points. By persistence and liberal use of the telephone, I usually am able in the course of an hour or so to get on solid ground as to price, deliveries, grades, sources, or whatever the sticking point is." Instead of trying to get competitive quotations, however, it -nay at times be wise to buy without parley of the firm you know by reputation to be most dependable as to price and service. The SPECIAL PURCHASES 41 intensity of your need must determine whether test, reputation or chance is to be entrusted with the order. A good buyers' directory is another source of help. Published lists, however, will be disappointing unless the buyer knows which firm names mean quick service. More dependable is a carefully built card list of suppliers about whom the purchasing agent has definite knowledge. Familiarity with the stocks of suppliers, too, is valuable, according to H. A. Russell of the A. B. Farquhar Company. A buyer who knows his possible requirements, no matter how varied they may be, will index mentally a large number of items as he passes through a supplier's mill. For this reason, if no other, he should take time, whenever possible, to inspect stocks. This pleases the supplier and helps the buyer himself to an extent which can only be appreciated when a demand comes for ma- terials to satisfy a rush order or something out of the line of previous purchases. Mr. Russell also lays emphasis on cooperation between the purchasing, production and sales departments in the matter of anticipating unusual requirements. The sales department may have information regarding the probable receipt of an unusual order, or one which perhaps will require a larger quantity of certain items than the regular stock can supply. If this infor- mation is at once passed along to the production and purchasing departments, they can note the special requirements and begin their preliminary work. Quotations can be secured, deliveries ascertained, and a compromise, if unavoidable, struck between what is wanted and what is immediately available. When the customer's order actually is entered, the department is ready for immediate action. This buyer's way of qualifying himself to handle special purchases is typical of the methods followed by alert purchasing men. The buyer who allows himself to be caught napping because it has never occurred to him that extraordinary needs would arise, probably lacks constructive imagination. He should picture in his own mind the operation of the plant for weeks ahead. The factory that would make the most of its opportuni- ties cannot afford for a single day, sometimes not even for an hour, to be held back for lack of materials, supplies, equipment 42 PURCHASING METHODS and tools proper in respect to grade, entirely adequate in quan- tity and reasonable in cost. WINNING WORKMEN'S APPROVAL OF NEW SUPPLIES OR EQUIPMENT TN MAKING special purchases another point to bear in mind is the attitude of the shop, if it is an article the men are to use. Workmen and foremen alike are naturally prejudiced against new things and many an improved type of equipment or supply has found its way promptly to the scrap pile because the men felt it was being forced on them or that they should have been consulted in advance. The shop, moreover, is a valuable source of help ; if properly approached the men often will be found to know when you don't. One manufacturer has his foremen, on their vacations, "nose around" to find out about special items for which there is likely to be need. In the investigation their enthusiasm is won for the change. A Des Moines printer follows this practice himself in regard to new equipment and paper stock. At vacation time either he or his partner visits the plant of some maker whose product they are interested in. Then he visits a number of users, talks with the pressmen if possible, and thus corrects with practice what he has heard and seen in the plant of the maker. More extensive still is the plan followed by another Iowa man- ufacturer. He, too, uses his vacation nearly every year to visit other shops. His interest is two-fold : to check upon advances in manufacturing methods and to observe the performance of equip- ment and other items he may some time need. "When later he gets in touch with a supplier direct, he is already fortified by a knowledge of practice and is less likely to be swayed by salient advertising claims. This manufacturer incidentally, in the course of his many trips, equips himself with a valuable knowledge of suppliers' stocks and new sources of supply which helps him to make his contracts and satisfy his special needs to unusual advantage. In this study, also, the cost of the product to be bought de- serves close attention. The question is not merely ' ' What can we afford to pay?" or "At what price will the purchase return dividends?" but also, "What is a reasonable figure based upon SPECIAL PURCHASES 43 production costs?" Shop investigations give the buyer a shrewd instinct for values and indicate how by changing his require- ments he can often reduce cost and price. Emergency purchases present a slightly different problem than the foregoing. Price, quality and service — the three important elements of any purchase — are almost as easy to sat- isfy in case of special purchases that can be made at leisure as with routine requirements. The buyer merely rounds out his experience accordingly to methods with which he is already familiar. When the time factor is predominant, however, he often has to "take a chance" on quality or service and the grave nature of the demand may dwarf the consideration of price. How to get price and quality without sacrificing prompt delivery is a task that calls for the highest order of purchasing ability, backed by broad knowledge of the market and cordial relations with all probable sources. Seldom is a purchasing department so severely tested as was Edison's when late in 1914 fire gutted his plant. Almost before the flames had died away, his buying force was on the job. Within two hours, the very night of the blaze, approximately three hundred and fifty telegrams were sent, most of them carry- If this Order Cannot Be Given IMMEDIATE RIGHT OF WAY Telegraph at once at Our Expense. The material covered by attached Edison Storage Battery Company's Purchase Order No is for re-equipping the Plant of the Edison Phonograph Works, DESTROYED BY FIRE, Dec. 9, 1914, and Mr. Edison, personally, and his staff are working day and night on the reconstruction. The Edison Storage Battery Plant was in no way injured by the fire, and is therefore called upon to help recover, rebuild and install the machinery for the allied companies. Other manufacturers are assisting us to make this a record recovery. ARE YOU WITH US ALSO? If so, Ship by Quickest Route and Bill to Us R. A. Bachman, Viee-Pres. and Gen'l Mgr. Edison Storage Battery Co., Form 1169-12-14-1M Orange, N. J. FIGURE VI: Printed in red, and carrying a heavy red border, this emergency label commanded instant attention for the order to which it was attached. The emphasis laid on speed, the reason for it and the appeal for enthusiastic cooperation are evident in the words capitalized and underscored ing either inquiries or orders. Firms with which the corpora- tion had dealt previously naturally were requisitioned first. When these could not deliver, other houses were chosen by repu- tation or special information. Many concerns wired their readi- 44 PURCHASING METHODS ness to help before even there was time to solicit them. Each confirming order carried a red-lettered sticker (Figure VI) . The word "rush" nowhere appears, yet the appeal for the quickest kind of quick service is unmistakable, even electrifying. And this was the kind of action secured : an order was wired to Providence, Ehode Island, at 2:30 o'clock one afternoon. The shipment was received the next afternoon, with the red-lettered sticker from a previously received order pasted on the box. Though price bargaining was practically ignored in placing these orders, moreover, the frank appeal to suppliers for quick action, on honor as to quality and cost, resulted almost uni- formly in the fairest of treatment. Back of this achievement in purchasing were records, experi- ence, buying power, prestige, good will and sound tactics. The buyer did not wait to be sold. He took the aggressive from the first hour in investigation, decision and action. In spite of the extreme urgency, moreover, Edison neglected no practicable precautions to insure the quality of purchases which were out of his experience. "When in doubt, he paused long enough to make sure. In buying steel sash to replace the wood that had been burned out, although the complement for one building was ordered without any preliminaries, before the general order was placed different manufacturers were invited to submit samples for test. A special test chamber was rigged up, and after the glazed sash had been subjected to a fire of kerosene and celluloid, a hose stream was turned on. The make which stood up best was purchased, notwithstanding it was one of the highest in first cost, and the firm which booked the order recipro- cated by filling it in record time. DECIDING WHETHER TO BUY OR MAKE WHAT to make and what to buy is a question which every change in conditions brings again and again before most manufacturers. Certain portions of the equip- ment and product it undoubtedly pays to make; certain other portions it is profitable to buy. In between are items that are hard to decide on, and here the question keeps bobbing up. Nor is the calculation of the right way simple. Many other consid- erations besides price enter into the decision. In some cases it is profitable to pay a little higher price and buy outside ; often, however, it is poor business to buy even when the quoted prices are below the home shop's cost (Figure VII). Business judgment quickly furnishes the answer, where the manufacturer lacks the knowledge or facilities for producing the certain part or the quality desired. A manufacturer of household utensils put on the market a high-grade chafing dish which he furnished in both nickel and burnished-copper finish. He planned to use a dead-black finish wooden handle such as he had used on his cheaper product. Experiments, however, showed that it was very difficult to produce an enamel without gloss and that a shiny handle cheapened the appearance of his chafing dish. Consequently he decided that he could well afford to pay three cents for the handle he desired, purchasing it from a con- cern specializing in such handles, although his own factory could produce the slightly inferior handle at something below one cent. Here the two cents extra cost was justified by the greater sala- bility of the final product. Many such cases arise, in which minor parts purchased outside at a price much higher than the factory's cost are a good investment. 46 PURCHASING METHODS Another common situation is where a concern is doing a heavy- business on small capital. Two young men began to manufacture a line of hardware with which they were fairly familiar. One of them promptly formed selling alliances that loaded their factory with orders which taxed their financial resources to the utmost. Their business was a rather special and hazardous one, and capital, if obtainable at all, ~vas only to be had at a rate unfavorable to a young business. -/Taking the business build up its own capital therefore seemed wise. To do this both the owners cut their personal expenses to the quick. They were buying a lot of punched work and it soon became evident that a modern punch press would be an excellent investment, not only on account of the saving in actual expense, but also on account of the greater control of production it would give and the conse- quent better deliveries that would result. A little figuring, however, convinced the partners that the money spent for the press, if invested in additional stock or used in similar channels, would yield a much larger return than they could hope for from the new tool. Here was a place where it did not pay to make goods, even at an apparent saving, on account of the money tied up. The same partners found that on many items in their line, if they were to be prepared to fill orders, they had to carry ex- cessive stocks. Some of the articles moved slowly and, if manu- factured in anything like economical quantities, left large amounts of dead stock. Here again it was cheaper to buy as needed, even at a higher price and to confine attention to the bulk items of the business. For somewhat similar reasons a large electrical concern has repeatedly declined to go into the manufacture of porcelain. Porcelain insulators are used in large quantities in their factories and their business is an attractive one for the porcelain factories. It has always seemed to certain of the executives that a porcelain factory should form a part of their plant. The president, after careful study, decided that such a step would be unwise. He found that there were a half dozen factories eager for their porcelain business, and that prices were uniform and deliveries good. Investigation showed that the manufacture of electrical porcelains was a rather difficult technical problem and that the successful concerns had been at it a long time. A further study WHETHER TO BUY OR MAKE 47 backed by some confidential information disclosed the fact that none even of the successful concerns was making large profits and that the average factory which attempted to do business on a strictly competitive basis did so at a loss. As he had a good purchasing department, was the largest buyer in the country and knew competition among his sources to be free, the president could see no reason for saddling his plant with another industry. His decision as to a glass factory was quite different. They already had a separate factory making incandescent lamps and buying the glass blanks in the open market, when the mercury-arc rectifier came into the field. In the rectifier a large glass bulb is exhausted, then supplied with terminal electrodes and a small body of mercury. The lamp factory attempted the manufacture and failed. At the main plant a staff of chemists, engineers and research men succeeded in producing a few of the lights. By - Does Higher Quality Obtainable Outside Enhance Selling Price More Than Cost? - Are Financial Resources limited and Would They Be Better Invested in Stock Than Equipment? -Is Quantity Required Too Small for Economical Manufacture? -Will Outside Purchasing Help to Develop Competition? -Does Buying Educate Your Trade to an Outside Brand That May Hamper You Later? -Are the Favorable Outside Markets Merely Temporary, or Open to Monopoly? -Will It Supply Fill-in Work for the Plant or Hold Trade? Advantages of Buying Special Factors in the Problem of Whether to Buy' or Make Advantages L of Home Manufacture FIGURE VII: In deciding almost any problem of whether to buy or make, certain advantages will suggest buying and others home manufacture. Questions for testing such suggestions are here listed. Obviously, one question will be more important than the others and thus become the deciding one equipping a small factory and using constant diligence a com- mercial article was finally produced; and in the course of time the factory was enlarged to a point where the line showed a good profit. Here the very special nature and importance of the work anchored it inside the main plant. It was the exact opposite to the case of the chafing dish handle. In that case quality require- 48 PURCHASING METHODS ments took the business outside, while in the rectifier case the business was forced on the factory itself. HOW BUYING INSTEAD OF MAKING MAY BUILD UP BUSINESS FOR YOUR COMPETITOR 1~\UE weight must also be given to the question of building up a competitor. A certain factory has for two generations been recognized as the premier engine builder of the country. For many years the bulk of its business was large engines for heavy power purposes. It bid on complete plants, and these often included small auxiliary engines. Although the small engine business of the country is and was then, very large, this particular concern would not lower its dignity by engaging actively in the business. The result was that most of the small engines were built by a younger and much smaller company, which gained an excellent business and reputation, partly at least from the leavings of the big company. It was not many years before the smaller company began to enter the field of medium and large engines, and it soon became a formidable competitor on the middle sizes of engines. The coming of the steam turbine killed the large reciprocating engine business, and the two concerns are now about equal in size and trade volume. The concern which was originally the smaller is forging ahead, and the larger con- cern is dropping back. There is only one end to such a story. Here the larger concern voluntarily became a customer of the smaller and materially helped to build up a formidable com- petitor. It would have been good business policy for it to build small engines, even temporarily at a slight loss. If they had done this, with their experience and reputation, they no doubt would still have a profitable business. In general it is unwise to buy from a competitor. He is your adversary in the business game, and his profits are not only his gain but your loss as well. Buying outside sometimes helps your competitor even when you do not buy from him. One concern found this out to its sorrow. It used a special form of chain which it produced and which gave its goods a certain distinction in the trade. The principal reason for making this part was that apparently the chain makers did not care to trouble with it, as the process was WHETHER TO BUY OR MAKE 49 a difficult and expensive one. It, therefore, enjoyed practically a monopoly for some years. The high price charged, however, finally attracted the attention of a Connecticut Yankee who devised a set of special tools for producing the chain. But the market was not sufficiently large for him to make much profit unless he charged a good price. After considerable negotiating he persuaded the factory in question to contract with him for a large quantity of the article and, with a good volume of business thus assured, he could afford to make a sweeping reduction in price. He not only interested competing concerns, but in some cases sold chain to such concerns at a lower price than to his original customer. By buying parts outside, the pioneer concern established a factory for the manufacture of such parts and cheapened their costs to competitors. Again, a supplying factory may be so strongly built up by continued patronage as to be tempted to go into the business of making the completed product. Not a few concerns have found themselves thus suddenly confronted with new and powerful competition and at the same time shut off from a principal source of supply. The astute manufacturer will guard against this contingency either by scattering his purchases widely or by depending on others for such a minor fraction of his supply that not even a merging of their interests — a remote possibility in any event — would furnish him dangerous competition. What threatened to be a case of this kind with one of the biggest automobile manufacturers in 1914, turned out quite other- wise. For years he had been buying a large number of his parts from one concern. As he grew, so did his supplier. One day the trade was startled by a simultaneous announcement. From the motor manufacturer came the word that hereafter he would make all his own parts; from his supplier, that a new car would soon be put on the market. Rumor had it that there had been a break between the two, and that the supplier would enter the field as a competitor. Consequently, when the specifi- cations for the new car were given to the trade, many were surprised to find that it was in an entirely different class. Later, when the two principal owners of the second firm were disclosed as large stockholders in the first, enlightenment came. Far from being a break, there had been a tacit understanding between the 50 PURCHASING METHODS two companies. The original car manufacturer had simply come to the point where he felt he could make the parts in question cheaper than he could huy them and for years had been quietly preparing to do so. The other, foreseeing this, had been making his preparations also. Each was proceeding with perfect under- standing of the other's intentions, and what at first seemed to be a vital mistake on the part of the supplier, proved a loss to neither. WHEN IT PAYS TO MAKE AND USE AN UNBRANDED DEVICE A NOTHER instance of unwise buying was that of an auto- mobile manufacturer who placed on his car a patented device furnished outside. Liberal advertising on his part and by other automobile manufacturers established this device in the public eye. Today the car builder pays just twice the original price of the article, and he is further mortified by seeing a fraction of his good money spent in general advertising that makes it out of the question to discard the article. As he puts it, he is an agent working without pay for the maker of the article. He is not the gainer by using the device, as all his competitors also use it. If he could discard it he could materially lower his price and in- crease his net profits. So it often pays to make and use an unbranded device rather than to come under the control of a patent monopoly. The circumstances under which a low price is made often call for investigation before the factory determines upon outside purchasing. An umbrella manufacturer had an attractive price made to him for a supply of parts. After purchasing such parts for about a year he dismantled his machinery for making them and used the space for other purposes. Shortly after this there was an abrupt increase in price. Investigation showed that the original price was made to work off a lot of material that had accumulated as a by-product in a highly specialized chemical works. When the accumulation had been disposed of the price went up, and by the time the manufacturer had remantled his equipment he had, in the total, lost money. Before purchasing outside, to the entire exclusion of factory facilities, it is always WHETHER TO BUY OR MAKE 51 wise to investigate the reason for, and the permanence of the low price. Any source of supply that is not permanent is manifestly untrustworthy. Sometimes factory conditions dictate that an article shall be made at a