Tuesday, September 17, 2013

Material System Going




IN a preceding chapter we assumed the manufacturer's
point of view, from which every proposition in produc-
tion is divisible into three terms: materials, labor and ex-
pense.. In a more detailed examination of these three di-
visions of cost, we have reversed this order and have studied,
first, expense, then labor, and lastly we come to materials.
The reason for inverting the sequence by which the actual
things would appear in practice, is that the justifying reasons
for many of the wage-paying methods and broader indus-
trial policies become clear only after we realize clearly the
peculiar characteristics of the expense account and its shift-
ing ratio to the other costs of production — its decreasing
relative importance as the volume of production rises, and
the consequent desirability of stimulating production through
increased efficiency of labor, even at a considerable increase
of labor cost. Labor was taken up next so that the tenden-
cies of the various wage systems might be measured in the
closest possible connection with the problem of costs. We
come now to material, which, on account of its passive,
inert character, seems best able to suffer the delay and seems
also perhaps to offer less opportunities for profitable study.
Yet there is an aspect of material which we may advan-
tageously consider for the moment, with the purpose of
increasing our respect for it. If you trace almost any
material thing back to its ultimate sources, you will find that
a very large fraction of its entire value comes from the labor
that has been expended upon it. In other words, almost
all manufactured material, and even a good deal of what

would be classed by manufacturers as raw material, is crys-
tallized labor. The ore in the ground, the timber in the
forest, the seed in the soil, even the land itself, is of small
worth until the work of men's hands and brains has been
expended upon it. But at each stage of the processes through
which it passes, the labor of all the preceding stages is to
be found literally materialized and embodied permanently
in the partly finished product. What was " labor " to the
preceding workman has become " material " to the follow-
ing one.

Take the case of flax. The cost of the seed rejidy to
sow is largely that of the labor it took to grow it. The
crop of fibre fit for spinning adds to that the value of the
work of cultivating, pulling, threshing, retting, hetcheling;
in the spun thread a further increment of price appears, cor-
responding to the work of spinning ; the woven linen is more
valuable still by the measure of the labor of the weavers
and the looms. Yet with all this " labor " accumulated in
it, the linen is " raw material " to the shirt-maker. It is so
again even more evidently perhaps with the ascending scale
of values in the materials fashioned into an engine or ma-
chine ; probably a small fraction of one per cent of the market
price represents the ore in the ground from which they were

By " labor " of course we understand labor of adminis-
tration and direction — labor of brain — as well as manual
effort, and we do not purpose to ignore the successive addi-
tions of profit. Making these allowances, however, if we
take the entire range of the history of almost any product
or manufacture, we shall find that direct or indirect labor
accounts for nearly all its value.

This, however, is a general argument, and, like a general
rule, it may be of no particular service in a particular case.
In any particular problem of production or industrial opera-
tion with which we are directly concerned, the relative im-


portance of material as compared with labor or expense may
be large or may be small. We are not particularly con-
cerned with the history of the material before it came to us,
except so far, perhaps, as that may influence its quality.
We are a good deal concerned with its relative value in our
own special formula:

Materiak + Labor + Expense = Manufacturing Cost.

There are enormous differences in the relative weight
these three variables assume in this formula as it is applied
to various lines of manufacture. If our business is that of
a heavy foundry or of steel structural work, materials may be
by far the most important account to us, while labor takes
a comparatively small part in our total costs. In an ordi-
nary machine shop, the expense of fuel used in the power
plant and the efficiency of the engine driving the shop may
not cut a large figure in the total result; the important con-
sideration here is to secure the highest efficiency from the
workers and from the expensive mechanical plant (that is,
from the machine and other labor) so as to turn out the
maximum product; fuel expense is but a small fraction of
the total expense burden which the product must bear. But
in a central station selling power or light, the cost and
quality of the fuel and the efficiency of the engines are of
prime importance, for coal has now become the raw ma-
terial, and the engines and boilers are the machinery turn-
ing out the product — that is, kilowatts at the switchboard
— while labor is a relatively small item. Again, if you are
furnishing insurance,^ material practically disappears as an
element of cost, and the account to which the highest and
most skilled attention must be directed is that of risk.

