S^'fl ^¥; mi i%: ^.^t^\*T ^'■'"'"rw-- ittp://v#^#:archive:arg/details7co?§t COST KEEPING AND SCIENTIFIC MANAGEMENT PublUhed by the Mc G r a^w -Hill B ook. Comp £iny iSucce^sons to tKe&ooK.Deparhnents of tKe McGraw Publishing Company Hill Publishing" Company .Publishers of Books for Elec trical World The Engineering" and Mining Journal Engineering Record Power and The Engineer Electric Railway Journal American Machinlvst Metallurgical and Chemical Engineering COST KEEPING AND SCIENTIFIC MANAGEMENT BY (gM HOLDEN A. EVANS NAVAL CONSTRUCTOR. UNITED STATES NAVY McGRAW-HILL BOOK COMPANY 239 WEST 39TH STREET, NEW YORK 6 BOUVERIE STREET, LONDON, E.G. 1911 u tt^ Copyright, igii^ by McGRAW-HILL BOOK COMPANY » • • • • • PREFACE This book is written for jobbing shops and small manu- facturing plants where accurate cost keeping and the principles of good management have received but little attention. It is hoped that it will not be without interest to the officials of large manufacturing establishments and shipbuilding plants. Many owners and managers desire to improve the cost system, but are deterred by the belief that this cannot be done without the aid of expert accountants who will devise an elaborate system which will require a large clerical force to maintain. The methods which I have outlined are simple and require but little clerical labor. Any manager can adapt this system to meet the requirements of his work. The efficiency of a large plant under my supervision has been greatly improved by adopting and following the princi- ples of management advocated by Mr. Fred W. Taylor. I believe that in thousands of shops marked improvement will be made if these principles are followed. The methods de- scribed in the chapters devoted to management should be of assistance to the manager who wishes to take the first steps towards Scientific Management. HoLDEN A. Evans. Seattle, Wash., June I, 191 1. 99f^n«d CONTENTS CHAPTER PAGE I. THE IMPORTANCE OF ACCURATE COSTS . . . . i Cost keeping for manufacturing establishments compara- tively simple — Repair and jobbing shops present difficulties • in cost accounting — Inaccurate costs among manufacturers making standard articles — Lack of knowledge of costs dis- turbs trade — The reasons for so few accurate cost systems — Cost keeping versus accounting — Cost systems secret and not subject to criticism — Value of accurate costs frequently not realized by some successful managers — Can an estab- lishment make money without a good cost system? XL THE PURPOSES OF A COST SYSTEM u Little literature on cost systems for manufacturing estab- lishments — What a manager can learn from a proper cost system — Monthly scrutiny of indirect charges — Monthly balance desirable — Dividends which are paid from capital and not from profits — Is every department a money maker? — Definition of good judgment. III. THE VARIOUS ELEMENTS OF COST 23 Direct labor — Importance of accuracy in obtaining direct labor charges — Direct material — Indirect cost — Total fac- tory cost — Elements of the indirect cost — Depreciation — Usual methods of determining depreciation — Determination of depreciation to be charged off each year — Methods fol- lowed for estimating and apportioning depreciation usually unsatisfactory — Taxes and insurance — Up-keep of plant — Interest and rent. IV. DISTRIBUTION OF INDIRECT COSTS 40 Distribute indirect costs in accordance with benefits re- ceived — Distribution by machine rates the most scientific method — Difficulties in using the machine rate system — Inaccuracies of distribution by direct labor method — Dis- tribution by direct labor — The use of monthly rates or average rates — Most simple method of distribution best for majority of shops — The work in each shop or department should carry its own expense burden — Power plant ex- pense — Storehouse expense — General expense^ — Distribu- tion of general expense and shop expense — Selling expense. V. PRODUCTION ORDER, SHOP ORDER AND COST SEC- TION RECORDS 55 Uniform sizes for blank forms — The production order — Shop orders issued by authority of the production order — Mustering the workmen — Record of labor charges — Record of material charges — Labor and material charged to ex- pense orders — Cost section records — Job order card — Cost figures should be used and not treated as mere records — The cost of work card — Summary of material requisitions — Advantages and disadvantages of the system. ,vii CONTENTS CHAPTER PAGE VI. INDIRECT CHARGES 7^ Subdivision of indirect charges — Charge symbols for ex- pense account orders — General expense subdivisions — Shop expense subdivisions — Power, heat and light subdivisions — Storehouse expense subdivisions — Distribution of store- house expense — Part plant development — Plant develop- ment account — Selling expense subdivisions — Distribution of selling expense. VII. SUPERVISION OF THE EXPENSE ACCOUNTS . . . St Works manager versus financial control — Ignorance of the relation of overhead charges to total cost — Danger of superficial criticism of expense accounts — Increase of shop expense frequently results in increased efficiency, while a decrease results in decreased efficiency — Comparison of ex- pense percentages of different establishments gives no infor- mation — The control of the expense charges — Monthly analysis of all expenses. VIII. METHODS FOLLOWED IN THE PAYMENT OF LABOR loo Day work system — Contract system — Halsey premium system — Premium system compared with the bonus system — Gantt bonus system — Taylor differential piece rate sys- tem — Fixing rates and standard times. IX. MANAGEMENT 114 Improvement made by an analysis of costs compared with . improvement due to scientific methods — The correct type of management — Management is an art — Opposition to the new type of management — Scientific management defined — Analysis should be made of work to be accomplished before it is undertaken — Best methods for accomplishing work should be determined before it is begun — Men best suited to the work should be used — Importance of maintaining tools and appliances in excellent condition — Real cooper- ation between employers and employees — To follow the principles of scientific management is not a simple problem. X. WASTED TIME DETECTED BY TIME STUDIES . . 