loss. A good example is the production of knife-switches by one of the big electrical manufacturing con- cerns. The knife switch is the orphan of the electrical business. Standardized by the National Board of Fire Underwriters, its design is fixed. It must be just so large and constructed in such and such a way. Anyone can make it, so far as the design goes. If the maker follows the Underwriters' specifications he will produce a switch that practically duplicates those of all his com- petitors. The amount of material required will not vary. It is of simple construction, requires few tools to make and can be produced competitively by anyone having even inexpensive equipment. The business, therefore, is on a very keen com- petitive basis. The concern in question had two general outlets for switches. First, it sold switches, mounted on their own bases, for general use; and second, it assembled switches, on switchboards, with meters, circuit breakers, and so on. The first it handled at a loss, the second at a large profit. The switches used in the second business differed slightly from the separately mounted switches and were often special. An investigation showed that the manu- facturing costs of the separately mounted switches made by this concern were in excess of the cost of switches bought in the open market. It seemed desirable therefore to buy such switches out- side. It also seemed impossible to buy the switches needed for switchboard purposes, due to the variable nature of them. If the regular production of standard, separately mounted switches was discontinued, however, the cost of the switchboard mounted would quite evidently increase, because separately mounted switch work was done for stock and constituted a ready task for men between special jobs. The question, therefore, was not whether the separately mounted switches could be bought for less outside, but whether the switch business as a whole would not suffer if they were bought. It was decided that it would suffer and that the remedy was not to buy outside, but rather to sell more outside and thus 52 PURCHASING METHODS , increase the volume of standard switches passing through the department. A radical cut in price increased these sales and, although resulting in a temporary loss, was soon followed by- recovery as the costs fell before better standardized work. This improvement in turn reduced switchboard costs and increased the profits thereon. To consider one part, therefore, and to base your decision on that part alone, is not always good judgment. Other articles may be linked with it, so that an apparent profit may be a real loss or the reverse. The net total of profit or loss in the long run is the test. Generally it pays to buy outside when the market will supply the articles you need, in the proper quality and at an attractive price. It is not profitable to patronize competitors, or to broaden a market and lower prices where they buy. It sometimes pays to manufacture parts at a loss or to buy parts at a loss, if a higher selling price can be thereby obtained for the assembled article. Low prices quoted by outside manufacturers should be scrutinized to see that the concern making the bid is responsible and that the prices quoted are likely to be permanent. And finally, while costs can be determined accurately, the cost of one article may be increased when you cease to make another. Costs are interdependent and not fixed, as is often imagined. Broadly speaking, a low quotation from outside should be carefully con- sidered before you purchase articles that could be made. That you can produce parts more cheaply than you can buy them, however, is not always a conclusive reason in favor of home manufacture, nor when the conditions are reversed, that you should always buy rather than make. Broad policy considera- tions underlie the decision in the last analysis. VI HOW PRICE AND SERVICE ARE SECURED SAGACIOUS buying wins the minimum price with the maxi- mum service. It is a study of conditions from the view- point of the other man. It is gaining a definite advantage by knowing what the firm from which you are buying can fairly afford to do in the matter of qualities, prices and deliveries. There are always methods of making an order easier to handle, more desirable to the source and less open to sales tactics that border on unfairness. Mastery of conditions and an analysis of the other man 's atti- tude are the essentials of good buying. The general manager of an ore-boat line sent to the four big ship-building concerns in his Great Lakes city this invitation : "Can you have a representative in my office at ten o'clock Thursday, prepared to submit a figure on two ore boats? As you can see from the specifications herewith, the new boats will be practically the same as the last one we had built. ' ' Now, ore boats cost about two hundred thousand dollars and an order for more than one was then so unusual that the selling chief of each of the four companies responded in person. The usual custom was for the buyer to talk to each builder individ- ually, compare the prices item by item and award the contract at his leisure. Each representative counted on a quiet chat with the manager, a discreet effort to learn what other bids were in and an offer calculated to secure the order with the least possible sacrifice of profits. On the appointed day, however, the last of the four had arrived before the first comer was admitted to conference. While wait- 54 PURCHASING METHODS ing, therefore, each went over his bid carefully. He revised his figures wherever he had been liberal in his estimating and also shaved the margin of profit all he dared to. Each knew the thorough reliability of his competitors and the exactness of the specifications as to materials, workmanship and time of delivery. All saw that price, based upon economical facilities and good organization, must win. In a few minutes, the first man to enter emerged with a broad smile. Much to his surprise, the manager had accepted his tender and signed the contract on the spot. Though his figures were less than the successful bid on the one boat previously built, still he could not quite understand why he had received the order before his competitors were heard. He could scarcely credit his good fortune. So the other three in turn were admitted to audience, and as each reappeared with a well-satisfied expression, the others went over their bids still more carefully. That more than two boats were contemplated did not enter their minds. Had it done so, the temptation would have been strong to collude, so that each could carry away an order for at least one boat at a good price. But all felt that two of the four must go away without business, and each was determined not to be one of the two. "When the last one had his tender accepted, he was at a loss to understand the elation of the first three. Next day came revelation. All four had won. The ore line had ordered eight boats instead of two, and had bought them for several thousand dollars below the previous level of prices. But the manager had done much more : by committing the company only to a two-boat program, he had placed an order taxing the capacity of all the yards without paying a premium to any. Had the least hint reached the builders that there was work for all, the revision of prices might have been just as vigorous, but upward. Here was business strategy in the concrete — an instance where grasp of all the elements of a problem enabled one man to keep the transaction on a basis of fair competitive prices in spite of conditions that favored a salesman's market. The manager's plan had knowledge for its basis — carefully correlated facts bear- ing on the equipment and capacity of the various yards, the To insuie against production difficulties in factories which are sources of supply and against delays in transportation, calls for reserve stores at all tinies. Wheels ready for assemblage at the Ford plant are shown at the top. Precautions against deterioration of stores is illustrated in the dry vault for tire storage at the Jeffrey plant, where a uniform temperature of 50 to 55 degrees is maintained Scientific management investigators like to begin in the stores department for which the darkest corner in the plant has often been selected and where only a long memory can locate stores. How these methods are passing is indicated by the labels in the storeroom (top) at the Vulcan Iron Works, and by the light, ventilated storeroom (below) material at the George M. Pierce Company CLOSING THE BARGAIN 57 customs and precedents of the trade which guided action, the very temperaments and habits of thought of the different man- agers. He had studied the situation from their viewpoint as well as his own. Against the company's immediate needs and the sky-rocket effect an eight-boat program would have on the market, he balanced the fact that no order of such size had ever before been placed, and the certainty that the builders, asked for figures on two boats, would assume that only two were to be constructed. On two steamers they would compete; on eight, combine. The essential thing, therefore, was to keep secret the company 's desire for a fleet, and prevent the builders from comparing notes until all the contracts had been signed. This was million-dollar strategy directed towards a specific and immediate end. Once employed, its usefulness in exactly the same form was ended j but the method, the underlying strat- egy, can be applied in the conduct of the smallest factory. The more successful an individual organization, the more certain it is that analysis will discover in the management the exercise of this generalship in policies and campaigns, in swift "strokes of luck" or dazzling "inspirations" which may have been planned months before. The idea behind this plan is of universal application; it is to find and build up sources of supply by fair prices and con- tracts, but to protect your firm at the same time against prices that are based on the stringency of demand rather than costs. Such buying also benefits the supplier. It sharpens his wits in devising new economies in manufacture and so promotes efficiency. Coal is raw material for the Commonwealth Edison Company. For several years "screenings" have been in exclusive use. The development of the automatic stoker made it practical to burn this fuel, which formerly had been a worthless by-product in the production of lump coal. Its adoption by several large com- panies in the Chicago field naturally gave it a substantial market value. At that time little coal was purchased from the mine direct. Jobbers controlled the mine output and their habit was to ship th« coal into Chicago and then hustle around to find takers. The entry into the market for screenings of so many big companies prompted a coalition among the jobbers to control 58 PURCHASING METHODS the prices. The purchasing agent of the Edison Company was among those caught the first time. That winter, however, ha laid in a heavy reserve supply, as in the cold season the pro- duction of screenings is considerably in excess of the demand and they sometimes can be bought for the freight charges. This supply he used throughout the ensuing year as a leverage to bring the jobbers to time. Counting on the Edison Company's steady requirements they continued to ship in so many carloads a day. The purchasing agent refused to buy for several days and meanwhile the demur- rage charges piled up on the jobbers. Finally, when they were willing to sell at any reasonable price in order to avoid further loss, he began to buy again. Although the Edison Company now contract for their coal by the year directly with the operators, and buy of the jobbers only when they can better the contract price, they still accumulate a large reserve when the price is at rock-bottom. But they do so for a different reason mainly. Of course, a reserve is always a protection against an unforeseen interruption of the supply. To lower the yearly average price of the coal is, however, the principal reason. Moreover, it is still a protection against conditions that favor the jobbers in case they have to supplement their regular supply at any time. HOW FAR TO TAKE ADVANTAGE OF LOW MARKETS AND WHEN TO PASS AROUND SUCCESS IN another case, a firm had inquiries out for a thousand tons of special, gray iron castings — a most desirable order. Several representatives appeared in person and many other bids were received by mail. The bids were low in price, but the buyer was not satisfied. In conversation with one of the bidders who was out on the question of delivery, he learned that one foundry had no work ahead and was anxious for the contract. Their bid was in and was one of the low ones. The representative explained that, casting prices being made up of cost of material, freight, labor cost, overhead charges, and profit, the last two were the only ones which could be cut. He also said that the times being so bad nearly all the foundries had cut the profit to little or nothing. He intimated that his foundry, rather than lose the order, might be willing to cut its profit to almost nothing. A CLOSING THE BARGAIN 59 wire was sent offering them the contract at $1 per ton under their bid. This was accepted, making a saving of one thousand dollars. Just how far a firm is justified in taking advantage of a sup- plier's stringency to exact an unusual price concession, is debata- ble. If the supplier loses money on your order, he is fairly sure to exact a double profit when he gets you at a disadvantage. That a number of large manufacturers have adopted the policy of buying on a cost-plus-a-percentage basis or of seeing to it that no supplier handles their business at a loss would indicate that they believe it to be more just, and in the long run more profitable, to "pass around success." Large companies, dependent as they often are on a few suppliers for some material which they consume in enormous quantities, are at a disadvantage. The buyer must, therefore, exercise the utmost vigilance and foresight. He faces a practical monopoly, and only by the keenest kind of generalship can he keep the scale even. Small companies are in a better position because with any single commodity, one of several competing concerns can meet their entire requirements. If a large company can develop one source of supply to the point where this alone is sufficient, it then has a peculiar advantage, provided there is sufficient possi- ble competition to keep the favored supplier appreciative. Oth- erwise, the development of a proprietary source may be the only way out. HOW TO DEVELOP COOPERATION IN DEALING WITH AGENTS AND SALESMEN T> ULKING purchases with one or a few suppliers is the modern tendency in purchasing. This policy has many advantages. When there are fewer firms to deal with and fewer salesmen to see, more intimate relations can be built up, better prices secured and purchasing expense reduced. However, like all moves in the right direction, this one can easily be carried too far. The favored suppliers, presuming on your good will, may after a time grow careless. Moreover, some of them may be outdistanced by competitors whom you do not recognize. Thus by adhering too tenaciously to a policy of concentrating your purchases, you may presently find yourself paying a higher price for an inferior article and have lower service to boot. PURCHASING METHODS No matter how reliable a firm is today, next year or the year after developments and changes in the market may have trans- ferred the greater reliability elsewhere. So it does not pay to become too firmly committed to any one source. Divide up your business just enough so that the favored supplier will be kept constantly appreciative. Let him plainly understand that you patronize him because it is to your advantage and never hesitate to shift your favor if you find another firm more worthy of it. The guiding principle is to keep your buying on a merit basis strictly. This does not mean that friendly relations with the trade are to be discouraged. Some buyers fear that the development of friends among salesmen will lead to conditions unfavorable to businesslike buying. This is far from the actual fact. A wide acquaintance is as valuable to the buyer as to the salesman. The buyer with many friends among salesmen is not apt to be unduly influenced by any one man's personality. The one who has few friends, however, is much more likely, in a weak moment, to let a strong personality dominate him to the point of closing an un- profitable deal. Wide acquaintance and a regular practice of keeping in touch with the representatives of all potential sources are the surest methods of avoiding the pitfalls of personal favoritism. ' ' A purchasing agent may add to his buying staff every sales- man who calls on him if he will take the initiative and handle his work on that basis," says a buyer known for his ability in finding and bargaining for what his house wants. "Yet every so often one meets a buyer whose business it is to spend his em- ployer's money to the best possible advantage, but who feels that he can serve this end by being a human icicle and frowning on the salesmen who call on him. ' ' Moreover many a buyer has been caught in an emergency and made to pay dearly for his lack of courtesy, when, if the sales- man had been treated with decent respect, he would have helped the buyer out of his trouble with reasonable prices and quick deliveries. A salesman representing a jobber who carried a stock of mer- chant steel had called several times on a self -sufficient, "busy" purchasing agent, whose factory required sheets in large quan- CLOSING THE BARGAIN 61 tities. This buyer made all of his purchases from the mills in carload lots and evidently felt that he would never need de- liveries from stock. For this reason, probably, he had treated the salesman brusquely. But one morning the jobber's man, while waiting in the outer office for an interview overheard a remark which showed him that the buyer was in a tight place. Three carloads of sheets had been lost in the floods in Indiana and the mill would have to shut down unless another supply could be found. When the salesman entered, therefore, he found a very pleas- ant reception awaiting him. He had nearly a carload of the size of sheets required. He sold them, but at a price so far above f* a a- f) NET PRICES AND DISCOUNTS, PURCHASING DEPT. ■■»■* qlU/ Mju^JU Qj^W*-y Q=^==a*:« w d-delo. o-hotdeld. °*T E « ||L- 1 NET | DIS- . jMrI PRICE | COUNT D ATE N SEL- LERS UMBER NET 'RICE DIS- COUNT )ATE N UMBER NET •RICE DIS- COUNT c ATE SEL- NET nuhbIr PRICE DIS- COUNT PL ; yA m vM\ SB- j w\ r* f „ NET PRICES AND DISCOUNTS. PURCHASING DEPT. _ REMARKS O-OELD. O-NOTOELO. -DATE Sel- lers NUMBER NET PRICE DIS- COUNT DATE l! e rV NUMBE NET PRICE DIS- COUNT DAT SEL- LER'S HMMSE NET PRICE DIS- COUNT DATE SEL- NIIMRF NET PRICE DIS- COUNT -% ! '4mk H- w y I '*"'% ' ' -B $ \m *rr.o BE y ?*# »*%& W J ijL 4s% 6 <&SL*****T^ -^ % t wr 4of/,fa ft \ La n»»r ^^^"^TJsaJ^^^ i, ^-— ^TUo » » v "K»»J &~jlrs*A. l/'ffa V WccAifl«*0>^o'Y*fo r Qjo. C&^xJUaJL.O §.oo_ A--60 &K) i~- 0\AAaA"/^/ 4 u fl FORMS VIII and IX: One purchasing agent records quotations on staple articles on the upper form, and quotations on special articles on the lower form. Besides forming a valuable record, these cards act as an order on the stenographer to write to the firms listed for quotations get figures mixed or interchanged as he did when he tried to keep the information on pieces of scrap paper, or in his head. This buyer is considered shrewd, not because of any marked degree of ability in comparison with other buyers, but because he is systematic in his work, has the complete history of every quotation he receives at his fingers' ends and also because he is a good advertiser — that is, he never fails to let the salesmen who call on him know that he is taking competitive quotations. Only when the hundreds of details to be kept track of in con- nection with prices, sources of supply, delivery dates, catalogs 76 PURCHASING METHODS and quotations have been organized into a carefully planned system of record, can the purchasing agent see his way. Every buyer, even for the small shop, knows that the detail which it seems unavoidable to carry in mind is at best a burden. Still iHfm print «u> Uttqwtt«. Sf 2 ^ _p Mm ; |Qrt»»fri ErtjpY m FORMS X and XI: When the buyer receives a requisition from the production department, properly authorized, he consults his records and sets his system working to find the best "buy." The back form is used in placing orders. Three carbons are made, but the "price and terms" data appear only in the original more vital than the capacity of the system to absorb details, however, is its audit power; it must guard against errors, dis- honesty and lack of judgment, both in requisitioning and in buying. A DEFINITE POLICY FOR HANDLING REQUISITIONS PREVENTS LOSSES AND CONTROLS WASTE /^\ TJESTIONS of policy as well as of method are to be answered. ^^ Where, for instance, can the line be drawn between what requisitions should be passed for purchase immediately and those that should undergo a closer scrutiny? If the questioning becomes so rigid that a foreman hesitates about asking for things because he always expects to be turned down, many profitable supplies will be neglected. On the other hand, if every request FORMS AND SYSTEMS 71 were passed without comment, the abuse of the privilege would soon become a source of great expense and the shop would be cluttered with worthless articles. The disposition of a large share of the requisitions can be left to well-trained subordinates, who should be capable of exercising satisfactory judgment in the matter of standard supplies and minor replacements. Moreover, they should be charged with the exercise of intelligent scrutiny of these orders, as well, so that in case there is an increased consumption due to a poor grade of supply, or to a growing habit of wastefulness, they can take steps to report or correct the trouble. In any case when a requisition comes through for an unusual article, the routine purchasing department should be charged ON HOTOR CO. Rp.np.ivin? Hntinp wessj . \ 1 WFIG HT tarn Pinners mis ennss ht iirrwni Oumtity | Weijht | Unit | Matrial | Symbo) - rder Record Inquiry By Kiplj By Contents By j Reply 1 y Contunts - 1 Blueprints Patterns Proofs am S moles Order Completed Submitted Received | Received 131 Deceived Delivered Corrected O.K. Returned 1 Returned | 0. K'd 1 SHIPMENTS ■MM BUM Bal. Received Billed Bal. Received Billed Bal. Date Q't».