The point deserves emphasis. It is not merely curious

1 For purposes of emphasis, I have borrowed an illustration from James
Newton Gunn. But in strict analogy, the " Material " used by an in-
surance company is credit, and is by no means inconsiderable.
or fantastic. It is not an idle play upon the interest of the
theme to draw illustrations from an extreme case. The very
first necessity in addressing ourselves to any problem of
works management is to get a clear analysis of the situation,
and this analysis must be not merely qualitative but quantita-
tive. We must find the absolute and the relative weights of
all the elements involved. Then, by comparison with stand-
ards, we can see clearly where the work of betterment will
yield the largest results. We can attack the thing which is
most important first, and work from the greater to the less.

Material (or as it is commonly called in shop language,
" stores " when unfinished and " stock " when finished) is
of course the central interest about which the whole organi-
zation of the plant is built up. Expensive machinery is
installed to fashion it; workmen, skilled and unskilled, are
hired to operate upon it; shop transportation systems are
provided to handle it; it is the beginning and the end of
the whole scheme of manufacture — the solid, physical
nucleus upon which added value is built up by the various
operations. It enters perhaps in crude and inexpensive
form. It moves through the factory, gathering to itself,
as it were, the values of men's time, of machine hours, of
interest on investment in plant and equipment, of skilled
superintendence and management. It emerges with all
these incorporeal values of time and work and skill, ma-
terialized and incorporated in the finished stock. The in-
crement may be one-tenth of the original cost or one
hundred times that cost; it is evidently more, for example,
in the case of the hair spring of a watch than it is in the
case of a common grate bar; but there it is, crystallized in
the completed work.

This value is rendered fluid again, so far as the plant
creating it is concerned, by sale — that is, by exchange of the
finished stock for money, with which more crude material,
time, work and skill may be purchased.

Looked at in this way, material appears to be a matter
of great importance, not only in itself, but in its relations
to the sometimes larger elements of labor and expense. If
stock is accumulated in excess of reasonable provision, it
means at least idle capital, probable inconvenience and added
expense in the ordinary movement of work, and possibly
total loss through some change of plans, methods or pat-
terns. If stores run short on even one item, it may mean
stagnation to a whole group of manufactures thus left in-
complete, and it may cause forced and expensive idleness to
a whole department.

Stock, therefore, is really in a sense more important than
the money it represents, for it has more potential energy for
harm or for good. Yet it is notorious that many industrial
plants (it might almost be said most industrial plants) are
exceedingly lax in supervision and administration of the
stock department or, as it is more often called, stores de-
partment. They are strenuously careful of the dollar in
the safe, and flagrantly careless of the dollar in the stock
bins. In short, it has often been remarked that stores-
keeping is a very backward branch of works management.
It has not in general received the same careful study, the
same skillful work for betterment of efficiency, that has been
put, for example, upon the question of labor. Stores-
keeping methods are therefore likely to be found relatively
inefficient, and for this reason might afford a very interest-
ing field for study because there is more opportunity to se-
cure economically important results.

In an outline so general as this we need not go far into
the details of the subject, but we may summarize certain
principles found advantageous in systematic handling of
materials in manufacturing establishments.

Purchase is a specialized function in itself, and as we noted
in a preceding chapter is committed to a purchasing agent,
with such departmental assistance as the magnitude of the

business may demand. The purchasing agent does not act
on his own initiative, but on orders from the manufacturing
department, often transmitted through the stores depart-
ment. The duty of the purchasing agent is to see that
materials of the proper description are ordered from
sources that best meet the important conditions of quality,
price, and time of delivery ; he must then follow up the pur-
chase order until the goods are received and quantity and
quality verified. The material passes then to the stores-
keeper, the invoices, properly certified, go to the auditor,
and the purchasing agent's duties as to that particular trans-
action are finished. The most important equipment for the
purchasing agent is thorough knowledge of the trades he has
to deal with, supplemented by systematically filed catalogues,
and authoritative information as to market quotations.

When it has been received at the works, material, as we
have already seen, passes into the custody of the stores de-
partment. The chief functions of this department are four.
First, it anticipates or meets the material wants of the fac-
tory, by securing the requisite supplies through the
purchasing agent. Second, it receives and verifies the ma-
terial when delivered, and provides for its orderly safe-
keeping. Third, it issues material as needed for the
operations of the manufacturing department and receives it
again in the finished state ready for shipment. Fourth, it
maintains exact records of every receipt and issue and of
balances remaining on hand.

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