127 Few managers realize the large amount of time wasted in the average shop — Time wasted due to loafing — Wasted time due to employment on unsuitable work — Time wasted due to unnecessary waits — Time wasted due to poor equip- ment — -A manager should know the time wasted and the causes — Stop-watch time studies expose defects in methods, organization and equipment — Stop-watch time studies in a drop forge shop — Stop-watch time studies bring out funda- mental conditions under which work is accomplished — Im- provements made in a large smith shop due to time studies. XI. THE PRINCIPLES OF SCIENTIFIC MANAGEMENT WHICH CAN BE FOLLOWED BY A MANAGER . . 137 It requires both ability and experience to become an expert in scientific management — Duties of officials should be^ clearly defined — Diagram of organization should show limits'^ of authority and responsibility of each department head, and their relations to each other — Similar duties should be brought together to be performed by one man or group of men — Shops should be controlled by an expert shop super- viii CONTENTS CHAPTER PAGE intendent — Shop superintendents should have competent assistants — Changes should not be undertaken until thor- oughly investigated and effects fully considered — Investiga- tion of small tool equipment — Investigation of the care of belting — Investigation of machine tools and transmission machinery — Care of jigs, and special tools — Introduction of functional duties — Selection of assistants and gang bosses — Beginning of the planning department — The use of time studies — Improvement of plant equipment — Stand- ardization of shop methods — Functional management out- side of shops — Improvement of store system. XII. METHODS WHICH LEAD TOWARDS SCIENTIFIC MANAGEMENT 169 Improvement in a government establishment made by the application of the principles of scientific management — Shop system employed based on the teachings of Mr. F. W. Taylor — Delivery of papers between shops and offices — Records of workmen — Shop orders and promises for com- pletion of work — -Material supply — Urgent work or papers — Transportation of material — Plant railway system — 'Re- ceiving and dispatching space in each shop — Central tool grinding and issue room — Weekly conference of heads of departments and foremen — Daily conference of manager and heads of departments. XIII. MACHINE SHOP METHODS 184 General instructions — The results to be obtained by the planning department — Planning department and shop staff — Duties of the chief planner — Duties of the material man — Duties of the instruction card man — Duties of the stand- ing order board man — Duties of the shop clerk — Duties of the time study man — Duties of the foreman — Duties of the gang boss — Duties of the speed boss — Duties of the in- spector — ^ Duties of'the move man — Dulies of the head tool maker — Duties of the repair man — Duties of the belt man — Delivery of tools to machines' — The operation of the sys- tem — Cooperation among the planners and the shop staff. XIV. ORGANIZATION OF A SMITH SHOP, A WOOD-WORK- ING SHOP, AND A CANVAS AND FLAG SHOP . . 208 The blacksmith shop — General arrangement of shop* — Subdepartments of the shop — ^ Duties of foreman — Duties of assistant foremen — Duties of route man — Duties of office clerk — Duties of material man and move man — Operation of the shop system — Organization of a large wood-working shop — Details of shop system — Organiza- tion of a canvas shop and flag shop — Details of shop sys- tem. XV. REDUCTIONS IN COST DUE TO SCIENTIFIC METH- ODS 232 Reductions made in shipbuilding costs — Reductions in boat building costs — Reductions in the cost of wood calking • — Changes made in a boiler shop and resulting reductions in costs — Reductions in the cost of machine shop work — Records of time reductions in canvas work. COST KEEPING AND SCIENTIFIC MANAGEMENT COST KEEPING AND SCIENTIFIC MANAGEMENT CHAPTER I The Importance of Accurate Costs Many manufacturing establishments throughout the country have excellent cost systems, and in the majority of these the value of costs is well understood and the data obtained from the cost records are utilized to their full value. On the other hand, there are far too many establishments in which little use is made of costs other than in fixing selling prices, and in some cases costs are not obtained. The most accurate cost systems are usually found in estab- lishments where but few classes of standard articles are manufactured. This is readily explained, as it is compara- tively easy to devise a satisfactory system for such an estab-' lishment, and it is so simple that it is difficult to go wrong in its application. Moreover, the cost of maintaining such a system is small. Accurate cost keeping in its simplest form may be applied to the manufacture of a single class of standard articles. As the number of classes is enlarged, par- ticularly if the products vary greatly, cost keeping becomes more difficult and expensive. Notwithstanding this, nearly all strictly manufacturing establishments have fairly satisfac- tory cost accounts. In a jobbing shop or in a combined manufacture and repair shop accurate cost keeping is not simple. The princi- pal difficulty experienced is the proper distribxition of the ex- pense burden. It is, therefore, natural that the worst ex- amples of cost keeping should be found in these classes of shops. In some of these establishments attempts are made I 2 COST KEEPING AND SCIENTIFIC MANAGEMENT to obtain accurate costs, but in the great majority the results are not worthy of the name of cost records. Little is known of the advantages to be gained by accurate costs, and there is comparatively little interest shown in the subject. In many of the smaller establishments the owner or manager has risen from the shop and he knows little or nothing of modern accounting. When he worked in the shop the cost record consisted of the time books. Such an owner or manager has a horror of red tape, and to him modern cost keeping is red tape to an extreme degree. Under these conditions it is not surprising that accurate cost records in jobbing repair shops are very rare. Accurate cost keeping is very difficult in a large shipyard which is engaged both on new work and repair work. There are numerous independent shops in such an establishment which vary greatly in equipment and in the class of the