|wjt fcPC Date Cty. we; If Due Date Q'ty. Wjt. H-.c No. Date Q'ty Wjt. s Due Date O'ty. Rec. No. Date Q'ty. Wjt No. Due FORMS XII and XIII: The order record gives a complete history of every transaction connected with every order. The receiving notice, likewise, itemizes all necessary information about goods as they are received at the factory with the duty of ascertaining all the facts relative to the matter and placing them before the chief executive, with the requisition, for his decision. In this way the executive can be relieved of the routine of approving an endless number of standard orders, 78 PURCHASING METHODS and yet feel that his departments are not calling for a quantity of unnecessary supplies. Some executives, however, believe it a valuable check to ap- prove personally every requisition to purchase, even though the signing is largely perfunctory. By carefully reviewing one of the requisitions now and then, they secure almost the same moral effect, so they believe, as if they checked every one. The man who first approves the requisition has no means of knowing which one his superior will check closely. Dishonesty and lack of judgment in buying must further be provided against, even after the requisition has been approved. One plan to this end is to purchase supplies and materials upon specification wherever possible. In other instances, committee purchasing rules; engineering, sales and operating departments are represented on a committee of which the purchasing agent is the chairman. The different interests then serve as a check upon one another in judgment as well as honesty. Committee purchasing is unnecessarily formal for small-quantity buying. The purchasing agent rarely goes into the market on large or unusual purchases, however, without authority from such a committee or from the chief executive. The system planned by a western manufacturing concern is modeled to care for purchasing details very thoroughly, and at the same time with a minimum of clerical labor. Quick disposi- tion of every matter, with means for instant reference in case of need, are the points that this system has specially aimed to secure. The purchasing agent keeps his desk free in the current of detail that threatens to choke it up, by dispatching everything quickly and methodically. There is one place for every record, one method of doing every task. Requisitions from the production departments give the pur- chasing agent his instructions as to what material is to be bought, and each requisition starts the machinery of his office working to find the one best "buy." These requisitions (Form X) are honored only when signed by the person in each department who has authority to direct purchases. All detail and information requiring entry are incorporated on one sheet on the form shown. It performs the triple function FORMS AND SYSTEMS 79 of a complete purchase requisition, an inquiry and quotation record, and an order and price record. When a requisition comes to his office the buyer immediately notes in the "estimates solicited" column, the names of con- cerns which he considers satisfactory sources for supplying the material wanted. He dictates a letter to his stenographer to be sent to each of them, or simply hands the blank to her with the names of the concerns selected, and she sends a form letter to each concern requesting a quotation and statement of possible delivery dates. Copies of these letters are immediately sent to the general MKTnaoraca INVOICE REGISTER ««. Data Cradltw JHHrtsj tawnt Ttrms ^j HtztriH Pmtd K*UW 1 — .N. J^I 1 -«..,.>.L.. 2 . (tn«n»r>nQ 3 ^f»n»ift'»i> .....4. ■:• £■ M Mart* WftR. Hot **. 1 — Ma. * at part Ctesiflcatton Sat* Orftr Una Qaw Rt. I Tradt Cash ... Itart C * Disc Oisc. '•" Cost to Firjlrt »- Uts Dellwjry.and*aa» 1 carload 1 -- BU0TAT10KS B it Tlr* M**b Prtct Tama ; -«, >__. ,_ Trad* Cash .. amm ■* Otec Disc ra . 1 Car- Lats S *■ jj IwJ ctrhld <* — - — - — - z~_ J. — , ■ == ^c= c =z=z ^— r— p --r-ras: != — • FORMS XIV-XVI: The invoice register is kept in the buying department, and shows the amount and paying date for every bill received. The middle card, with its quantity scale, gives practically a perpetual inventory on each class of material, and the "quotations" card, kept for each article, shows where the purchase may best be made files, since the requisition contains all necessary information. The requisition itself is filed in the buyer's desk, numerically, pending answers to the letters. Each letter mentions the requisi- tion number and directs that replies make reference to it. As the replies arrive, therefore, it is a simple matter to find the proper requisition and note on it the quotations and delivery dates promised. When, in due time, all propositions are received and noted, the buyer or committee selects the one which, every- 80 PURCHASING METHODS thing considered, is most favorable. Under the "orders placed" heading, the name of this firm is entered together with the quan- tity to be purchased and the price. The buyer hands the blank again to his stenographer, who sends the purchase order accord- ingly. All purchase orders bear the requisition number, so that there is a ready cross-reference between requisitions and orders. The requisition is permanently filed under its serial number. The original copy of the purchase order, as sent to the sup- plier, is shown as Form XL The arrangement of this copy is convenient, because it groups matters which are similar in character. It is particularly desirable to keep all "price and terms" data separate from the rest of the composition. By having it in the position shown, such information, which it is held desirable to withhold from various individuals outside of the purchasing department, is excluded from copies issued to other departments by the simple expedient of having such copies shortened so as not to receive the carbon impression. One copy of this purchase order is immediately and permanently filed under its serial number. Another copy is filed under the name of the supply house. On the reverse side of the copy of the purchase order (Form XII), columns are so arranged that all facts concerning the order may be chronicled compactly. If the information is carefully recorded, the form is a desk cleaner and a positive check on all activities in connection with each purchase. One of the valuable features of this form is the record of ship- ments. Details regarding shipments are posted as soon as the goods appear, so that the record is kept constantly up to date. Invoices also are recorded as soon as they are received, and are then checked with receipts of goods. When the material arrives before the invoice, record is made to check with the latter. The card thus affords ready information about the condition of ship- ments, total received to date, amount on the way, and particularly it permits quick attention to discrepancies which come up in checking invoices with receipts. Invoices recorded but hot checked with receipts are care- fully placed in alphabetical order in the buyer's file, pending the receipt of the material itself. When such deliveries are finally FORMS AND SYSTEMS 81 made, the correct invoice is speedily found by referring to invoices posted on the purchase order. There the register num- ber of the invoice identifying the receipt is given. In some cases material is purchased from one source and directed to be shipped to another, to the purchaser's account. These shipments are recorded in the same manner as those made to the purchaser direct. The invoices are received in the same manner, but in order to keep informed of receipts of material at the branch houses a special report form is provided, made out in triplicate and serially numbered. The first and second copies are sent to the consignee, and the third copy is retained by the buyer. A glance at the form shows that the purchaser has received notice, by invoice, from the supply house, and it reports in full the contents of the invoice. The consignee immediately upon receipt of the shipment reported, notes his actual receipts on the duplicate copy sent him, and returns this duplicate to the pur- chaser. The purchasing department then destroys the triplicate copy and records the report on the purchase order, thus keeping a close tab on indirect shipments. Completely filled out for the individual purchase, Form XII is filed away carefully. Frequent reference is made to these records when occasion again arises to purchase the same material. HOW TO CHECK INVOICES AND RECEIPTS IN THE PURCHASING DEPARTMENT /CHECKING of invoices and receipts in many concerns is per- formed in the accounting department. This is often unwise, because the purchasing department, having made the purchase and carried on all correspondence in connection with it, is in the best position to identify receipts of material with invoices. Fur- thermore, the purchasing department needs some record, and by doing the work itself prevents a duplication of tasks. "When the invoice, therefore, leaves the purchasing department, it is entirely checked for price, terms, material and quantity, and is approved for payment. Nothing remains for the accounting de- partment but to audit and pay the bill. This puts all work where it belongs. "When goods are actually being received, it is essential that the 82 PURCHASING METHODS No Charges Allowed for Packing or Cartage American Put Order Number ¥C3 Electric Specialty Company 99— 101 West Grant Street Chicago On All Bills and Package* Clarence A. Anderson, Cat* Sept. rtb/1913 Buffalo, H. T. 4000 0256 Lamp Sockets on the following Schedules 1000 Nov. 1st 1000 Dec. 1st 1000 Jan. 1st, , 191* 1000 Feb. 1st, 19.14, Specialty Company FORMS XVII and XVIII: Many manufacturers with small shops cannot afford the expense of a stock clerk. Compact purchasing records widely applicable in such establishments are here shown. By these two forms the purchasing agent is able to order material and record the complete performance receiving report give all information in connection with the ship- ment, including the purchase order number. This is done con- veniently by Form XIII. If there is no purchase order covering the receipt of any shipment it is simply not received at all. By following this rule, the company has compelled its suppliers to indicate on a packing slip, or on the outside of the container, the purchase order number upon which the shipment is made. Invoices, for the reasons explained above, come direct to the purchasing departments from the mail-opening room. Form XIV illustrates the type of invoice register in use. Each invoice, as soon as it is received, is recorded and given a register number. By this means it is possible to keep track of the invoice so as to lose no discounts. Further, by recording the amounts of the invoices, the purchasing department knows at all times just how much money its purchases amount to for the week, month, or year. The record card used to keep track of this kind of material is shown as Form XV. Since much of the business of this concern consists of goods manufactured and sold from stock, large quanti- ties of the same kinds of material have to be bought over and over to keep the supply up to date. The card is self-explanatory, except for the series of figures at the top. This arrangement is designed for use with sliding metal clips. Fastened over any of FORMS AND SYSTEMS 83 Item or Lot No. Received Invoice Remarks Order Number *C3 Quantity Date Quantity Date "7 /too "/z-r 1000 "/' 1000 "/2 7 iooo uh 1 000 1 2-/27 %00 /?* 2.C0 ?n> CA ^ 1 m Tomorrow's purchasing depends upon today's records. Two handy pieces of special equipment for buyers are here shown. Above is a sorting desk at the Baker-Vawter Company in which requisitions or orders are quickly sorted for totaling on an adding machine for accounting purposes. > Below is a wheeled filing tray on which the stock records stand, for ready reference and easy storage in the vault The modern factory has not only gone to the outside laboratory for help in selecting materials, but has also found it worth while to install specialized laboratories anil to devise ingenious testing equipment vi various types. In this laboratory oil is undergoing tests for density, flash-point, viscosity, and lubrication value GUESSWORK IN BUYING 93 price he should pay — open to the blunder of too low first cost, or of paying high prices for reputation only. Equipped, on the other hand, with full knowledge — of sources of supply and market conditions, of the demand made upon him by his factory, of the elements and processes involved in supply- ing what he requires and their cost — the purchasing agent is in TENSILE TEST O. 5TX.Q - J " M CARD NO.-H- P. O. NO. IVIQO pAts rVpVr.Vll] TEST NO._k>_ DATE RECEIVED § " 2>\ J 4 SE3 53 CONDITION OF MATERIAL, ss MANUFACTURED BY LESQEBlSS S Sjj C fV -LENGTH BETWEEN MARKS- JLl THICKNESS DIAMETER. >Tls\M ORIQ. AREA *\S .hJ^-VftV STRESS AT RUPTURE ft IsflftflilvV fcfcj CONt. AREA . \*]\t>\ Nt^.VNV STRESS AT EL. LIMItSVLDQ___ % CONTRACTION H^'MH * ELONGATION "VJlV'' »3LEl% CHARACTER OF FRACTURE. THE GARFORD COMPANY FORM XXII: On this form the chemist of the Garford Automobile Company keeps a record of the physical tests of bar steel and similar materials. From every shipment a test piece is taken. This h placed in a testing machine and the tensile strength recorded. A chemical analysis is also made from chips of the same steel a position of natural advantage. He then knows what to get, how to get it, what he should pay for it, whether to buy a stock item or have a composition made to his order, and finally, whether he is getting what he purchased. BUYING BY DEFINITE QUALITY KNOWLEDGE BASED ON DEFINITE METHODS PURCHASING has not yet grown up to the problems brought upon it by the sudden and enormous expansion of modern supply and demand. Advertising has done something to bring the groping buyers and sellers together, but many purchasing agents have not yet learned how to comb the markets for what they want. Recently the purchasing department of a large 94 SETTING STANDARDS corporation was unable to meet the specification to finish the telephone instruments in a hotel in a mahogany enamel to match the furniture. After the plan of decoration had been changed, however, a small manufacturer located in the same city turned up with exactly the finish needed. Buying right has come to mean buying with definite knowledge, worked out by definite methods. This case is an illustration that such knowledge and methods are needed even in the location of supply sources. It is in questions of kind, quantity and quality, however, that the methods of precision have made the most headway against guesswork in buying. The origin of specifications usually lies in the fact that some difficulty has arisen in a process; some machine ceases to give satisfactory service ; some structure fails ; some material in use does not give good results. This difficulty results in an attempt to locate the cause. In other cases a largely used product, furnished by different makers, is found to vary in quality. Sometimes it is desired to standardize certain prac- tices, and make them uniform in all the mills of the corporation, and to do so requires that the same quality of material be furnished and used in all cases. This development leads finally to the issuance of specifications. A fourfold advantage usually follows. The testing of samples and the working out of specifications, either in the factory or with technical aid, in the first place, lead the purchasing agent and the production men to determine their needs exactly. Often the factory heads have had only a vague idea of what they want. To get a sharply focused idea of the need eliminates guesswork and is the first rule of sound purchasing. In the purchase of several carloads of catalog paper, this advantage was recently called to the attention of a factory executive in an unusual way. Instructions to the advertising man had been to make proper selection of paper and in cooperation with the purchasing agent to obtain bids from different paper houses by circular letter. In so doing he sent the form letter also to an industrial chemist, who, he had heard, was a paper expert. The very first reply was from the chemist. And instead of merely asking that he be consulted in the placing of the contract, he had criticised the purchaser's crude description of what he wanted. The publicity head had considered appearance, strength, GUESSWORK IN BUYING 05 weight, price and the fact that halftones, line drawings and type would in many cases appear on the same page. To the specification of weight the chemist added bulk; to appearance, color ; to strength, durability and the service treatment demanded for the maximum number of halftone screen lines to the square inch. Finally, he suggested that the quantity contemplated would warrant a "mill run" and thus afford a paper especially adapted to the purpose in view. In the second place, exact knowledge of what is needed enables the supplier to get a clearly defined idea of what he is expected TEST RESULTS OF MATERIALS OR SUPPLES m d. A fall o. (L^^umAoii: a L mu L, C L J ta O il (L f*«y ■tU- ±. Our Present Standard Qjjtbuj - 6. T.cr It-tfV^ M/ .tttrtM/ .<«**■ «n*Y ,k*JUK*/- JtMA t Tested by TL FORM XXIII: When verbal reports on materia) tests were found insufficient in one factory and ' form was planned. _ The i paint tried out for priming led to disputes later on, this report form was planned. The record covers a test made of a new ■ ' ied o • * to furnish. Scientific standards allow neither that the buyer guess what the shop wants, nor that the seller guess what the buyer wants. Chemical research among metals, for instance, has resulted in specifications that define steel and alloy requirements more clearly than the average purchasing agent could possibly do in any other way. Such specifications, to mention the third advantage, not only focus the factory's requirements and furnish a standard to which the supplier can work ; they also equip the inspectors with SETTING STANDARDS tests and measures by which they judge deliveries, in search of adulteration, substitution and other errors. This, again, is a fundamental rule of sound buying. "With many commodities, adulteration or substitution is difficult of detection, and there- fore so tempting that specifications have been the buyer 's natural recourse. Lard oil for screw-cutting machines, for instance, can be obtained in what is termed a "mineralized" state or with a certain per cent of mineral oil added to cheapen the cost. When pure lard oil has been ordered, do you guess or do you know that you are not receiving the cheaper "mineralized' 5 product? Of the cases investigated by one purchasing agent, nearly fifty per cent have shown adulteration with either mineral or cottonseed oil. The latter adulteration is a particularly hard one to detect. Turpentine, too, is often adulterated with a percentage of mineral oil, usually a heavy naphtha, which will lengthen the drying period. Casual inspection will rarely protect the buyer against such conditions. SPECIFYING THE CHEAPER PRODUCT AND PAYING ONLY FOR IT A NOTHER case of adulteration indicates the necessity of something more than guesswork in the purchase of special alloys. An Ohio Valley firm was furnishing some five per cent phosphor-tin alloy to a brass foundry. This alloy was used in various valve castings of great weight. When several successive castings had been lost, samples of all the raw constituents of the alloy were rushed to a chemist, who found in the phosphor-tin seventeen and nine-tenths per cent lead. Pure phosphor-tin was then worth forty-eight cents a pound, while lead was worth four and one-half cents. Yet the supplier explained that he "considered that the addition of the lead would in no wise injure the metal when used in bearings." Specifications based upon and checked against tests now relieve this concern of the danger of buying lead at phosphor-tin prices. If for the service rendered, an adulteration does no harm, to eliminate guesswork enables the purchasing agent to specify the cheaper product and pay only for it. And if the adultera- GUESSWORK IN BUYING 97 tion is hurtful, it is better forbidden in the contract and de- tected by receiving room tests than left to guesswork and discovered running through the finished product. When it comes to adulterating what is purchased, the average manufacturer will prefer that his own experts, rather than those of his suppliers, plan the adulteration and award the saving. Finally, specifications and knowledge of basic elements furnish the purchasing agent with a key to prices. They put him at an advantage in considering bids, in bargaining, in arranging adjustments. By means of them, mixing to formula on a cost- plus basis has become a business, and by resort to this plan many purchasing agents obtain exactly what they want at the lowest price consistent with value. In the purchase of bronze alloys, for example, a manufacturer by this method consistently saves several cents a pound. In many plants, it is the work of one engineer or department to find what each item purchased "ought to cost," by study of materials, processes and correct cost-keeping. "Whenever time permits, such analysis is- the purchasing agent's one masterful approach to his problem. It is only when an emergency or a blunder forces the buyer into the market without cost data that he is open to the perils of secret price manipulation. SPECIFICATIONS PUT RESPONSIBILITY ON THE LABORATORY AND LEAVE THE BUYER FREE TO STUDY MARKETS DUT specifications by no means reduce purchasing to a clerk's job. The policy of buying by specification throws more rather than less responsibility upon the purchaser, for it assumes that those who set and maintain the standards know. The burden of judgment as to kind and quality is merely shifted from buyer and seller to the laboratory specialists, and the purchasing agent who is sure of his backing is thus left free to study markets and campaign for values. The buyer who purchases on the strength of his supplier's reputation will sometimes run less chance of making errors and is always more certain of having these errors corrected for him than when he buys by specification regardless of reputation. For this reduction of risk, however, he pays the premium the SETTING STANDARDS supplier must charge to eover the insurance for which his reputa- tion stands. Purchase from favorably known firms does not mean buying by guesswork, but it does mean buying on faith. In emergencies, or for those supplies and materials which specifications and tests fail to cover, it is as a rule the best method. So the wise manufacturer when in doubt buys the well-known brand thor- oughly backed with reputation, but the wisest manufacturer seeks economy by having specialists draw up specifications as largely as possible for all materials and lay down tests by which, when received, it can be determined if purchases conform. As the manufacturer in this way matches his true requirements against the market with precision, he determines scientifically and perhaps once for all, that balance which assures a product of the lowest cost with the highest quality and the best service he can give his customers. Thus he equips his purchasing agent with an exact knowledge of what is required, and so places him that he can safely contract for it. If in addition he makes it the definite duty of someone to keep all specifications up with changing needs and changing markets, guesswork on the pur- chasing end is eliminated perhaps as far as is humanly possible. How materials are being tested and standardized by craftsman tricks and "kitchen" laboratory methods in the small shop and in the large plant through its costly laboratories, research depart- ments, high-salaried specialists and exact specifications, is told in the following three chapters. X PROVING MATERIALS IN THE FACTORY RECALLING boyhood memories, a city man recently visited the little woodworking plant where as a youngster he had nailed cases. While he was waiting to meet the son of his former employer, he saw one of the workmen open a dry kiln and draw out a board from the center of the pile on one of the bunks. But the expected did not happen. The workman did not smell the board to see if it was dry. Instead he took it to the nearby saw room, sawed it in two and cut out a little section from the center of the board, marking on the chip the number of the bunk. The city man was curious. This wasn't the way they used to test lumber, so he followed the workman to the superin- tendent's office, wondering what he was going to do with that little piece of wood. Taking the bit of board, the superintendent weighed it in a pair of apothecary scales and told the man to put it in the steam chest, first marking the weight on a slip of paper and hanging it on a numbered hook. After being thoroughly dried over the steam radiator or in the steam chest, so the former shipping boy learned, the block would be weighed again. If it lost six per cent of its weight it was not yet sufficiently seasoned to be made into desks. The visitor, out of touch with improved methods, had happened upon an instance of the rough and ready application of science which makes every up-to-date factory somewhat of a laboratory in its study of materials. Especially in the small plant, where 100 SETTING STANDARDS it is not feasible to maintain special installations for testing purposes or to retain the services of industrial specialists, the manufacturer is striking a sound compromise between science and rule of thumb, by which he gets most of the advantages of the former at a first cost not much greater than that of guess- work. The ''hundred thousand dollar hill" by which a great automobile plant simulates costly road tests may be out of the question for your shop, but you can still make many homely applications of the same scientific principles in your study of materials to be bought. Microscope and micrometer, test tube and acid no longer need mystify the manufacturer. It is often a simple matter to analyze and know, as did the superintendent of the woodworking plant, instead of merely guessing. First challenging the way the buying "always has been done," manufacturer and purchasing agent accumulate all such quick and inexpensive tests they can learn. Salesmen, other buyers, outside specialists and the literature covering the field afford them many such suggestions. Closely watching materials throughout the processing is always instructive as to standards and short cuts. Whatever else is done or omitted, however, the wise manufacturer will allow no important material to go into the shop routine without first submitting it to a "service test." This is simply a reproduction of service conditions, by which you can determine with finality whether or not a material stands up or how the various materials available compare in endurance. Service tests are often of the simplest and least expensive. Yankee ingenuity at once suggests water as a test for certain belts, gloves, cement or paint. For almost every material, similar proof can be devised. Regard for this single principle of making a sample undergo a skillful imitation of the service the material must withstand will usually enable the purchasing agent to crowd guesswork almost out of the reckoning. Whether or not laboratory procedure also will be worth while depends on the conditions. Laboratory tests, moreover, are by no means an infallible guide. A stove foundry several years ago inaugurated the policy of blacking all cast-iron stoves. Brand after brand of blacking was tried, but for some reason, none of them seemed to stick. Finally, a specialist was brought in. Schooled in the scientific approach, FACTORY TESTS 101 he did not accept as final the conclusion that because a brand of blacking failed to stick, the blacking itself was at fault. The high speed at which the buffing wheel was running challenged his at- tention, and he began to experiment with different speeds. From fourteen hundred revolutions per minute he slowed down the wheel finally to six hundred revolutions per minute, at which speed the blacking took hold perfectly. Here was a case where the most refined laboratory test would have been of little avail. The conditions of use were the determining factor, and really the only accurate gage of the quality of different brands was the speed at which they could be applied. Some would work with higher speeds than others. The one which made the best show- ing, appearance and other things being equal, was finally settled on as standard. Cotton-cloth manufacture furnishes another example of the value of service tests in the factory. A cotton passed by a lab- oratory as superior might not work up with the least waste or give the best results in general. A poorer appearing cotton fre- quently proves up better in the end. A mill was operating suc- cessfully with a cotton on which the percentage of waste seemed a bit too high. The material was slightly off-color, but it worked up well and production ran smoothly. Finally, a new lot of cotton was brought to the superintendent's attention. He was given the choice of using this or sticking to the old grade. As the new kind was white and apparently free from foreign matter, and in general had a superior appearance, the superintendent was not slow in making his choice. But it proved to be a bad cotton to run. It had little strength, it spun with difficulty, and the waste exceeded that on the old grade. Had a few bales been purchased and put through service tests, this mill would have saved itself much trouble and money. A form employed by one cotton mill to record the results of tests for preventage of waste is shown (Form XXIV). One or more bales of each of the dif- ferent brands submitted are put through the mill and careful account is kept of the waste at each stage. "With these results before him and a knowledge of how the material worked up, the superintendent can select his brand with almost scientific assurance. So it is with many of the materials and supplies used in man- 102 SETTING STANDARDS ufacturing. Carefully supervised service tests in the factory, under actual working conditions, not only may be the simpler and less expensive, but may furnish a proof not possible in the laboratory, except at the cost — often great — of duplicating actual conditions. Laboratory tests, however, are frequently of value in addition. A vehicle factory in buying glue, for instance, first makes the glue do actual service in the shop. Sample pieces of wood are glued together with the different glues and tried for strength, sweetness and appearance. With the glues which lead in these tests, laboratory experiments are made by a glue specialist as a check on the factory tests. Samples of glue marked with key numbers are sent to him and he compares his findings with the shop results. The cost of the shop tests is insignificant compared with the sum paid under the yearly glue contract. The labora- tory work is simplified and the product is doubly safeguarded. COMPAEATIVE SERVICE TESTS REVEAL AND ASSURE THE DESIRED QUALITY A S proper treatment in the manufacture of some materials means almost as much in the finished product as the com- position, comparative service and exposure tests, rather than chemical analysis, are often of the first importance if the purchaser is to be assured the best value. The service test may be a check on both the chemistry and the physics of the material. A New York furniture manufacturer places a high value on such a plan. Never absolutely sure of his varnish, he could not guarantee it to be weatherproof in every instance. One day he went through an implement plant in the Middle West. When he returned home, he took with him the solution of his difficulty — a "lif table" test for weatherproof varnish. The test is simple. Take a dry wooden panel of any convenient size, apply the varnish, allow it to dry, lay a wet sponge on it and inspect from time to time. Cheap varnishes containing rosin in large proportions will soon be effaced. Durable and weatherproof varnishes will not be affected seriously for hours. If the test is begun in the evening and the varnish is destroyed by the following morning, a new test with frequent inspections is made. But if no serious effect is noticeable, the tests are FACTORY TESTS 103 continued until the weatherproof qualities of the different samples appear decisively. In such tests, a material of known quality is usually included to furnish a standard for comparison. With this test as a guide, the furniture manufacturer now revises his varnish standards constantly. "When a varnish contract is to be let, he writes to several houses for samples. As these are submitted, he tests them in comparison with the standard varnishes of past years. Not infrequently he betters his purchase not only in quality but also in price. And as each varnish becomes the standard, it also faces similar competition the coming year. Mill No 9 WASTE TEST Data l?//!4 iy'U t? tjo W/J /J Iff. CYLINDER STRIPS Itr-T / 13 I NO. 1 PICKER 1 e-r- fa *7 y © i r drif*0 r dr^ i ^*" ©■^^^^ 1 ■ WmV Intensive service tests quickly determine the lasting qualities of many materials. Below are shown comparative tests of seven brands of varnish, six of which in varying degrees have turned white. At the right above is shown a filmometer, by means of which the strength of the paint film is accurately measured. At the left, a painted sheet of metal has undergone a long time brine test OUTSIDE HELPS 111 complaint chart, however, the executive can see at a glance what is causing the most trouble. A sudden unexplained variation in the action of his material generally sets the wise manufacturer to investigating or con- sulting a specialist. And the explanation often has a cash value. What looked to him like an excellent opportunity to improve his product, and thereby fight sudden and dangerous competition, was accidentally discovered by the superintendent of an eastern brickyard. Clay from a new quarry had been used for a batch of bricks, and instead of the standard red they have come out in variegated colors. To discard both the lot and the clay was the foreman 's impulse, but the superintendent possessed an artistic eye and the imagina- tion which can see far-reaching possibilities in an innovation. Instead of condemning the bricks, he ordered them put on the market as fancy building material. The ' 'tapestry" bricks proved at once an effective weapon against the encroachments of cement, which had become a rival of brick for dwelling houses largely because of its decorative possibilities. The clay, however, proved to be far from constant in quality. The colors of the fancy bricks were not dependable, and archi- tects who had specified a certain shade from samples of the first lot shown, would not accept the off-color ones which in several instances were shipped to them. As a result, the super- intendent had a chemist analyze the clay and make various tests to discover what metals or other impurities in it caused the different shades of color. He then had specifications drawn up for the various colored brick, and thereafter mixed his common clay with the materials necessary for any desired shade. To guarantee the color absolutely was the next step. This is only one of the many problems connected with material standards that are constantly being solved by factory managers in cooperation with industrial chemists. Managers are finding that chemical action may be harnessed, just as other natural forces have been. Nor is it necessary to run a big laboratory under heavy expense, in order to reap the benefits of a proper application of chemical forces. In a case where coal is bought on a basis of thermal units delivered, the manager of the plant lie SETTING STANDARDS simply saves a small sample from each day's delivery; at the end of the month he has these samples thoroughly mixed and sends a five or ten pound batch to the chemist for analysis and rating. USING MATERIALS UNSUITED TO EACH OTHER RESULTS FINALLY IN A LOSS OF TRADE C^REQUENTLY the purchasing agent learns that his whole trouble with an item comes from using materials that are chemically unsuited to each other, as in the case of a Chicago tanner. This man had learned his business in England, in a tannery where at that time they used the old-fashioned method of immersing hides in the tanning pits with raw oak bark. But although it insured an excellent grade of leather, he had found this method too slow to enable him to keep pace with his Ameri- can competitors, and he had been trying various tanning extracts instead. Most of these liquors are made by extracting the tannin from oak or hickory bark and are supposed to do by quick, direct action what the raw bark does much more slowly. The successive stages of tanning, however, require a varying amount of tannin and the Englishman had been unable to adjust the amounts of liquor used so as to get a soft, well finished skin. "I'll admit it's a quicker process," he said, "but what good does that do me if the leather comes out as hard as a board? Smith [a rival tanner] treats his hides with grape sugar, I understand, and they look all right, but they won't wear; and I will not turn out poor leather. What's more, I haven't been able to get a perfectly dyed skin since I started using this ooze instead of bark." Could hides be chemically treated so as to give good leather? was the first question. The chemist solved it by insisting on a definite per cent of tannic acid in the ooze, or liquor purchased. This specification involved careful analysis, but at length he found a maker who could be depended upon to "deliver the goods" and give a standard agent to work with. Then by start- ing the tanning in vats filled with a weak, dihited solution of the liquid, and gradually increasing the proportion in successive pits, the chemist reproduced the process as it takes place in the pits with the raw bark. OUTSIDE HELPS 113 Dyeing the hides presented still another problem. Dyes which gave good results with hides tanned with oak bark were uncertain or worse when used in conjunction with the tan liquor. The trouble must therefore lie in the reaction among the chemi- cals in the dye and those in the tannic acid solution. It developed that a reagent in the liquor and one in the dye were neutralizing each other and thus preventing the action of the dye on the leather. The chemist sought for a solution which would carry the dye and not have an affinity for the tanning liquor. After a little experimenting he found such a solution and ascertained as well, that another make of dyes already on the market showed the same analysis as the solution he had developed. Being thus assured a supply of a standard tanning agent and of dyes that were chemically harmonious with it, the tanner, who was an expert in the handling of leather, had no difficulty in turning out as good leather as with the raw oak bark and his home-made dyes. HOW MIXING METALS BY RULE OF THUMB HANDICAPPED A FOUNDRY "CTALLING in with the present tendency toward standardized, cooperative effort rather than individual expertness, a foun- dryman sought out a commercial laboratory not long ago. For twenty-five years the metals going into his brass castings had been proportioned by an old melter who had grown gray in his service, and it had never occurred to the foundryman that the younger generation was not receiving such training as would fit one of them to take the old man's place. To his great surprise, after the melter 's sudden death, he had found it impossible to replace him with anyone who had adequate experience for the job. At the suggestion of a fellow foundryman he finally came to the chemist for advice, although it was plain that he placed more dependence on the old man's "rule-of -thumb" method — a method based on an intuitive skill developed through years of costly experiment — than on any theoretical knowledge. His confession of his difficulty was made grudgingly and he wound up with: "But I won't have any high-priced chap fresh from college 114 SETTING STANDARDS fooling around my plant. There isn't enough work in that small foundry to keep him busy, even if I did want him." Investigation proved that he was right. At the chemist's suggestion, therefore, the manufacturer made a contract with a large foundry which specialized in brass making, by which he purchased from them certified brass ingots of any desired quality. The proportion of the metals in the brass was guar- anteed within one per cent. A laboratory certificate and analysis accompanies every shipment of ingots and assures the purchaser that he is getting just what he specified. The smaller foundry casts the remelted ingots and machines and finishes the castings. In the old days its brass, roughly classed as "red," "yellow" and "white," was at the best rather uncertain in quality. Now the shops have a standardized product, of any grade their customers may have specified for their castings, and that at less expense than in the days when they made their own blend. Often the manufacturer can further save himself expense and trouble in getting information as to a material by enlisting the aid of various types of organizations. An example of the cooperative efforts of those concerned in setting material standards is the American Society for Testing Materials. Many of its sub-committees are engaged in the prepa- ration of standard specifications. In the membership of each sub-committee there is representation from manufacturers, consumers and consulting engineers. The resultant specification, therefore, is one that satisfies the man who makes the goods, the man who uses the goods and the designer and adviser. Much information can also be obtained from the published works of such representative bodies as the National Fire Protection Association, the American Chemical Society, and the Interna- tional Congresses of Applied Chemistry. Standard specifications are drawn up and revised from time to time by the Association of American Steel Manufacturers. These specifications include and define methods of manufacture, tests, and inspection, in addition to the common provisions for insuring quality. They are complete for structural and sheet metal and various miscellaneous shapes and plates. The Ameri- can Railway and Maintenance of Way Association and the Mas- ter Car Builders' Association also issue standard specifications OUTSIDE HELPS 115 for sheet steels, rails, castings and equipment. Many important tests are made the subjects for work of sub-committees appointed by the International Petroleum Commission. The National Paint Manufacturers' Association also collects and publishes some valuable information in regard to paints. In weather tests of paints, for instance, it found that the colored paints were better preserved than the untinted white paints. Color seemed to reduce chalking, checking and general disintegration. This condition was held to be due to the reinforcing value of color pigments. Most fields of industry have such trade associations, from which the manufacturer can obtain aid in setting standards for his purchasing, production and inspection departments. The movement has no doubt been accelerated by the work of the Underwriters' Laboratories in standardizing fire-prevention and fire-fighting equipment. The specifications for testing followed by the Laboratories chiefly are those set up by the National Fire Protection Associa- tion. This is a body composed of men vitally interested in the subject of fire protection — insurance men, fire marshals, in- spectors, architects and engineers. Between it and the National Board of Underwriters, under whose supervision the Laboratories is operated, there is the closest cooperation. In electrical matters, the National Electric Code is followed. This is prepared and continually is being revised by a com- mittee of the National Fire Protection Association composed of representatives from this association, the National Board of Underwriters, the Associated Factory Mutual Fire Insurance Companies, the American Institute of Electrical Engineers, the National Electric Light Association, the American Electric Rail- way Association, the National Electrical Contractors' Association and the National Association of Electrical Inspectors. So the association represents engineering skill very broadly and is in a position to set fair and practical standards. Anyone may avail himself of the offices of the Laboratories for the purpose of having new devices tried out. But only when a maker submits his product for examination in accordance with the specifications of the National Fire Protection Association or the National Electrical Code is a report promulgated broadcast to the trade. 