products. It is necessary that the costs should be known not only by the many jobs included in the whole, but also by shops, and by the classes of labor employed. The proper distribution of the overhead burden is also exceedingly diffi- cult. These questions will be discussed in detail in subsequent chapters. INACCURATE COSTS AMONG MANUFACTURERS MAKING STANDARD ARTICLES. Accurate costs are sometimes not obtained even in establish- ments where more or less standard articles are manufac- tured. The report of the cost committee of the National Machine Tool Builders* Association contains the following significant statement: "Machine tool manufacturers making similar and competitive machine tools discovered among them- selves ruinous and unprofitable competition, based, presuma- bly, on actual costs. Comparisons showed, however, that ^ven where there were fair cost system methods, important and appreciably large elements were treated by different man- ufacturers in different ways." This is a polite way of stating that some of the members THE IMPORTANCE OF ACCURATE COSTS 3 of the machine-tool builders' association did not obtain actual costs, in that they omitted some of the important elements that go to make up total costs. These makers were selling their goods below cost and were demoralizing the entire busi- ness. They, however, did not know this; they undoubtedly considered that they wer£ making a fair profit, when sud- denly they found themselves face to face with bankruptcy. If these conditions exist in the manufacture of machine tools, is it to be wondered at that the shipyards, where cost keeping is far more difficult, do not know their costs? Is it surprising that the thousands of jobbing repair shops do not know what cost keeping means ? The machine-tool builders were aroused by the gravity of the situation. They appointed a committee which devised a uniform cost-keeping system which can be successfully em- ployed by all makers of machine tools. No doubt this system is not used by all machine-tool builders, but the report of the committee was widely read and studied by them and general interest was created in the importance of accurate costs. This brought beneficial results, and the costs now recorded more nearly represent actual costs. Unfortunately no uniform cost system can be devised for the various manufacture and repair plants throughout the country. The successful system must be developed for each class of work and adapted to meet local conditions. There are, however, ftmdamental principles of great importance which are applicable to all systems. These principles are vio- lated in thousands of establishments, and until this is cor- rected actual costs are impossible. It is of importance to every manufacturer, it is to the benefit of every stockholder in an industrial establishment, that inter- est should be awakened in cost accounting, and that accurate costs should be obtained in every manufacturing shop and every repair shop in the country. Just so long as costs are not known there will be the same ruinous competition that existed in the machine-tool trade. 4 COST KEEPING AND SCIENTIFIC MANAGEMENT LACK OF KNOWLEDGE OF COSTS DISTURBS TRADE. The competition which most feared by a well-conducted establishment is that of the establishment which does not know its costs. It is often the case that a well-conducted, efficient establishment which has figured on a moderate profit is far underbid by a less efficient establishment, and the work taken at a price below actual cost. It is no satisfaction to the efficient establishment to know that the successful bidder will soon go into bankruptcy, for there will be someone else in the field with as little knowledge of real costs. These condi- tions demoralize business and they will continue until actual costs are known. This situation explains what otherwise might be considered remarkable variations in bids submitted for the same work by a number of establishments located in the same vicinity and working under approximately the same conditions. It is not unusual to see such bids vary from 50 per cent, to 100 per cent. In a large repair job which recently came under my ob- servation, the specifications of the work were in great detail, and called for exactly the work to be accomplished. The bids that were received ran all the way from $425,000 to $5.17,000. I recently obtained bids on some small cast-iron cylinders, rough machined, for small engines. These ran from 6 cents to 21 cents per pound. A few years ago it was not unusual for bids on battleships to differ by as much as half a million dollars. This enormous difference did not represent difference in efficiency of the ship- yards, nor difference in the cost of labor or material, nor difference in the figured profits. It was almost entirely due to lack of knowledge of actual cost of similar battleships previously built. It was due to these causes that large con- tracts for warships were taken at' prices far below cost, and consequently several yards were forced into bankruptcy. These experiences have taught their lessons and there are few of the shipyards that do not now know at least their total costs on each contract. THE IMPORTANCE OF ACCURATE COSTS 5 In small shops, however, the lesson is not so quickly learned. A shop goes under here and t^^ere, but the real cause is not known, and another takes its pi. p^, and there always seems to be enough shops without a knowledge of costs to keep business disturbed. On the Pacific Coast these conditions prevail at present, and there is little prospect, except through luck, of the most efficient shop, which has figured on a moderate profit, securing a contract where bids are required. It is fortunate for these that many contracts are placed without requiring bids. Not only would accurate cost keeping pre- vent this demoralization of business, but it points the way to more efficient production. V^HY ARE THERE SO FEW ACCURATE COST SYSTEMS? The present condition of affairs is difficult to explain, as competition is keen and the American manufacturer is pro- gressive. In many cases the owner or manager has risen from his tools and his success is due to his intimate knowledge of the work and his ability to direct shop operations. When the plant was small he figured his own costs and made his esti- mates for new