116 SETTING STANDARDS' For this special testing a small charge is exacted, which merely covers the actual expense plus operating overhead. The time and cost depend altogether on the character of the material or appliance submitted. If it falls within the province of existing standards and can be put through in a routine manner, the time required is from four to ten days and the cost is small. If, however, new test methods must be originated, involving perhaps the use of specially designed apparatus, the time may run into months and the cost into hundreds of dollars. Any investigation that has a bearing upon the fire hazard is gladly undertaken. To illustrate the value of the service performed on occasion by the Laboratories' experts, this instance may be cited: A manu- facturer of electrical specialties, desiring the underwriter's ap- proval on his make of electric flat-iron, sent in a sample for test. Now irons with rest attachments are tested, among other points, for length of time the iron can stand on its rest in contact with inflammable material without setting it on fire. The sample sub- mitted proved weak in this respect. Acting on the suggestion of the test engineer, the maker lengthened the rest attachment and replaced the two side lugs which bore against the hot part of the iron with a single central lug. The iron then passed a satis- factory test in every respect. While the chief function of the laboratories is to register an opinion "yes" or "no" — "stand- ard" or "substandard" — "approved" or "not approved," the engineers frequently volunteer constructive criticism of this sort which is of real value to manufacturers. Government publications also prove a help to the manufacturer in specifying materials. The scope of the investigations of the Department of the Interior is constantly widening. Of the current reports, those on the treatment of ores and metals, and on fuel efficiency have unusual value. The National Bureau of Standards at Washington is another valuable source of guidance, although its work is mostly in the direction of setting up primary standards for private and commercial laboratories to follow. On the various supplies used by the government, however, it carries out tests in great detail, and the published findings are available for the public. Some testing for private persons along the same line is also done. To standardize testing and measuring instru- ments is another function performed. By keeping in touch with OUTSIDE HELPS 117 what the Bureau is doing, as well as by familiarizing himself with the kinds of devices it has found best, the manufacturer can avoid loading his factory laboratory with inferior and unsuitable test- ing equipment. To know what testing methods to follow and what apparatus to use is vital to the success of any private laboratory. The Bureau of Standards points the way. Finally in seeking reliable data upon his materials, the manu- facturer may well examine the published works of the engineering experiment stations and laboratories of our universities and educational institutions. They are paying more and more atten- tion to manufacturing needs and are making genuine contribu- tions to factory practice. They will always conduct special investigations and ordinarily charge only nominal fees to cover the cost of the materials used in the experiments. Moreover, it is often possible to arrange with the college au- thorities to have thesis work directed into some channel in which the manufacturer seeks information that will help him set up better standards. Even more valuable are the results that may be obtained through the research work of graduate students, qualifying for advanced degrees. Some practical manufacturing problem is just what such students seek. One company interested in getting the rock-bottom facts in regard to its principal ma- terial established a fellowship at a large eastern technical uni- versity for this specific purpose, and its chief engineer cooperated with the student investigator in making his experiments. The results subsequently were published in the technical press and also were made the subject of a paper read before a national engineering society. Thus everybody interested in the material in question shared in the benefit. Technical schools, especially the larger ones, offer unusual facilities for research work and tests, superior even to what the largest manufacturing establishments can afford. Such state institutions as the Universities of Minnesota, Illinois and Wis- consin are very closely identified with the industrial as well as the agricultural interests of the constituencies that support them. Some of the commercial laboratories also offer exceptional facil- ities along cooperative lines, supplementing the work of company laboratories as well as placing at the disposal of small manu- facturers the advantages of the large in the inspection and test 118 SETTING STANDARDS Ox purchases. One large eastern laboratory maintains private experimental rooms which the manufacturer may hire at a modest rental for any length of time he desires. Here he can install his expert for some special test and while conducting it in absolute secrecy, yet have all the facilities of the institution at his command. These laboratories are patronized by such con- cerns as the Western Electric Company and the General Electric Company, which, although they have well equipped laboratories of their own, yet do not feel justified in providing the equipment to handle every special test. Moreover, they believe it good policy to check up their own results occasionally by commanding the resources of an outside corps of experts. Inspection and testing of materials before shipment is another service undertaken by the commercial laboratories, which the manufacturer himself can not well do except in isolated cases. This plan heads off unsatisfactory material at the supplier 's fac- tory and saves the purchaser from the annoyance and expense of returning rejected product. When, too, the quality of purchases can be determined in advance of receipt, the purchasing agent does not need to allow time for testing on the premises and so can work closer to his stock. In setting up material standards, therefore, outside helps play an extremely important part. Many are free for the asking. Those that cost really justify themselves by the money they save ; indeed, so great is the usual gain that, speaking in general, no manufacturer, however small, can afford not to avail himself of them. XII HOW TO DRAW SPECIFICATIONS IN every specification two persons are vitally interested, the supplier and the purchaser of the material. It has, in fact, been stated that a specification is an attempt on the part of the consumer to tell the producer what he wants. As a result of this attitude, the early specification did little more than define "qualities required of the material." A rational specification goes beyond this. It recognizes the tangential interests of buyer and seller, and crystallizes buying policy at many points. It states, for instance, the method of sampling, tells how much material one sample shall represent, prescribes methods of test- ing either in whole or in part, the size of the test samples, and how to forward samples. Other questions which now receive the attention of the buyer are: Would it not be advisable to buy in lots of the same size as the test involves ? Shall the quality of the shipment be deter- mined at the factory where the material is made, or after the shipment is received? Factory inspection obviously requires the presence of the buyer's inspector at the supplier's factory. This plan, of course, is not encouraged by the manufacturer who has in his plant many private unpatented processes in operation. He has, however, less reason for objecting when the buyer's inspection is done through a commercial laboratory, as mentioned in Chapter XI. For the laboratory's experts have only the one interest and besides can usually be relied on not to divulge any trade secrets they inadvertently discover. More- over, their work is equally to the supplier's advantage, as it is calculated to save him the expense and annoyance of taking back goods. 120 SETTING STANDARDS Often those who ultimately receive the material (the store- keeper or the department foremen) can make certain inspections better and cheaper than any special official. This, hence, makes it necessary to put in the specification the proper instructions for such inspections. The result of these several requirements is that a modern specification is in many instances lengthy, if not at times unwieldy. In other cases it would almost seem that the wording could be more definite, for some manufacturers have a desire to deliver the lowest possible quality on a contract, while the testing chemist and engineer endeavor to enforce the specifications to the letter. In preparing any specification the aim should be to incorporate information which may be needed by (1) the seller, (2) the chemist and engineer of tests or other inspectors, (3) the ultimate user of the material. The first step to be taken is the collection of information from the various sources already discussed. Samples may be gathered from the works, and data attached thereto, as to whether the results obtained were good, fair, or bad. The chemical and physical properties of these samples are carefully noted along with their price and date of purchase. The qualities of these materials have been decided by actual service. Sometimes the service does not give so much information, or it takes a long period to determine which material is good and which is undesir- able. In such instances a "provisional specification," on the basis of general knowledge, is issued and the material delivered is carefully watched to see how it behaves, as has been described in Chapter X. Direct positive experiments, in some cases, are made with samples which have been obtained and analyzed, or with material which is now in use in the factory. This makes it possible to obtain more complete records than when older samples are examined. Those products which fail to give good results are very carefully examined, in order that their objectionable fea- tures or faulty constituents may be ruled out when the specifica- tions are finally drawn. In the accumulation of information it is desirable to pay a visit to the makers of the materials, and learn from them as far as possible the grade or quality which it is possible to maintain SPECIFICATIONS 121 8CHEDOLE AKD SPEOIBIDATIOK8-. ARTICLE AND DESCRIPTION r Ijuvl %«*£* QK* CHECKED PURCHASE ORDER ENT. INVENTORY Zot~~ L(* I1U 4- s r fc«lm «t» mmr 11.190.00 10 11614 r™r plus s- i r l i SB 1161 • Mm ' ' S30.00 39 11U9 7" s 10" tut 7- , io- • _. • 1,190.00 - lira 11417 mul. 2S- , 4 11823 11SJ 7- I 10" • Mttetit • 1.190.00 It 11 US • 90- « SIM r ■ u* * «it. 1.550.00 14 -w- 1161. • n- 4 ! .US • .Ittaut • 1.300.00 ■ U63l"" tor.."' " i i 11614 Pomr pluit 6- > t» 1900.00 40 DM Cm Una >1M ma C«b mil .li. l i U61S • 7- I 10- 600.00 a B.ll.r 10 tub* n 11614 - s- - 11" 700.00 99 m mftmf 36 tub. i 11617 Skull la- 0.00 19S m S.ll.r N tub. PU.rt.tt 11618 ser s.oo 171 U61S »t" 10.00 110 U420 rnmuiln To. Ipat 1SS.CO n sss Irak, tut : 2 i 2 2 11631 Ttom" HO. 00 ■ «s 1 - FORMS XXXIII-XXXVI: The quantity of finished stock that will be made and carried is indicated in the upper left-hand form. The lower left form shows just how many of each detail parts go to make up a complete machine. The "Available Sheet" is filled out after a conference between factory department heads. The lower right-hand form is made out at about six-month intervals and serves as a check on each stock account soon as this is done, he is ready to get the signatures shown on Form XXXI. The whole document is made out on tough bond paper and after it is completed, blueprints are prepared and dis- tributed to the various interested parties. 176 STOREKEEPING The principal copy is that which goes to the storekeeper and authorizes him to maintain the stocks at the values given thereon. He immediately opens an account with each of the piece numbers in his ledgers, as shown on Form XXXVII, and enters orders in the shop for the manufacturing quantity specified in the stock specifications. His ledger account consists of a page for each piece number and gives the information shown. It may be that on some other stock specification he is already carrying a piece that is specified anew. If so, he simply adds the manufacturing quan- tities and the minimum availables on the new stock specification to those that he already has and handles the account just as he would if there were but one specification with the combined quantity called for. The ledger clerk in the storeroom office watches his accounts and, whenever the balance of stock falls to the minimum, he enters a new order for the manufacturing quantity stated. The accounts are thus running ones and unless the stock specification is changed they go on indefinitely. To provide for a better check on each account, however, the storekeeper has an abstract made about six months after the specification goes into force and every six months thereafter. This abstract is taken from the ledgers by a special clerk. He makes the rounds as fast as he can. The exact time for sending through the abstracts, however, is immaterial. The general character of the abstract is shown in Form XXXVI. It gives the average monthly withdrawals for the period indicated and the name of the part and its value in factory cost. It is sent to all parties concerned, with a proposal to revise the specification in line with the consumption. If there are no dissenting voices, this is done. The stock minimum is usually fixed at one month 's stock. The manufacturing quantities based on the actual business in sight are then determined by the shop. The specification is revised, and the figures in the ledgers are changed to agree. After the revision, only minor changes are usually necessary, as the line is then probably selling at a normal rate and will do so perhaps for some years. If it could be guaranteed that the line would remain in suc- cessful production for a long period or that the sales would very HOW MUCH STOCK TO CARRY 177 gradually alter, the stock would take care of itself. If the sales were increasing the quantities would gradually increase and the stock would keep pace with the demand. If the sales started to fall off the stock would gradually taper off and no losses would ensue. This is an ideal condition and most lines do behave in PICCC 9160 MIN. AVAIL. 12 6* X 9" Cnglim *itb eondonner MFG. QUANTITY 30 FACTORY COST K, 150.00 STOCK SPEC. 110 rO RECEIPTS WITHDRAWALS ORDER NO. DATE | DELIVERY DATE ORDER NO. DATE STOCK DATE 11875 30 10-5-14 | 10 11-15-14 X21617 2 12-1-14 20 11-25-14 X21618 3 12-5-14 X 5563 T 12-6-14 X21622 e 12-7-14 11692 30 12-8-14 10 1-1-15 X 216 30 3 1-1-15 10 1-15-15 X 21700 15 2-5-15 60 10 1-20-15 X21B55 3 2-8-15 41 60 41 19 2-9-15 rO FORM XXXVII: An account with each piece number covering all receipts and withdrawals is opened by the storekeeper on the looseleaf ledger form shown here. Cost, minimum availablel quantity to be manufactured and specifications are also noted that manner. When, however, a large change in the consumption of a stock occurs, loss due to overstock usually results, if sales suddenly fall, or a series of delays in delivering, if sales increase. As the system itself is based on predicting the future from the past, left to itself it would often go wrong; for business does not follow so simple a law. Hence the abstract, which is calcu- lated to bring to bear the best talent for prophecy which the organization affords. Fluctuations in the sales usually follow the introduction of a new article into the market or a change in outside con- ditions. In so far as the outside market is concerned, the sales force should know what is coming, and when they anticipate a change for the better or worse in the sales of a particular article, 178 STOREKEEPING they are bound, upon getting their copy of the abstract, to recom- mend that the production for the following period should be, say, fifty per cent higher than in the past or that it should be halved. And, although other departments are welcome to make their recommendations, the recommendations of the sales department are usually taken as final in this regard. Another reason for a sudden change in the sales is the develop- ment of a new and better line by the concern itself. This usually blankets any older lines which are similar and stocks must be in shape to meet the shock. It is the engineer's place, when he has a change in mind, to issue proper instructions so that the stock may be kept down to a point where the new line will nicely replace the old. All these features are covered in the approval of the abstract. The cost of the parts is given to emphasize the fact that stock is real tangible money — something that all are a little prone to forget. It also shows whether the stock is in good shape or not. If there are two hundred pieces of a certain part and the monthly consumption is ten, it is evident, as a rule, that someone has "slipped up." All hands are responsible for finding who is at fault and what is the best way out of the difficulty. If these parts are screws and the value given is twenty cents a hundred, no one will bother with it; whereas if the part in question is worth a dollar or more it is evident that any way in which this surplus stock can be disposed of will be a much welcomed money- saver. Sometimes the sales department can make arrangements to work off this surplus by cutting the price. Indeed, the slow movement of a certain size may mean that the price for that particular size is too high. Thus the abstracts often prove of great value, if for no other reason, merely by keeping the sales department in touch with their problem. So, too, the engineer as he looks over the abstract can see how certain idle parts or machines can be altered to make them salable. A machine may be carried in two styles of finish or paint ; often refinishing or repainting where possible will "move" the stock. The engineer can sometimes see where it will pay to draw out certain idle sizes and modify them in other ways to make them active stock. HOW MUCH STOCK TO CARRY 179 Frequently the accumulation of inactive stock can be prevented by the establishment of a storeroom for finished parts. Instead of manufacturing for finished machines, an improved stores sys- tem of manufacturing finished units for stock was developed in the plant of the Lodge & Shipley Machine Tool Company, with the result that it takes only three days from the receipt of an order to assemble and ship a lathe. As many parts have more than one specified use, the plan makes the factory much more flexible and responsive to sales demand. For manufacturing considerations, the lathe is divided into several ' ' groups, ' ' and each group into its component small parts. All lathes consist of similar groups and similar small parts not differing materially except in size. For example, some of the groups making up a lathe are head-stock, tail-stock, carriage, apron, and so on ; some of the small parts making up the head- stock group are the spindle, driving pulley, and face gear. Each piece is given its individual piece number. Similar pieces, re- gardless of the size, carry the same piece number; the size of the lathe for which the piece is to be used is designated by letter. For example, B-697 is a fourteen-inch spindle ; C-697 is a sixteen- inch spindle, and so on. REDUCING THE EXPENSE OP "CHANGE-OVERS" UNDER THE STORES SYSTEM r PO manufacture for the storeroom instead of for the assem- bling floor is the new plan. Small parts and groups as they are completed are delivered to the storeroom. On receipt of a customer's order the necessary groups for making up the lathe called for are ordered out from the storeroom to the assembling floor. The storeroom is divided into two sections. One section, the group store, receives assembled groups until such time as they are required for the erection of lathes. The other section, the parts store, is arranged for carrying small parts in quantities. No parts are issued from the parts store to the assembling depart- ment until all pieces necessary to finish the group on that par- ticular order have been received. Shop orders for lathes are subdivided into groups and each 180 STOREKEEPING group is brought through on an individual order. This allows the quantity of each separate piece to be varied to suit manu- facturing conditions. Pieces which can be machined more economically in larger quantities than the number of the groups being brought through at that time are detached from these groups and brought through on a separate stock order. When these pieces are finished they are stored in the proper bin among the other pieces which are being brought through on the regular group order. A tag on each bin states the piece number, the amount of the order, the date ordered, the minimum stock, and the shop order number on which the next lot is being brought through. Thus the storekeeper can see at a glance how nearly complete his parts are for a certain group without referring to his records to find in which section a piece is stored. Similarly in the group store the orderly arrangement of the various groups on the floor makes its easy to see just what parts are on hand. The storekeeper runs a complete card record, with a separate card for each group, showing the quantity and the shop order number. There is also a space provided for checking off addi- tional groups received or any that may be disbursed, so that the card contains always a complete record of the exact quantity on hand. Although economy of manufacture is not the prime object of this system, it is an important item. Under the former plan the same number of each small part was ordered as there were lathes in the finished lot. Using the parts storeroom, it is practical to manufacture certain small parts, requiring a considerable setting- up time for the machine operations, in lots of several hundred instead of fifty. Under the stores system practically all sizes of lathes may be erected at one time; thus mixed orders can be filled promptly. This plan has greatly reduced the expense of ' ' change-overs. ' ' Under former conditions the firm was frequently called upon for prompt delivery of fourteen-inch by eight-foot patent head lathe, while the only finished machine on hand of that size was a four- teen-inch by eight-foot three-step cone head lathe. The stock machine then had to be "changed over" to the desired style. :§-J] Cr™ Ma IS How the delivery of stores has been standardized is here shown. Small parts are arranged in racks handy to the workbench at the Cadillac Motor Car Company (top). At the Hart-Parr plant a cabinet (middle) stored with all the small parts for one machine is transported by crane to the point of assembly. Below are special trucks for delivering parts to the assemblage at another plant HOW MUCH STOCK TO CARRY 183 The promptness with which a complete lathe can be assembled by drawing from groups in the storeroom has nearly eliminated this expense of tearing down and rebuilding a lathe which has once been completed. Another advantage is greater promptness in handling repair orders. Eepair parts can be supplied from regular stock in the storeroom. This method does not upset production as it did to rush through a single piece of one kind. An important manu- facturing economy is the result. Any shortage in the store thus incurred can be remedied on the next succeeding shop order. Moreover, the total investment in stock is considerably reduced, notwithstanding the amounts carried in the group and parts store, because there never is a large quantity of unsold lathes left over from a lot just completed and because a smaller stock of raw material is now adequate. The method thus combines flexi- bility with economy of investment. Frequently, however, it is desirable to carry more stock than the present storage facilities of the plant permit. In such cases the manufacturer should not allow his storage limits to hamper him without first taking a fresh viewpoint on the stock problem. Sometimes a slight change in dimensions makes it possible to "nest" the product. Again, to handle it knocked-down multi- plies storage capacity. Because of their bulk, steel boxes recently became a problem in the assembling and stock-rooms of the plant which produced them. The process was to fold the box on a punch press, japan it and assemble. After the first fold it was difficult to handle and took up a great deal of space in the japanning oven and storeroom. Consequently, it was decided to omit the last punch press operation and to leave the steel in a long strip, which is japanned and stored until called for. A boy then assembles the box by turning the ends in a jig. It can not be formed in the press because of spoiling the coat of japan. Simple changes such as this often solve storage problems and leave the manager free to decide his stock limits by larger con- siderations. In this instance the capacity of japan ovens and storage shelves was multiplied by ten, and the cost of both japan- ning and folding was much reduced. XVIII FORMS AND SYSTEMS FOR STOREKEEPING GOOD storekeeping principles are fundamentally the same for all the various sizes and types of factories. The large shop may have a central organization, sub-storerooms, and a system based on several detailed forms. On the other hand, the manufacturer whose annual business can be measured in five figures or less, generally does not find it necessary or expedient to use such precautions and measures for the adequate control of stores. A single storeroom and a few forms perhaps answer his purpose. But the storekeeping methods of both small and large manufacturers, if their costs are being kept at rock- bottom, automatically indicate wastes, furnish comparative records of expense for supplies and materials, and guide pur- chasing between overstock and shortage. The experience of manufacturers in many lines has developed some exceedingly thorough stores systems. A study of these methods was the basis upon which the Reed & Prince Manu- facturing Company erected their storekeeping system, which takes care of stores of every sort and is widely applicable. How this system operates is told in Mr. Reed's own words. Our system of handling stores [says Mr. Reed] keeps account of all the raw materials that are needed in the manufacture of our regular products — wood screws, rivets, bolts, machine screws and so on, and all the supplies necessary for the manfacture of these classes of goods. Moreover, it has enabled the purchasing depart- ment to keep in close touch with the stores department and has so centralized records and materials that one clerk can look after the work. FORMS AND SYSTEMS 185 The stock carried by the storeroom includes raw material, wire and rods; the tools necessary for forming the raw material into finished product, and packages and labels for preparing the product for shipment. It is necessary also to keep repair parts on hand for machinery which is used throughout the factory and other supplies which are necessary to keep the whole plant in running order. To sum up, in our factory the stores department handles all the necessary materials from raw material and coal to stationery and office appliances. No part of the accounting is dOne in the storeroom except the handling of requisitions for goods delivered and the slips for goods received. It is possible, by keeping track of the relation between goods delivered and goods received in the purchasing department office, to keep the necessary purchases to the mini- mum limit at all times so that the amount invested in stores and other material is right. Moreover, the records, as will be pointed out in the subsequent pages, are so arranged that they are avail- able for future reference. It is always possible to tell how much of any particular item to purchase or to have made in the factory. This simplifies the work for the purchasing department. In most cases it is only necessary to state the standard quantities which are to be purchased and the purpose for which the article is used. The detail work of ordering is done by a competent clerk in our purchasing department. To install this system a list was first made of every article that was to be kept in stock. This is a fundamental proceeding for a storeroom system. Without the list little can be accomplished. Properly classified it forms the basis for correct ordering. The second step necessary in working up a stores system is to arrange a set of books of account for such articles as are received and distributed. There are three sets of these books in our offices. The stock account books (Set I) consists of a series of looseleaf books (Form XXXVIII), in which daily entries are made, showing how much stock has been ordered, how much re- ceived and what has been delivered out of stock each day. The weekly stores report (Set II) shows the amount of each stock article on hand at the end of each week. This also is kept in a looseleaf ledger (Form XXXIX). The depleted stock list (Set III) is a tabulation (Form XL) of the condition of items run- 186 STOREKEEPING ning short. From it new orders are made out, and old orders are hurried when necessary. In addition to the three sets of books described, a reference book is made up for the purchasing agent, which contains a dupli- cate of the stock list. In this book is recorded the amount of each Maximum 20.000 lbs. .400 BASIC HIKE Minimum 5, 000 3 ktu Requisitions Deliveries Requisitions Deliveries Order Order No. Amt Rec'd BaL Due Amt. Dept Cost Bal. on Hand Date Order Ho Amt. Rec'd Bal. Due Amt Dept. Cost BaL on Hand FORMS XXXVm-XL: All these records are handled in the factory office by one clerk. From them the purchasing agent keeps accurate account of all raw material used in the factory. The records are simplified and compact stock article used during each quarter with a space for recording the total amount used each year. This books shows the pur- chasing agent the condition of all regular stores and also enables him to compare the stock used in different quarters by periods. The book sets, Nos. 1, 2 and 3, and the additional reference book just described enable the purchasing agent not only to keep an accurate account of all the regular supplies, but to check misuse of supplies and to control closely the purchasing of materials and supplies. KEEPING TRACK OF MATERIALS, SUPPLIES AND TOOLS BY DEPARTMENTS TH keep track of the raw material, tools and miscellaneous supplies which are used in the factory is the next step in han- dling the system. The basic stock list to which reference has been made, is divided so that every section is a list of the articles used in one department., FORMS AND SYSTEMS 187 The foreman of every department is provided with a list which shows what stock is carried for his purposes in the storeroom. In listing this stock the tools and miscellaneous supplies are tabulated according to their names, but in case of repair parts it has been necessary to list by number. Consequently, in order that a foreman may specifically and accurately know repair parts, each department head is given an alphabetical list of the repair parts for his department which are carried in the storeroom, together with their index numbers. The storeroom is provided with a numerical list of these parts, which gives the name and location of each. Every part has a Dat ' Stores Requisition ForD,pt Jan. U, 1915 wmwm neijuioiuuii Machine Items Wanted Bin 3 pr. 1x8 r. H. V. S. Dies K - 3 Ordered ty Kana Delivered H. 1. For Order No. _tsj. A B. FORM XLI: Simplicity marks this stores requisition. All the important items are covered and ample space is provided for each and also for any notations the stock clerk may find necessary. The slip is standardized in size for filing purposes definite place in the storeroom so that it can readily be found by the storekeeper. When a foreman wants material of any sort from the store- room he specifies the articles on store requisition slips by name or number as provided for in his lists. He then sends these requisition slips (Form XLI) to the storeroom and the material or parts are delivered. When the stores clerk makes the entry in the stores account books, the cost of the material delivered is recorded on the requisition. Eequisitions are filed behind tabbed cards arranged according to departments. In making out the requisition the foreman must be careful to 188 STOREKEEPING list accurately just what material or repair parts he wishes. The stores clerk has orders to check very carefully all foremen's requisitions so that the records will call for items listed exactly as they are in the regular list of stores kept on hand. This avoids confusion in tabulating the records of disbursements and standardizes to a great degree the work of purchasing. If the articles ordered by the foreman are not specified properly, cor- rections are made on the slips by the stores clerk so that there will be no mistakes when the slips are entered on the stores account books. That a close check may be maintained upon the amount of stores used by each department, every week the stores clerk makes out a condensed report. There are three regular items which every department in the factory uses. In some depart- ments the subject of the expense account varies, and it is advisable to change the headings of the columns shown to meet these differ- ent requirements. As the average expense account has been de- termined for ordinary conditions, these weekly storeroom reports make it easy to watch for extraordinary charges which may need investigation. In making up this storeroom report the requisitions which are sent from all departments by the foremen are grouped according to the headings on the storeroom report sheet and the expense recorded in the proper column. HOW A COLOR SCHEME SAVES TIME IN HANDLING STOCK r> AW material, tool steel and machinery steel are kept track of by approximately the same record system as the other regular stock. The sizes and kinds of steel are listed and divided into two accounts — tool steel and machinery steel. The quan- tities of steel are tabulated under these heads according to the shape — round, square, or flat. A daily inventory is kept of the size, shape, length, and weight of steel taken from stock for the various departments. This record comes each day to the stores clerk on a card (Form XLII). From this record the details are tabulated in the looseleaf, stock account book. To save time lost in handling short lengths of stock, the bars of steel are striped the whole length in a color to indicate the purpose for which the steel is used. If only a section or one FORMS AND SYSTEMS 189 end of a bar were striped, the length remaining after any- machine operation which removed the stripe would likely be confused with short lengths of different compositions. The column headed "Color," therefore, indicates the kind of steel: self -hardening steel is painted red ; header dies, white ; r. t. dies, Department 2 Date Jan 30th, 1914 Steel Taken from Stock > ««■!■ M «• ItePt, Hafld" \ : Oat. Del id J fcpt H*ff /-.rtitf -i fe- /,?a-'/^ Floor -/a^ a-uuity Quantity Deliver to Dept. <5* No. of Operator 7& ■3/f ¥££: FORMS XLII-XLV: At the left is a steel stores report. Requisitions for oil |and raw stock are illustrated at the bottom (center and right); and a stock record of office and stationery supplies is shown in the form at the top (right). This stock record is kept hanging at the end of the shelves green ; cutting tools, w. s. cutters, hobbs, shaver cutters, formed cutters and c. t. dies, orange ; crucible steel and low grade steel, blue ; machinery steel, yellow. This saves a great deal of material otherwise wasted. The raw material which is kept in stock— wire, nuts, rods and burr plates— is piled up in sections allotted every size and kind. Operators using this material requisition it on slips provided for that purpose (Form XLIII), showing the kind, amount, and size of wire needed. The weights of the wire delivered are recorded on these slips, and from them entries are made into the stock account books, showing the amounts which have been taken from stock. For handling the oil, a tank is installed on every floor of the factory. Each tank contains a barrel of the several grades of oil used in the departments on that floor. These tanks are filled whenever necessary, and oil is requested on the regular stores requisitions. For keeping a detailed account of the oil, cards are delivered on each floor, to the foreman's clerk who has charge of tne oil tank When any can is filled the kind of oil taken and the 190 STOREKEEPING number of the can are recorded on one of these slips (Form XLIV) so that it is possible to tell where oil is used. Records are made from these cards showing the amount of every kind of oil on each floor per week. For some articles which are carried in stock individual account- ing in the weekly stores report would be cumbersome. This is true of machine screws and labels. For this purpose ordinary ledger-ruled, three-by-five cards are used (Form XLV), and each card is considered sufficient for two sizes of labels or machine screws. In order that new material can be ordered in ample time, the stores clerk reports such of these articles as are below the min- imum limit. Requisitions for these two items are sent into the storeroom the same as for other articles, but the records are kept as simple as possible on the cards instead of in the stock account books. Goods which are made in the factory and delivered to the store- room for regular stock are ordered on what are known as tools and fixtures slips (Form XLVII). These orders are made out in triplicate from the depleted stock list and two copies are given to the department in which the goods are made ; the third copy is kept in the storeroom for reference. As soon as these orders are written, entries are made in the stock account books showing what has been ordered, the amount, order number and date. These order numbers, in the case of tools, are used for con- venience in locating the order and keeping track of it in process. The number itself has no particular reference to the kind of tools which are being made. In the case of repair parts, how- ever, the order number and the index number are identical. Orders for special tools and fixtures are made out on tools and fixtures slips the same as those for regular goods, with the exception that they are stamped ' ' special. ' ' These special items are listed on sheets and each department has a separate sheet for special goods which it is asked for. On these sheets the order is described; and the date of receipt, number of the order, date of delivery, number of pieces and the cost are tabulated. By this means an account is kept of the expense of special tools and fixtures, and it is a simple matter to distribute this report to the various departments, so that they can at once advise whether or FORMS AND SYSTEMS 191 not to adopt some of these special items as regular stock. This record shows also whether the foreman has used good judgment in getting out his specifications. In checking deliveries of goods received each day in the store- room, for which the tools and fixtures slips call, a special record Oats J-- *n 101* Completed Stock Received Department 2 03 A2 From DepL No. Name of Article and Index No. Order No. Pieces lfl_.. Punch Bar Hoek -as For Dept 3 Tools and Fixtures Date 1-8-14 Workmsn That Kind of Work Materia Klnd_ Size !-■■■■» Date Order No. Size , 1/2 < a/i« * MB BRASS IIIVBTS Boxes * 500 lbs. FORMS XLVI-XLVIII: In the middle is shown a shop order for tools and fixtures for "home" consumption. At the back is a record that helps check deliveries. By filing these slips (front) as described, minimum and maximum stock quantities can be conveniently fixed for the factory like that shown in Form XL VI has been found valuable. Care must be used to see that the names of the articles received corre- spond exactly with the classification on the tools and fixtures slips, in order that no mistakes are made in entering these items in the stock account books. For following up these tools and fixtures orders a copy of every order is kept in the storeroom in a file arranged so 192 STOREKEEPING that each day goods which are due come up. The department filling these orders is then reminded of what it promised. In cases when goods cannot be delivered on schedule, a new promise is obtained, and the department which is waiting for the outside material is advised of the delay and the new date of delivery. This plan affords accuracy in follow-up methods. In order to keep track of the orders received in the storeroom from the various departments, the tools and fixtures slips are classified under five different heads: 1. Orders for regular tools. 2. Special tools and repairs. 3. Steel repair parts. 4. Casting repair parts. 5. Tab cards showing the dates of the month. In the first class, regular tools, the orders are arranged accord- ing to the different kinds of tools, and these are subdivided into groups by tab cards. Special tool orders are arranged according to departments and these groups of department cards are sepa- rated by tab cards. Kegular repair parts are grouped in the file according to order numbers. This order number is identical with the index number of the repair part itself. Orders for special repair parts are filed according to the department for which they are made. These are placed with the orders for special tools. Promises are given to the stores department as to the date on which each of these orders will be completed; and this date is written on the order itself. Besides this, a slip of paper is made out bearing the order number and the department for which the goods are intended. This slip is put behind the proper date card in the follow-up file. If it is necessary to make out a new date on which the order will be finished, this slip can then be filed ahead and the new date entered on the original order kept in the file. If interruption to production through delay in the delivery of supplies is to be avoided, definite relations must exist between orders and stores. This relation is maintained by means of information furnished by the order department for the amount of raw material used for each order issued to the factory. As wire, wire rods and rivets are the principal items of expense, slips are furnished by the order department, which show the FORMS AND SYSTEMS 193 sizes, kinds and amounts used for each order (Form XLVIII). A set of tab cards, each marked with stock sizes of wire and rods, are used for this purpose. Behind each of these tabs are filed the slips furnished by the order department, which show the kind of wire and the amount that is to be used for every order. By filing these slips back of their respective tabs, it is possible at any time to tell the amount of wire necessary to fill such orders as are in the factory. When these orders are com- pleted they are returned to the stock clerk, and the slips which have been filed are taken out and destroyed, as the factory order is returned to the order department for filing. To make this system for handling details effective, the duties of the storekeeper and the stock clerk are classified. To cut out unnecessary labor and lost time in their respective departments their time can profitably be distributed to their jobs. Definite printed instructions are issued to both the stock clerk and the storekeeper. It is the duty of the storekeeper to see that the stock in the storeroom is kept in good order, that it is properly arranged and that each item is given a definite place so that it can be found without delays in the delivery of articles distributed from that department. By means of the depleted stock list, the storekeeper can closely follow those items which are low in stock and those which are needed the most, and can issue instructions to the various depart- ments making such goods as are needed and as are called for by tools and fixtures orders. The storekeeper further keeps track of all orders for tools and fixtures and various goods made in the factory which are dis- tributed from the storeroom, including the regular stock of repairs, and tools and special items. He also makes out records for these items as they are received on various orders, so that they can be listed properly in the books and a correct account made of what is delivered to the storeroom. The regular stores requisitions are gone over each day to see that they are properly made out. This is essential because it eliminates errors in classi- fying totals in the stock account books. Similarly the duties of the stock clerk are classified and scheduled so that he can perform his work with the least friction. 