work. With his ability and his intimate knowledge of every detail of the work he was able to do this with considerable accuracy. His plant has now grown beyond the one-man stage. The costs are kept by men who have no shop experience, and estimates for new work are made by men who have neither the experience nor the a^lity of the manager and are based on the cost records of previ- ous similar work. The manager does not realize that his subordinates cannot with the same machinery produce the results that he obtained. He also forgets that the times have changed and that keen competition requires that his cost rec- ords should clearly show him how every penny is expended. In his day in the shops there were no elaborate cost systems, and he can see no need for such systems now. He has been progressive in keeping his plant supplied with up-to-date ma- chine tools; this is his line and he sees the benefits to be derived from modern plant equipment. He is out of date \ 6 COST KEEPING AND SCIENTIFIC MANAGEMENT with his cost system; this is not his line and he cannot see the benefits to be obtained. He cannot reahze that one is fully as important as the other. Sometimes a manager erroneously believes himself to be progressive regarding his cost records. He has read some- thing on cost keeping and has heard a discussion of the im- portance of the subject at the last meeting of his technical society. He decides that he will improve his methods and directs his secretary or bookkeeper to put in a modern sys- tem. The latter has made no special study of the subject, and after getting the information that he can obtain from nearby plants and securing some of their blank forms he makes a number of changes and perhaps secures somewhat better re- sults. Frequently, however, no improvement is made in the accuracy of the results, and the shops are required to make a number of useless reports. The secretary reports progress to the manager, and points out the advantages of his system over that of a nearby competitor. If the manager were try- ing new methods in the shop he would not be satisfied with general reports. He would see for himself exactly the changes made and the results obtained. He, however, is lit- tle interested in accounting and knows but little of cost keep- ing, and he accepts the statements of his secretary and is satis- fied, while in reality little or no improvement has been made. Some owners and managers who have been impressed with the value of accurate costs, and see the necessity for improve- ment in their cost systems, have employed expert accountants to install a cost system, who have had no shop experience and who have no knowledge of shop methods. This has resulted in a system entirely unsuited to the business, which has brought endless red tape without producing results. COST KEEPING VERSUS ACCOUNTING. There is a line, faint, perhaps, but nevertheless a dividing line, between cost keeping and accounting. Cost keeping is only concerned in placing in the most direct way the cost of every element that goes to make the total cost of the product. THE IMPORTANCE OF ACCURATE COSTS 7 These costs should be so recorded that the manager can readily discover all excessive costs, whether they be direct costs or an element of the expense burden. Accounting be- gins where cost keeping leaves off. The preparation and in- stallation of a cost system is the work of a shop expert who has made a study of the application of simple accounting to shop methods. Scientific shop management and accurate cost keeping are inseparable. Scientific management cannot exist without accurate costs. The methods followed in ob- taining good management in the shops are closely interwoven with the methods employed to secure accurate costs. Costs are a means to secure a certain definite end, and the most important function of costs is to aid in securing better man- agement, greater efficiency, and a reduction in the cost of manufacture. The shop organizer knows exactly the form in which costs will give the greatest aid. He is not interested in costs as costs, but only as a step to secure better results. He knows what is really required and what is useless. He knows whether. the routine required to secure certain data will retard the production of work or not. In other words, he has a comprehensive view of the whole subject and is able to reject all that is of no value in securing the end for which he is striving, that is, the greatest efficiency and the lowest produc- tion cost. An expert accountant has no such view of the subject. He does not know what will aid in the reduction of costs and that which will not. He does not know the form in which costs can best be used in producing efficiency. He is only interested in costs as such. He has no knowledge of the actual work and has no interest in it. He will require rec- ords which cost much to obtain, which interfere with the operation of the work and which serve no useful purpose in increasing efficiency after they are secured. An expert on shop management can learn the simple ac- counting required in a very short time. In fact, he cannot be an expert without this knowledge. An expert accountant 8 COST KEEPING AND SCIENTIFIC MANAGEMENT cannot learn shop methods and shop conditions in years. An expert shop organizer will not undertake the reorganiza- tion and improvement of a plant unless he is allowed to devise and install the cost system. He knows that any at- tempt to use a cost system which does not dovetail with his shop methods will greatly retard his work in producing greater efficiency. The employment of an expert accountant to de- vise and install a cost system in a manufacturing and re- pairing plant is an absurdity. Yet this mistake has been made by many and the results are almost invariably unsat- isfactory. COST SYSTEMS SECRET AND NOT SUBJECT TO CRITICISM. The manufacturer who closes his shop to visitors soon finds himself behind the times. The exchange of ideas and criticism among manufacturers assists in advancement. Some years ago many manufacturers did not welcome visitors, but now a progressive manager welcomes a competitive man- ager and gives up his time to show him the plant, and both gain by such visits. This condition does not obtain regard- ing the cost system, and it is very rare for a manager to permit a competitor to examine his cost system, nor does he desire to explain the methods followed. The cost system is, therefore, not subjected to criticism, and managers and owners are ignorant of glaring defects which would be brought to light if secret methods were not employed. It is curious that nearly all managers believe that they have very satisfactory cost systems, and the worst are usually described as " simple and eflfective." Less secrecy will bring about the downfall of many cost clerks, but will also improve the accuracy of costs. VALUE OF ACCURATE COST KEEPING FREQUENTLY NOT REAL- IZED BY SUCCESSFUL MANAGERS. Many successful managers do not know the value of ac- curate costs. They know the necessity for the total cost to fix the selling price of manufactured articles, but they do THE IMPORTANCE OF ACCURATE COSTS 9 not know that well-kept costs will point the way for greater efficiency in production and a .consequent reduction in costs. The successful manager as he advanced from his tools to foreman and from foreman to superintendent was employed in plants much smaller than the present-day plants. As he advanced in the supervisory positions he had absolute con- trol of every operation. He knew the ability of each man under him. He was quick to see every extravagance, every lost moment of time, every leak, and he was quick to apply corrective measures. It was these qualities that made him manager or owner of the large plant that he now controls. He expects his subordinates — his department heads — to do as he did. He forgets that the work is more exacting, that the department heads have more sub-departments, more men. He forgets that these department heads frequently have not his ability, and that many extravagances, many leaks, will not be remedied. Such a manager should pro- vide the necessary machinery to point the way for improve- ments, and establish a check on subordinate officials. A well-devised, accurate cost system is the machinery required. In the report of the committee of the National Machine Tool Builders' Association the following statement is made: '' The day will come when no manufacturer who has a per- manent and growing success can have that success without a complete and accurate cost system. And such a system will be as essential in the business of manufacture as a good superintendent and a good organizer and good work- men." CAN AN ESTABLISHMENT MAKE MONEY WITHOUT A GOOD COST SYSTEM ? The question naturally arises, are not many of the con- cerns which are without good cost systems making money? Undoubtedly they are, but how often do we see a shop with antiquated machinery making money? Owing to other ad- vantages this is done in spite of the inferior plant equipment. If the same shop had modern tools it would make much lO COST KEEPING AND SCIENTIFIC MANAGEMENT more money. The same is true of the cost system. The manufacturer who once gets an accurate cost system will " never give it up. He considers it far more important than his best machine tools. The shop that is making money without a cost system is depending almost entirely on the Igood judgment of its manager and superintendent, and luck. \ Oftentimes the manager and superintendent must guess when jthey should knozv. Give these same men the facts that are I given by accurate costs — give them an accurate record of ' what is taking place in the plant, as shown by a proper cost system — and they can apply their judgment to much better effect. Knowledge then takes the place of guesswork. CHAPTER II The Purposes of a Cost System There is a remarkable lack of interest on the part of many owners and managers in accurate cost accounting. Approach a manager to tell him of a new tool or appliance which will reduce the cost of production and he is immediately inter- ested. He listens to the explanation of the new machine and if it appears to have merit he investigates its applica- tion to his work, and if he sees that the reduction that can be made in production costs warrants the outlay, he will purchase. Not a few managers employ outside experts to study the products of the concern and the methods of manu- facture in order that better suited machine tools may be provided or better appliances devised. The manager knows that these methods mean progress; that by them greater efficiency is obtained and the cost of production reduced. This increases profits and he is not only interested because of the pecuniary reward, but also because increased profits mean success. Nearly all men are more interested in what the world calls success than in the pecuniary rewards that come with success. To the majority of men the striving for success and its attainment makes life worth living. It is very different in regard to suggested improvements in the cost system. To many managers detail cost figures are not an essential part of the system that brings success. To a great many, costs are mere data — the record of what is past and gone. To such, costs are a necessary evil — necessary in that they are required to tell whether the man- ager has failed or succeeded, and this to many is told only by the final balance. Very few managers can tell how their costs are kept. II 12 COST KEEPING AND SCIENTIFIC MANAGEMENT They can tell in detail every operation in the shops, because they know the importance of these and are interested. They do not know the value and importance of costs and they are not interested. They leave the cost keeping to the book- keeper and the cost clerk. They consider this a detail of the organization that can well be left to poorly paid clerks. In- terest in scientific shop management will bring intelligent in- terest in costs, for scientific management cannot exist without accurate costs. An organizer cannot intelligently organize unless he knows conditions, and an accurate cost system is an exact record of the conditions. It is the pulse of the organ- ization and every beat that is out of harmony in the organiza- tion is faithfully recorded. LITTLE LITERATURE ON COST SYSTEMS FOR MANUFACTURING ESTABLISHMENTS. A manager who desires to obtain satisfactory literature on cost accounting as applied to manufacture and repair shops may make a wide search and still not be well rewarded. He will find a large number of books on accounting, many of which are excellent, as commercial accounting has re- ceived