194 STOREKEEPING The first period of each morning is spent in entering in the stock books such articles as have been received in the factory and storeroom during the previous day, and in making entries of those orders that have been made out for new stock material. During the second period, entries of all goods delivered from the storeroom are made in the books, including raw material, repair parts and other supplies. On Monday afternoon, records are made from the stock account books into the weekly stores report book, which show the amount of each stock article on hand at the close of the preceding Saturday. On Tuesday afternoon, records are made against each article on the depleted stock lists showing the balance due on goods which are below the minimum amount. Wednesday afternoon is occupied in making out a statement of the oil used by each department during the preceding week and in listing it in standard quantities with the cost. Thursday afternoon is devoted to making out a complete report of all stores used by each department during the preceding week so as to show the total expense of the goods supplied to the several departments by the storeroom. On Saturday afternoon work which has come in during the week is adjusted and special reports as they are asked for are made out. Figures are computed giving the weekly consumption of every stock article. A SHORT-CUT SYSTEM FOR CHECKING LEAKS IN HANDLING STORES A SIMPLE and effective system for handling stores with im- portant variations from the foregoing plan has been evolved by a manufacturer of brushes. It acts both as a check on leaks and as a basis for distributing general expense. All general stores are kept in a storeroom, from which with- drawals are made only on the presentation of the usual requisi- tion. This card is sent to the cost department after the supplies have been delivered. The head of the department for which the supplies were ordered keeps a duplicate copy. On the card are scheduled the date, name of department FORMS AND SYSTEMS 195 receiving the supplies, by whom delivered and received, and a space for clerical checking, in addition to columns for quantity, name of article, price and value. Each of these spaces is significant. The unusual feature about this little stores system is the foreman's report, which has been found very useful. It is made Shortage Report Date Drwf, Ho. mm Amount Short Date Short Amount In Stock Mnff. Order Amount of (Mot Dent locatod Ot#t Ml " oductkHiM FORM XLIX: Twice a week, in an Illinois factory, the shortage report shownbnngs this item to the attention of the manager. Spaces are left for the initials or signatures of six employees whose business it is to prevent shortage. The resulting teamwork successfully forestalls any serious lack of materials or supplies out in the office and is sent to the department foremen at the end of each month. Thus it gives each foreman a chance to know with what he has been charged. On the front of the card is the name of the department and the month, together with a summary in dollars and cents of the direct labor, material, repairs and supplies which were charged to the department for the month. Below this summary are figured in percentages, the rates of the current indirect labor and supplies to direct labor, together with similar percentages for the preceding month and for the month in which this percentage was lowest. To sum up, this supply record gives an idea of what the labor, supply and material, and repair expenses of each department are. By this means only can an accurate percentage cost be found. Also it makes the foreman responsible for his general expenses. This has a healthy influence in checking leaks. If a man knows that his general expense is being totaled in the office he will be more careful in his expenditures. General stores 196 STOREKEEPING will be used more economically, and tools and supplies will be made to wear longer. Segregating stores also makes it possible to keep a perpetual inventory — to credit and debit stock as it is used. To prevent shortages is particularly the object of every well- planned stores system. The manager of an Illinois electric plant has met this problem in a simple way. The trouble with shortages had been a frequent occurrence. One day the foreman of the assembling department called the manager by telephone and wanted to know why the storeroom did not deliver some material. The shortage, he said, dated back two weeks or more. Calling for the stock card, the manager found the material quoted as in stock. When the storekeeper was asked if this were true, he said that he thought so. Investi- gation, however, showed that the item was not in stock and that an order had never been placed to remedy the shortage. No explanation appeared, other than neglect. "Within two days the same assembling foreman called for an- other item. Again there was a shortage which the stock card did not show. As the item had been short over two weeks and an order had been placed, it was apparent that the follow-up was at fault. On investigation, it was found that the item, after the first notice on the day of the shortage, had been completely forgotten. At this point the manager determined to put a check upon all shortages and their follow-up. He would want to know the date of shortage, piece number, name and quantity short. In order to get action on the report, he would need to know whether the parts were in stock and not delivered from the storeroom; whether a manufacturing order had been placed to remedy the shortage, and if so, its schedule, so that he could telephone the proper department regarding its completion. These points were accordingly embodied in a handy report (Form XLIX). Every Monday and Thursday the storekeeper makes out this report, filling in the drawing number, name, amount of shortage and date short. The report must include every actual shortage in the storeroom. Next in line the record clerk checks these shortages with his stock cards, indicating any disagreement. An unrecorded shortage looks bad for the storekeeper. FORMS AND SYSTEMS 197 As the report passes to the order clerk, he fills in the order number and quantity covering the manufacture to replenish each shortage. The tracing clerk then takes the report and locates the material in process, indicating the department occupied with it and the amount available. Finally, the report comes to the manager, with all the information he needs to rush the material forward by telephone. Under this plan everyone concerned goes on record before the manager regularly. As anything that is in error comes directly to the attention of the chief, the storekeeper watches shortages persistently. The production clerk feels that to have an item appear on this report more than once seriously reflects on his ability to watch the stock. The record clerk is more careful of his entries and calculations. The order clerk does not want to be found with a shortage not covered by a manufacturing order. The tracing clerk dislikes to go on record as behindhand or in error. Finally, the production manager feels responsible for a clean bill in all of his departments. A moral force is exerted to keep the report favorable all the time. XIX HOW INVENTORIES ARE HANDLED IN TEN PLANTS INVENTORY means overtime and wasted effort in the average factory. The responsibility for the work is given to one man who gets the job out as best he can; the bookkeeper works overtime trying to adjust a complicated array of facts and figures to fit a price list; men are laid off in the manufacturing depart- ments for a period, and when the checking is finished there is still a liability of error. To simplify matters, to record all material quickly and ac- curately, and to keep the workmen in the production departments idle a minimum time, one machine company instituted the fol- lowing method : The principal feature is that in arriving at the final result, nothing has to be copied; nothing is put down a second time. This eliminates many chances for errors. The grand total value, which is the figure wanted regardless of detail — detail can wait — is obtained at the earliest possible moment. Since cards and loose sheets are used, the work can be distributed among many clerks and a number of adding machines can be used. Each job is specialized. One man prices; one man checks prices; a number of men extend by hand; and one man checks the extensions with a calculating machine. In pricing and check- ing extensions, a great deal of time is saved by having the inventory tags sorted by commodities. The sorting must be made eventually; it had better be done the very first thing. There is nothing complicated about any of this work. It is simple ; and yet everything which can be used is recorded. Organization is essential; everything is planned beforehand In maintaining a perpetual inventory, records are ordinarily kept close to materials and supplies. Card files are placed for easy reference in the stores department shown at the top. Under each bin is a slide for cards. It has a rough surface so that it can be chalked. Below, in a tool and supply vault, steel cabinets are used for safekeeping of the records of the cost department HOW TO HANDLE INVENTORIES 201 in readiness for inventorying. Each foreman is given a chart of the personnel so that he may know whom to call upon for assistance. He turns in the names of the workmen who will help him to the office manager, who criticises the number of men wanted, their rates of pay for the work, and so on. CT) TAO WO. / ^ 19 INVENTORY TAG CATALOGUE NUMBER. LETTER- -2- 3 CALCULATIONS QUAN1 ITY price pen VALUE UNIT AMOUNT S4f r»o« /Z pieces SLO ar *f? _z%_ TAPr /o.jE'iJ2'i!-! : ? j''""!" [ ■■'L.'Z-j. : . U>SO» s ;JU ■ >,±t\ V ^L i [) INVENTORY RECORD FINISHED MACHINES AND A sheet ITACHMENTS T NO 5 J i i ? 1 size on description ..„, tWTtWM LA.O« Hr If If ■luLQj- j © m vc W «/«eo»o «— — REP AIR PARTS ID I " No: iP|s]i|l •=f Si £1- . :[*'■'■'■ K _Zi, U--4— j h — *" i SISI^bS ^~ .. . » FORMS LI-LIV: These sheets, which are distributed among the clerks, make inventory taking a matter of days instead of weeks. By separating the materials or work handled, plans can be mapped out for four distinct departments omissions or duplications may not occur through misunder- standing as to ownership. Foremen of adjoining departments confer regarding such material, and in the presence of one of the office representatives decide who will inventory the material in question. 204 STOREKEEPING While inventory is being taken, no stock is moved in a depart- ment except upon the written approval of the office manager. Stock, however, may be transferred between two departments prior to the taking of either of their inventories, or after both INVENTORY PLAN OF ORGANIZATION -1914 CHALMERS MOTOR CO. DETROIT MICH. MISCELLANEOUS W. G.SHEARAR nicmcu. STANSELL T001II00M NUTTING ntuPKss PURSE FOURTH FLOOR FIGURE X: tion chart such To define clearly the duties of everyone engaged in taking inventory, an organiza as that shown above is prepared each year. Blueprint copies of this are distributed well in advance of the inventory date to all concerned have been completed. The shipping and repair departments arrange beforehand for all stock likely to be required during the inventory period, which is ordinarily two weeks. All material received at the works after the listing has begun, even though previously invoiced, is not included in the season's inventory but is stamped, "Not Inventoried." All material received at the works prior to inventory date, however, is in- HOW TO HANDLE INVENTORIES 205 eluded in the inventory, and the invoices for such material are stamped, "Inventoried." Any material received prior to the date of inventory, but not unloaded, is included in the inventory. All shipments of machines, repair parts and materials, sub- sequent to the date of inventory and prior to the completion thereof, are, of course, included in the inventory. Tags are attached to all objects as inventoried. No tags are removed until everything in a room has been considered. The inventory tag is in duplicate. The department foreman and the O INVENTORY 1914 N? 11852 O INVENTORY 1914. N? 11852 INVENTORY 1914 DESCRIPTION. COST. REMARKS STOCK TAKEN BY. CHECKED BY NO 14850 CHALMERS MOTOR COMPANY PROCESS INVENTORY 1914 BL0G.N0.. DEPT. NO.. ORDER OR CAR NO.. QUANTITY REMARKS STOCK TAKEN BY_ COST FORMS LV and LVI: Two weeks in advance of the inventory, clerks attach triplicate tags (shown at left) to all stationary stock At that time the description is filled in, on the uppermost ticket only. The duplicate and triplicate are used on inventory day. For goods_ in process the manila tag at the right is used. It is attached the day previous to inventory office representative, before collecting a single tag, make a very careful trip through the department to make sure that everything which should be inventoried in the department has an inventory tag on it. Together they collect the inventory tags, leaving, 206 STOREKEEPING if they so desire, the original or blue tag attached to the stock. The card (white part of tag) is sent to the cost department. They check the description, catalog number, quantity, and so on, to the best of their ability. After the tags have been col- lected they are arranged in numerical order with small numbers on top, including all of the tags which may have been marked 1 ' void ' ' or ' ' spoiled. ' ' The last tag is plainly marked, ' ' Last tag No. ," showing the number of the last tag used. All the tags delivered to the department, including unused tags, are sent to the cost department with the certificate. After the tags have been returned to the office and all the numbers accounted for, they are sent to the printers and cut at the dotted line. The blue part is returned to the shop for the files and the cards, which are then standard size, five inches by eight inches, are returned to the cost department. Commodities are sorted first and then priced. As soon as they are extended and checked, the amounts are listed with an adding machine, making sub-totals for the various kinds, sizes or classes of each commodity. A recapitulation of these totals is then made according to the various accounts carried in the stores ledger. After the grand total value of the inventory is ascertained, the balance of the information required on the summary sheets is filled in from the cards with ink. The sheets are then arranged in proper order and sent to the printer to be bound with a light cover and stapled. The cards are filed away in the vault in the place previously occupied by the cards of the second preceding year. HOW ONE COMPANY SAVED TEN DAYS IN TAKING AN INVENTORY T^WO weeks was required for this inventory. Methods of inven- tory, however, vary as widely as factory conditions. The less the time for inventory, the less will be the contingent interrup- tion to production and the overhead per unit of output. Two years ago a manufacturing plant in Cleveland was shut down for a fortnight while its employees were taking the annual stock inventory. Last year the same force of laborers ^ HOW TO HANDLE INVENTORIES 207 with the assistance of an appraisal company did the same work in four days. With the expenditure of less than two hundred dollars the manufacturing company was able to make a saving of ten days. The appraisal company was represented in the plant by just one man and the actual work was done by the same employees who had handled it the year previous. A comparison of the methods used in the two years will explain, however, the great difference in time. That the foreman of each department and the men under him best knew the material in that department was the belief of the company. They believed, therefore, that the foreman was best suited to take the complete inventory of his department. The appraisal company thought differently; it divided the work so that the foreman of a certain department, such as the press- room, went through the entire plant with a selected group of men, taking his own special line and nothing else. After all the material was listed, it was checked by the appraiser and the foreman of the department in which it was found. It was then priced but by a new method. A schedule of all the different parts used in making up the manufactured product was prepared. From the company's cost records a schedule of each different operation in the manufacture of each part was drawn up. The use of these figures did away with the possibility of wrong or inconsistent prices such as were found in the inventories of previous years. Above all, inventory should be thorough and taken in the minimum possible time. The Chalmers Motor Company inven- tory meets these requirements by methods which differ from those previously discussed (Figure X). Factory operation is inter- rupted ordinarily for inventory only one day. If the date falls on Sunday or a holiday, work is not suspended at all. The one-day inventory has been made possible by thorough prepara- tion. Two weeks before the actual listing and counting, clerks begin the tagging of all stationary stock. The inventory tag (Form LV) is in triplicate. The clerks fill in a description of the stock on the uppermost (yellow) ticket. This is then detached and sent to the office, where it is priced by the cost department. The pink duplicate and manila triplicate are not removed until the day of the inventory. 208 STOREKEEPING The first step then is to ascertain and fill in the actual quan- tities on the pink slips. As soon as these are entered, the slips are detached and returned to the office. The accounting force now matches them with the yellow slips previously sent in, enters on the yellow slips the quantity as designated on the pink slips, and posts the pricings from the former to the latter. Thus two complete sets of inventory slips are obtained. These are arranged numerically in blocks of five hundred and turned over to independent groups of calculating machine operators to extend. Subsequently, clerks with adding machines find the totals. The two sets are next proved against each other and must agree absolutely. If any discrepancies appear, the figures are gone over until the errors are found. The triplicate tag, which is a manila card, remains on the article until the person responsible for the inventory in each department has passed through and satisfied himself that every item of stock has been tagged. But this final tag is not removed until all numbers have been accounted for. For record purposes the yellow slips are transcribed on larger sheets of paper. These are checked carefully against the orig- inals, but they are extended and totaled separately in the same blocks of five hundred numbers. The accuracy of the copying thus is attested and a third check furnished on the mathematical work. In case of goods in process, a tough manila tag, instead of the weaker triplicate tag, is employed (Form LVI). The tagging begins the day before the inventory. The next day in listing this stock, the part symbol, order or (motor) car number, quantity, description and last operation performed on the stock are indi- cated. If the stock is damaged or imperfect, its condition is also noted. After the tags have been inspected by the head, they are removed and returned to the office. Here they are checked against the manufacturing orders issued and in process, then priced, extended, totaled and transcribed on the large second sheets, as are the stock slips. These sheets are finally bound in leather covers and kept handy for the manager. For several months afterwards he finds in the facts recorded a potent leverage on the production department HOW TO HANDLE INVENTORIES 209 to reduce any surplus not merely of standard parts, but espe- cially of stock on old models. Only goods in process are actually counted under this routine. A perpetual inventory is maintained on all material in the stock- rooms, both by bin tags and by an office record. These are com- pared frequently, and any discrepancies are at once reconciled. Whenever an article reaches its low limit, the storekeeper makes an actual count and reports his finding to the office. Any adjust- ments in the records are made then and there. Thus, in fact, the physical inventory of material in the stock-rooms is in progress daily throughout the year. So accurate have the records been found that the supervising auditor of inventory is willing to accept their witness as suffi- cient. At the Elgin Watch Company, where a similar inventory plan is followed, out of fifty bin tags selected at random not one was off on the tally. Considering the small bulk of many parts handled, this was a remarkable showing. The auditor's repre- sentative, after making this test, turned and said: ''We don't need to go any further. I 'm willing to take your paper record for this part of the inventory." To have gone into an actual physical count of the millions of small parts in stock alone would, in this case, have required many days. Reliable perpetual inventory records of material in store- rooms, however, leave it necessary only for the stock on the floor to be counted. Consequently the time out for actual inventory- ing is reduced to a minimum. It is possible even to dispense with the yearly physical inven- tory of goods in process by operating proper running records of production. Bulk materials as flour, pig iron, cement, coal, wood alcohol, paint, varnish, and oil, readily lend themselves to such accounting, as they permit of a daily labor and material cost. So also do single piece products where the operations are few and clearly distinguished. Assembled products involving many small parts, like automobiles, typewriters, clocks and watches, are not so easily handled, as the clerical work of operat- ing the perpetual inventories covering the work in all its stages would be enormous and the chances for inaccuracies are great. Indeed, it is a question whether the cost of the clerical work 210 STOREKEEPING would not exceed the gain, especially when by keeping an accur- ate perpetual inventory on stocked parts and by making proper preparations for the goods-in-process inventory, the latter opera- tions can be reduced to a single day, as at the Chalmers plant. MAKING EACH FOREMAN RESPONSIBLE FOR THE CONTENTS OF HIS SHOP A PLACE for everything and everything in its place simplifies ■**' inventory. This is the basis of the procedure at the Lidger- wood Manufacturing Company's plant. Each foreman is responsible for the inventory of the contents of his shop, including tools, fixtures, and appliances of all kinds, as well as finished and unfinished work. Small blank books with ruled lines are prepared. Each book has a number and contains the name of the foreman, the date of the inventory and a few explicit instructions as to exactly what detail is to go into that particular book. These instruc- tions are typewritten on colored paper and pasted on the outside of the book. The foreman selects competent men and assigns them to definite things. For instance, one man goes through the work-bench