wide attention and has been carefully considered by experts. In nearly all of these books there are a few chap- ters on cost keeping for manufacturing concerns, but the treatment of this subject is not satisfactory. It is treated from the point of view of the expert accountant, and this is not the same as that of the progressive manufacturer or the expert shop organizer. The subject is considered in "an academic way, and the methods suggested have not been worked out in detail and applied to a manufacturing con- cern. There is, however, much to be learned by the pro- gressive manufacturer from these excellent treatises on com- mercial accounting, and he will do well to study carefully the principles of accounting, as the information gained will be of great assistance in devising a correct cost system. It is seldom that a paper on cost methods is presented THE PURPOSES OF A COST SYSTEM 1 3 to an engineering society,. Many members believe that such papers have no place in the records of the society. They do not consider cost accounting a technical subject, or a part of their profession. They consider that this is w^ork of bookkeepers and not engineers. If, by chance, a paper on this subject is presented, it does not excite general interest and the intelligent discussion is confined to a comparatively few members. In the technical journals every small improvement in plant equipment is fully described and improved methods are discussed in detail, v^hile little space is given to improve- ments in cost systems, and it is seldom that a comprehensive article on this subject is found. The lack of information in the technical press on this im- portant subject is due entirely to the lack of general interest in the subject on the part of engineers, managers and owners. The technical press is very much like the modern news- paper — it publishes what its readers want — that which they demand. W^HAT CAN BE LEARNED FROM A PROPER COST SYSTEM ? Every operation of the plant can be read from the cost figures. The costs day by day represent actual work — actual progress of each job toward completion. In a proper system these costs are so recorded that a manager or his assistant can ascertain from the office what is taking place in the plant. He sees whether or not a rush order is re- ceiving proper attention, and knowing the approximate total cost for direct labor, can tell whether at the present rate the job will be completed in the promised time. He can tell whether all departments are proceeding as they should to make the many parts come together at the same time for final assembly. With his knowledge of the job he knows the department which must take up the work first, and approximately how much must be done before the work can be delivered to the 14 COST KEEPING AND SCIENTIFIC MANAGEMENT next department. He knows how much prehminary work can be done by the second department to enable it to proceed rapidly when the product of the first is obtained. With his knowledge of the work itself and with the daily records of the direct labor conveniently recorded by shops and trades he can tell exactly the progress made in each de- partment. Many will say that this can be learned from the shops and that the shop is the place to obtain this information. The information can be obtained from the shops, but to do so the job must be followed from shop to shop and perhaps from machine to machine. Few managers have the time to do this. In their rounds through the shops many affairs occupy their attention and they have little time to follow a job in this manner. It is often in the office that a manager has a job of work brought to his attention and wishes to know what has been accomplished in each department. To telephone to each department head for this information is unsatisfactory. If he can obtain the information from the cost cards he is in a position to study the job as a whole and plan his actions. By means of the cost system under which I lately operated, the direct labor costs are accurately recorded and so arranged that each day the costs by shops or trades can quickly be obtained. Each of my assistants received the job-order cards of the work under his supervision at 4 p. m. every day. Many of these cards receive but superficial examina- tion, but those for important work receive careful scru- tiny. First, the totals of the direct labor costs are known and with general knowledge of the progress of the work the efficiency of operation is measured. The estimated cost of each job is given on the card and it is therefore known how much money remains of the direct labor estimate with which to complete the work. The jobs that have overrun the esti- mates, or are in danger of overrunning, are picked out and in- vestigated and the reasons for this condition determined. THE PURPOSES OF A COST SYSTEM 1 5 This brings forth better supervision on the part of foremen of what might be called the dangerous jobs. The progress of the work in each department can be ap- proximately determined and departments that are behind can be accelerated. For example, in a large pipe job, the charges show that the pipe shop has made material progress while the foundry has done little or nothing. Before the work can be completed the flanges and fittings must be cast in the foundry and rnachined in the machine shop. Either the pipe shop is too fast or the foundry is slow. A note is made of this job and the conditions investigated the following day. The accuracy of charges against jobs is also tested. On a number of jobs the assistant knows exactly the men who worked the previous day and with this knowledge checks the charges made against the job order. In actual practice it was found necessary each day to issue a considerable number of memoranda to foremen asking for explanations or giving suggestions and directions. It has been found convenient to go over the job-order cards after the usual working hours when this can be done undis- turbed, and to dictate the notes regarding the work to a dictating machine, to be written and sent out the following morning. This use of costs gives a manager and his as- sistants a much better grasp of the situation, puts the man- ager in closer touch with the work, and brings each day to his attention important facts which otherwise might es- cape him. The notes that I make