drawers and inventories their contents — hammers, chisels, files, bench brushes, and so on — which are the company's property. One or more men are assigned to inventorying all the rough castings, another inventories all of the partly finished work, and another the finished work. These books are written up by some one under that particular foreman and come in to the superintendent. The superintendent looks them over and portions them out to different clerks who in turn copy the items with their respective values in other books which go to the New York office. Perpetual inventories are used for keeping track of machine tools, jigs, fixtures and the like, so that the books simply carry the numbers of discarded tools or additional tools. Jigs and fixtures are all made to a certain series of order numbers so that the exact cost of each item as made may be had. A perma- nent inventory of the various systems of piping and wiring is also kept and the changes each year are simply noted as additions or subtractions. HOW TO HANDLE INVENTORIES 211 At the Studebaker Manufacturing Company's plant cards (Forms LVII-LIX) have been especially devised as the most satisfactory way to take the inventory. These cards are ar- ranged (says the purchasing agent) so that we make our inven- tory in duplicate by the use of carbon-backed paper. Both the FORMS LVH-LIX: These forms are made out in duplicate, and are used for classifying and checking raw material, finished stock and goods in process. By making the records in duplicate, one copy can be used for pricing, while the other is used in summarizing total quantities original and duplicate are numbered the same. The duplicate enables us to forward two divisions of our work at the same time. One copy is sorted as to quantity and size while the other copy goes to the purchasing department to be priced. Before starting an inventory we take our factory insurance maps and lay out the territory to be inventoried along insurance lines. Each building and each floor in each building is a separate division and is inventoried according to its building and floor number. In this same manner we lay off the courts between the buildings and our lumber yards, and the person who will be responsible for inventorying each division is notified in writing and is supplied with the necessary cards. Everything in the inventory division is counted twice and then checked by the person who is responsible for the inventory in the division. The first counter takes the inventory card and counting the material or weighing it as the case may be, marks the inventory card and leaves it with the material. The second 212 STOREKEEPING counter follows him as closely as possible, counts the work a second time and marks his result on the ticket and turns it over to the man who does the checking. If there is any difference between the two counts the checker should catch it. If he does not, another count is called for when the cards are turned into the office. This company keeps a perpetual inventory of all of the plant equipment accounts as well as the finished stock and the store- room accounts. Whenever the stocks run low in any one of these items, the balance on hand is inventoried and proved with the records. It is sometimes necessary to make adjustments due to clerical errors, but as a whole the plan has proved feasible and satisfactory. Two methods of keeping a perpetual inventory are in general use. One provides for the posting of receipts and disburse- ment orders on the respective stock cards by men who have no other duty than carrying out the balance; the other for the recording of receipts and disbursements on "in" and "out" cards tacked to each bin or lot of stock. The former is preferable chiefly because errors are less likely to occur when the task of posting the movements of stock and supplies is specialized. The stockman, both a clerk and a laborer under the "in" and "out" card system, often neglects the posting, especially when con- fronted with many in-shipments and disbursements. Moreover, this method presents complications in that it is not always pos- sible to cover all the supplies and materials of one kind by a single tag. Many plants, on the other hand, operate both kinds, deeming the office record indispensable and the bin tags of suf- ficient value in addition to warrant the duplicated clerical work. The fact, too, that an independent record is maintained in the office serves to make the storekeeper more attentive to his tags. A properly kept perpetual inventory record makes unnecessary the taking of stock in the ordinary way. But it is well to check up by an actual inventory until you are satisfied that the per- petual record is dependable. Even then it is on the side of safety to make a complete physical count of some section of the stock-room every two or three years, and every year to check up a few bins or shelves here and there. The fact that you will do this has a wholesome moral effect on both the storekeeper and the record clerk. HOW TO HANDLE INVENTORIES 213 Viewed correctly, a perpetual inventory is after all only a device for spreading the physical count over the entire year on as much of the material as practicable. This permits the job to be specialized, which promotes efficiency and makes it un- necessary to break in on the time of the shop. Virtually all plants that operate such records have a more or less systematic plan of checking. Some have the storekeeper make a physical count whenever an item reaches its minimum. Others, notably the Jos. T. Ryerson & Son Company have a man from the office go through a definite list of items each day, so scheduled that the entire stock will be covered by inventory time. A large New York electrical company has gone even further. All its store- room material is divided into classes. Thus, mining and under- ground supplies are classes one to ten ; and arc lamp parts, in- candescent lamp and light hardware are classes eleven to twenty- five. Definite dates are then set upon which material in certain classes will be checked. For instance, on February 28th material in classes one to twenty is taken ; on April 30th, in classes twenty- one to twenty-nine; and on May 31st, classes twenty-two to twenty-five. Thus by the end of the year, every class of material will have been counted and checked against the stock ledger balances. Inventory, it should never be forgotten, offers opportunities to reduce stock in excess of that actually required for the most efficient and economical conduct of business. The inventory, however, must be thorough. It will show the approximate age of each item and the consumption during, say, the past year, or running farther back if available, as well as the amount and value on hand. Even with as thorough an inventory as it was possible to obtain through the departments ordinarily attending to such matters, one concern found that a great many items were either omitted, or so inaccurately described, that it was necessary to go through the factory and storerooms to complete the records for this work. As the plan worked out in this factory such stock was then listed according to types and sizes of apparatus — in fact, no stock was disposed of without first determining the use for which it was intended. This rule was found wise, for parts and raw material readily lose their identity as they become obsolete or 214 STOREKEEPING inactive, and because of changes in description and in methods of stockkeeping. Attention was then directed to the disposition, as economically as possible, of the large overstock. At the same time, however, careful study was made as to the causes producing such overstock so that arguments for preventing future accumu- lations so far as practicable might thereafter govern. It might be supposed that by setting proper high and low limits any large surplus would be rendered unlikely. Such is the case with factories like the Ford plant, which operate con- tinuously on one product. Also by guarding against important changes in the design from year to year, any large stock of obso- lescent parts is avoided. Ford's policy, therefore, has saved him thousands of dollars on his inventory. With the same end in view, the H. H. Franklin Manufacturing Company adhere rigor- ously to the schedule laid out at the beginning of the year, and if the engineering department makes any changes in mid-season, the loss involved is charged against that department. In the average factory making to stock, however, the schedule must be continually readjusted to suit the shifting currents of demand, and the high and low limits set today may have to be altered radically tomorrow. Hence, the management cannot exercise the same close control over the quantities of stock on hand and must depend more or less on the discretion of the pro- duction clerks. At the Detroit Lubricator Company's plant the clerks are graded on their ability to keep down an overstock and avoid getting caught with a large supply of obsolete parts on hand. Failure to sustain a creditable showing is penalized by loss of position. At the Northway Motors and Manufacturing Company, the clerks in charge of the production of stock parts are paid a bonus in addition to their salaries for improving on the previous year's showing at inventory time. Their wits are thus sharpened throughout the year to avoid any over-produc- tion and the result has been an increasingly tight inventory, net- ting the company a large financial saving. Inventory valuations present a problem which has been met in various ways. To get back to the correct principle it is advisable to note that manufacturers secure profits or incur losses from two sources — manufacturing and speculative. Manufacturing profit or loss is taken only after all of a series HOW TO HANDLE INVENTORIES 215 of transactions have been completed; after raw material has been, by the expenditure of labor, transformed into finished product and that product has been sold. In businesses where the market value of material fluctuates greatly, however, the speculative loss becomes a matter of importance; and once or twice a year should be taken into consideration in the general books as an element distinct from, and in addition to, manu- facturing profit or loss. Speculative profits almost invariably should be ignored. Cer- tain decisions which have been handed down in the courts make it a very questionable proceeding for a manufacturing concern to declare dividends between the cost and market value. Inventories may be taken then: first, at cost; second, at cost or market, whichever is lower. It will be seen that, if inventories are taken at cost, speculative and manufacturing profits or losses become one. In other words, the market value of raw materials is presumed to affect the affairs of the concern only by whatever influence such values have upon the selling price of the finished goods. If inventories are valued at cost or market, whichever is lower, the effect is to ignore speculative profit (permitting it to be expressed in extra margins when the goods are sold) and at the same time to recognize speculative loss in an immediate way. Many bookkeeping authorities hold that the second method is the proper one, and indeed it is, provided that what is required is merely to determine the financial status of a concern at a given time. When, however, the cost finding and bookkeeping records are checked against each other by means of controlling accounts covering the value of materials on hand, goods in process, finished goods on hand, and so on, this second method would involve the necessity in the cost department of re-pricing materials, re-calculating the cost to date on unfinished orders and readjust- ing the value of finished goods on hand. This in many instances would be not only undesirable but clerically next to impossible. Inventories, therefore, should be taken primarily at cost and should be carried in the controlling accounts at all times at cost. In case of a falling market, inventories also should be taken at the market and an account should be opened in the ledger covering this depreciation. This account may be called 216 STOREKEEPING inventory-depreciation reserve, or any other appropriate name. In most instances, when controlling accounts are opened, monthly closings are made. Usually, however, it would be found a matter of some difficulty to determine what proportion of the depreciation reserve could be thrown against the profit or loss monthly. It would ordinarily be advisable, therefore, to permit this account to stand on the ledger until physical inventories again were taken. Adjustments will then be made in view of market conditions at that time. Out of the physical inventory, as this discussion suggests, may come not only improvements in storekeeping methods, but also the correction of buying policies. No concern is in a position to ignore such lessons. Large specu- lative losses will be interpreted into overbuying, overcaution against shortage, and unsound judgment as to the trend of prices. If slightly different varieties of a material or supply are listed on the inventory sheet, the call to standardize is plain. If the figures for obsolete stores are mounting, the sagacious manager will organize a committee to keep in touch with the new things, as well as have shop and sales department get together on a permanent plan to clear away obsolescent items before they become relics. The purchasing agent is the differential between the almost unlimited field of supply and the factory's demand for materials, supplies, equipment and new construction. Neither demand nor supply is ever still, and the purchasing agent's plans, conse- quently, are always subject to readjustment. It is his business to improve upon himself. The physical inventory, the opinion of a foreman who is watching the behavior of a new material, and the report of an association which has made a study of concrete mixtures or steels or enamels, all help him to mateh his purchases more perfectly with the factory's needs. INDEX Abstracts, in stockkeeping Adulteration Alloys, purchasing of American Chemical Society American Railway and Maintenance of Way Association American Society for Testing Materials 114, Annunciator system Associations, for buying on specifications Astle, Wilfred G. Bane, Chas. W. 10 Berndt, Irving A. 10 Birdseye, Frank W. 134 Black Diamond Publishing Company 10 Bunnell, Sterling H. 10 BUYING — general remarks 11 —guiding policies 11 Cannon, N, 10 Catalog file, for purchasing department 83 " Change-overs," how reduced 180 CLASSIFICATION — Dewey system 150 —of stores 144 —mnemonic system 147 — numerical system 147 Coal, tests for 111 Colleges, use of laboratories 117 Coleman. H. W. 184 COMPETITION — increased through failure to expand 48 — in purchasing 40 Complaints, reports on 108 CONTRACTS —in purchasing 84 — sliding scale 88 — straight 38 Cooperation in purchasing 85, 41 Cost-plus-a-percentage basis, in purchas- ing Credit information, from Cushing, George H. Dannerth, Frederic 88 DELIVERY —of stores 180, 165, 187 — of tools 188 — on time schedule 187 — use of pneumatic tubea 167 Department of the interior 118 Depreciation reserve 416 Devlin, Thomas, Manufacturing Company 134 Dewey system, of classification 150 Dudley, Charles Benjamin 88 Edison Storage Battery Company Estep, H. Cole Farquhar. A. B. Company 10 reiker, F. M. gjj, S4 Felt and Tarrant Manufacturing Com- pany M Fluxmeters iog Forms, for purchasings 85 Franklin Automobile Company 184 Garford Automobile Company 88 General Electric Company 184 Griscom- Russell Company io Harris, Ford W. io, 184 Hart-Parr Company is* Heywood, Johnson io Hosford, H. S. 88 Hunter, J. V. io I Indexes, of numerical and mnemonic sys- tems International Association for Testing Materials International Congress of Applied Chem- istry International Petroleum Commission INVENTORIES — blanks used for SOS, — depreciation — depreciation reserve — dispensing with — filing devices and systems 200, — laying out territory — making foremen responsible for — method of taking — of bulk materials — perpetual — plan of organisation — preparation for — sorting and counting specialization — systems in use — tag scheme for — to reduce stock — trade unit of — valuations INVOICES — check on — register for King, L. E. Kunta, Philip E. 201, 208, 205, 208, INDEX LABORATORIES — college 117 — illustrations of 02 — tests not an infallible guide 100 Leather, tanning of 112 Lockouts, providing for, in purchasing 31 Lumber, testing of 00 M Magnets, tests for Marsh, F. A. Master Car Builders' Association Materials, service tests for Merit basis, in purchasing Metal frames Metal sashes Meyercord Company Miller, Franklin and Company Miskella, W. J. Mnemonic classification Murphy, Carroll D. 105 10 114 103 00 12 12 10, 134 10 10 147 88 N National Bureau of Standards 116 National Electric Code 115 National Fire Protection Association 114, 115 National Paint Manufacturers' Associa- tion 115 Northway Motors and Manufacturing Company 134 Numerical classification 147, 140 —index of items purchased 08 — in emergencies 43, 08 — instances of wise and unwise buying 48 — invoice register 70 — knowledge of markets 17 — laboratory methods 89 — laboratory tests 100 — necessity for detailed knowledge 25 — of patented devices 50 — of power 10 — on cost : plus-a-percentage basis 69 — on specification 78 — order blanks for 84 — order records 77, 82, 83 — policy if capital is small 46 — posting clipping 20 — preventing collusion among suppliers 57 — providing for strikes and lockouts 81 — quotation record 72 — record forma 81 — records 81 ,61 — relation to sales 80 — requisition blanks 70 — requirements of department 84 — securing expert advice 94 — service tests 100 — special problems 89 — splitting iip orders 24 — standardization 27, 00 — strategy to increase competition 53 — summary of requirements 63 — system for handling details 78 — testing 09 —use of class journals and trade papers 24 — vouchers for 85 Orders, for purchases Paint, for concrete 36 Palmer, I. E. Company 88 Patented devices, purchasing of 50 Pencils, consumption of 142 Penton Publishing Company 88 Perpetual Inventories 209 Piece numbers, in stockkeeping 171 Pneumatic tubes, for delivery of stores 167 Porter, Harry Franklin 10, 88, 134 Prismatic glass, for windows 18 PURCHASING — accounting for low prices 50 — adjusting terms 30 — bulking orders 59 — buying or making 45 — buying source of supply 35 — card lists of suppliers 41 — charting market prices 26 — checking invoices and receipts 81 — contracts S3 — controlling requisitions 76 — cooperation with other departments 41 — cooperative 35 — cost in relation to economy 15 — danger of patronizing competitors 48 — danger of depending upon one source 60 — deciding on quantity 29 — deciding whether to buy or make 47 — detecting adulteration and substitu- tion 96 — developing friendly relations 60 — economies 27 — for routine needs 33 —from small shops 18 — getting points from salesmen 62 — handling sales literature 22 — how to keep in touch with the mar- QUOTATIONS — forms for purchasing department — records — telephone, form for Racks, arrangement of 151 RECEIVING — checks on receipts 70 — danger of negligence 65 — date "tickler" 66 — goods received record blank 89 — memorandum blank 67 — necessity for one inlet 65 — reports 68 — routine methods 65 Reed, Chester R. 134 Repair orders, advantage of stores sys- tem 183 Requisitions 76 Rockwell, Thomas S. . 10, 88 Rogers, S. B. 134 Russell, H. A. 88 Ryerson. Joseph T, and Son 10, 134 s Sales literature Samples Service tests, for new materials Shipping office, records Sliding scale SPECIFICATIONS — advantages — based on service tests — blanks for — do not increase prices — forms for — gathering information — indexing information 22 126 103 69 S3 129 125 173 129 121 120 124 —in purchasing 94 — kind of information needed 124 — provisional UO — provision for inspection 120 —purposes 120 — recording data 123 — requisites HO — routine 122 — rules for framing 120 — standardization of 125 STANDARDS — experiment stations for 117 —getting information from customers in regard to 107 — tests for H7 — trade association, aid in establishing 115 Stock, requisitions for 140 STOCKKEEPING — abstracts 178 — accounting methods 185 — blanks used in 155, 175, 189, 191, 195 — by departments 186 — determining minimums 175 — checking deliveries 191 — classifications 192 — duties of stock clerk 193 — foreman's reports 195 — forms used 130 — maintaining balance between orders and supplies 102 — orders for special tools 100 — piece numbers 171 — preparing for fluctuations 177 — preventing surplus and shortages 179, 196 — records used in 185 — system for checking leaks 194 — use of color scheme 188 STOREROOMS —arrangement of 145, 146, 169, 164, 181 — location of 154, 168 — minimum of investment in 156 — portable 158 — special 156 — subdivision of 158 STORES — arrangement of bins and racks 138, 151 — cash-control idea 141 — classification of 144 — delivery methods 182 — importance of system for controlling 135 — distribution of 160 — indexing and filing system for 133 INDEX — inventories of 140 — office hours for issuing of 188 —overhead carrier system for 158 —planning ahead for delivery of 165 — savings effected through control of 136 —shortages i 38 — source of loss 135 — standards of consumption 141 — stockkeeping methods 171 —standards of quality 143 — system of classification of 147 —system for small plants 137 strikes, providing for, in purchasing 81 Swinton, D. R. \q Technical schools, research work and teats made by 117 TESTING " — illustrations of equipment for 109, 110 1*7, 128 — of raw materials 28 — record blank for 93. 05 TESTS — for coal Ml — for oil 104 — for magnets 105 —for prevention of waste 101, 103 — for steel 105 — for varnish 10* — value for expert opinion 108 Thermal units m Tickler, for receiving departments 06 Trucks, for delivery of stores 167 Tuthill Spring Company 10 Valuations, methods 214 Varnish, tests for 104 Velie Motor Vehicle Company 10 Vouchers, in purchasing 85 w West, Louis C. 1S4 Whitney Manufacturing Company 134 Wilcox, H. M. 10 Wiley, J. W. 10. 1S4 Willys-Overland Company 184 WINDOWS — metal frames and sashes for IS — ribbed glass for 12 Wood. Henry M. 184 mmm A 000 503 307 7 SOUTHER. M BRANCH UNIVERSITY-. CALIFORNIA LIBRARY LOS ANGELES. CALIF. in illllfli y mm I !iHi!1!fii!{l|;|ltM ill i i j i iliill I Iiiii ill ill dial !i Hi mmmmmmm I 1 III 1 I Ii I ! r ipi I ii i i I iiiiiiilliilffl iiiiiiiiilii! iiiii IS! II™ iii liiinli In'"'!! i>!i iiiliiiill ! ill ii; ;;: iiiii 1 i ii i ii III IIIII