from the afternoon scrutiny of the job-order cards have been of great value in planning the following day's work. Frequently on Sundays or at night I go over the job-order cards of the important work. At these times I am undisturbed and devote my whole attention to a study of conditions as shown by the cost records. In these days of competition there are few managers who do not sometimes find it necessary to study the operation of the plant outside of working hours. At these times the cost l6 COST KEEPING AND SCIENTIFIC MANAGEMENT records should supply the necessary information. Accurate costs properly recorded are the sign boards pointing directly to inefficient methods and inefficient service. ^There is another important benefit to be derived from this /•^se of costs. The working force soon knows that the his- tory of each department is recorded by the costs, and that / \each day the story is told to the responsible head, and that any dereliction will be immediately noted and corrective meas- ures applied. This knowledge brings forth better supervision on the part of superintendents and foremen, and better ef- forts on the part of workmen, and consequently increases efficiency. Every manager knows that when the cost of a job is watched day by day the total cost will be much less than if the work had not received this attention. Nearly every manager has at some time watched the cost of a job in which he is particularly interested and he knows that his watchfulness has brought excellent results. Then, why is any argument needed to strengthen the plea to watch all costs in the same manner? To do this a system must be provided which presents true costs in a convenient form so that the figures may be readily analyzed. It is true that in a large establishment with many job orders it will be impossible for the manager to go over the cards for each job. He has assistants who can do this, and these will bring to his attention all important matters and all exceptions which they are unable to handle. While the above described daily scrutiny of cost by job orders refers to direct labor costs, it must not be inferred that the material charges should not receive attention. The cost-of-work cards show the charges for labor, material and indirect expenses. These are recorded by months, the labor being taken from the job-order cards, the material from the storekeepers' bills, and the indirect from the expense-dis- tribution sheet. These should be scrutinized not less than once a month. I have found these uses of costs to be of the greatest as- THE PURPOSES OF A COST SYSTEM 1 7 sistance in an organization employing 1,500 to 2,000 men, dis- tributed in a number of shops. There is Httle doubt that similar use will be of benefit in a smaller plant. MANAGER SCRUTINIZES EACH MONTH ALL INDIRECT CHARGES. With a proper system of costs there will be presented to the manager each month a complete analysis of all of the indirect charges. This will show for each shop the indirect charges under appropriate heads and the total shop expense. The general expenses will also be shown in a similar manner. The productive labor in each shop should also be shown and the proportion of each expense to productive labor given. The distribution of the expense burden to the output should also be given. By means of parallel columns, or better, by means of curves, each of the various factors should be plotted by months, so that the manager can see at a glance whether the tendency of each expense is up or down. With this in- formation the manager can see exactly where the money for the expense burden goes. He will note that one item of expense is very large, but he knows the reason. There has been a breakdown which involved a large expenditure for repairs. He notes another item which is higher than usual, and for which he does not know the reason. He checks this item for a detail of labor and material. Thus, he goes through the monthly expense reports, noting exceptions for further details. These details are prepared for him and unless they show to his satisfaction that the extra expendi- ture is warranted he is in a position to take up the question with the department head and will require satisfactory ex- planation or apply corrective measures. He can at various times take up the expenses shop by shop, item by item, and have a complete analysis and detail study made to see if the expense for this shop can be re- duced without reducing the output or without injury to the plant equipment. This is not only for the purpose of stop- ping leaks, but also for devising better methods or better ap- pliances. In this, as in all other work, it will be found thaC l8 COST KEEPING AND SCIENTIFIC MANAGEMENT when it is studied in detail and systematized the expenditures can be materially reduced without injury to the plant or without reducing the output. By such a system of costs the manager is not only able to see clearly the operation of the plant, but the leaks and deficiencies stand out and he can apply the remedy. He is armed with absolute knowledge and does not have to guess; when he calls for an explana- tion from a subordinate it will be useless for the subordinate to attempt to evade or bluff, for now the manager knows. y ^ MONTHLY BALANCE DESIRABLE. Very few manufacturing establishments and practically no repair shops make a monthly balance. There is no neces- sity for waiting until the end of the year to determine if the concern is making or losing money. This can and should be known at the end of each month. A proper cost and accounting system shows this and there can be no question that the concern with this information is in a far stronger position than one without it. To obtain a monthly balance in an establishment like a shipyard, where large contracts are taken which require several years to complete, it is neces- sary that an estimate be made each month of the value of the output on such contracts. Practically all contracts of this kind are paid for as the work progresses, as no firm cares to finance a five-million-dollar contract. This requires that from time to time careful estimates, based on the total con- tract price, shall be made on the value of the work accom- plished, in order that payments may be obtained. These estimates are carefully checked by the purchaser and are us- ually conservative. The same system may be employed to show each month the value of the work accomplished on each large contract. The monthly balance is another case of a proper system giving information that is well worth while, information which prevents the manager from acting in the dark. It is also of value to the owner or the board of directors in a stock company. Sometimes owners or directors are in igno- THE PURPOSES OF A COST SYSTEM IQ ranee of the actual conditions and believe that large divi- dends are being earned when ^uch is not the case. This condition is not unusual when a concern is principally en- gaged in executing large contracts which require several years to complete. A manager may obtain at low prices a num- ber of such orders and the concern has every appearance of prosperity, and the owner is led to believe that large profits will be secured when the contracts are completed. Without an accurate cost system there is no way by which the esti- mates made by the manager can be checked, other than to engage an expert to go over the work in detail and estimate the value, and compare this with the expenditures ; but the owner has no reason to consider such action necessary. When the work is completed, instead of profits there are enormous losses. This case is by no means an extreme one and at least one large manufacturer can testify to the correctness of the statement. Purchasers of large properties may be deceived in the same manner and under the veil of apparent prosperity losing establishments are sometimes sold at very advantageous terms. No doubt some of my readers have better knowl- edge than I of the losses due to buying under these con- ditions. These regret that accurate cost keeping and account- ing were not more general, or at least were not employed in these plants, for such operations would have then been im- possible. DIVIDENDS THAT ARE PAID FROM CAPITAL AND NOT FROM PROFITS. A proper cost system shows the actual profits, but fre- quently with the systems in use the records show profits which are not real. In many concerns, particularly the small establishments, in arriving at costs no account is taken of depreciation, or if it is considered, the allowance made is inadequate. In these cases the profits shown are apparent and not real. The owners, however, do not realize that the dividends which they receive are at least partly derived from 20 COST KEEPING AND SCIENTIFIC MANAGEMENT the principal and not from profits. This subject will be dis- cussed in more detail in a subsequent chapter. Few concerns know whether or not every line they make and sell is a money maker. They cannot know with their present cost system. Is this good business? Surely not! Many, however, depend on the cost system to show a profit or loss at the end of the year, and are satisfied if a sub- stantial profit is shown. These are neglecting their oppor- tunities. Oftentimes one product should show a substantial loss which is made up by large profits on the others. A proper cost system will show the profits on each line. If the losses on the losing line cannot be turned 'into a profit by improved efficiency, then that line should be abandoned and all energy concentrated on the profitable lines. In some foundries costs are kept, and selling prices are fixed on a tonnage basis. The costs of large simple castings are averaged with those of the small difficult ones. It is hardly necessary to point out that the selling prices of the large castings are too high while the small are too low. If it is known to buyers that costs are kept in this way orders for small castings will be plentiful. I know of one large concern that places its orders for castings in this manner. The small and medium-sized cast- ings go to the concern where costs are averaged, while all of the larger castings go to another where costs are properly kept. I recently visited a shop that used a number of small steel castings weighing less than a pound each, and learned that they were obtained at ten cents a pound. The foundry that made these is a small plant using the Tropenas process. The cost records were of no value in fixing selling prices, and many orders were taken at an actual loss. This steel plant went out of business. / THE PURPOSES OF A COST SYSTEM 21 IS EVERY DEPARTMENT OF THE PLANT A MONEY-MAKER? A large concern usually consists of many departments. Is each of these a money-maker? Is each shop efficient? If not, can it be made efficient? These are important ques- tions and every capable manager wants satisfactory answers, and he should have them to manage the establishment prop- erly. Let managers ask these questions, and few will re- ceive satisfactory replies, although a proper cost system provides the data. In some of the large establishments with numerous shops the expense burden is averaged and applied on the basis of productive labor — notwithstanding the fact that in one shop the shop expense percentage is nearly a hundred while in another it is less than twenty-five. Frequently such estab- lishments are called on to bid for work which is almost exclu- sively confined to the shops where the expense is low, and by using the higher average rate the bids are high and the work goes to other establishments where costs are more ac- curately determined. Thus profitable work is often lost. Sometimes the establishment which is known to be better equipped and more efficient loses in this way to the poorly- equipped, inefficient shop, and the latter makes money. I know of at least one establishment which lost so many profita- ble repair jobs in this manner as to cause general comment, yet apparently the real cause was not known to those in au- thority. WHAT IS GOOD JUDGMENT? A great deal is heard of good judgment, and men who possess this quality command high salaries. Often an es- tablishment which has secured such a man depends almost entirely on his " good judgment " for better results, and it is considered that with this he can overcome the lack of organization, cost system, or even of plant equipment. A good mechanic- to produce the best work quickly must have good tools with which to work. If he is not given 22 COST KEEPING AND SCIENTIFIC MANAGEMENT these a less efficient man with better tools can produce better results. The same applies to the manager. A manager with good judgment is extremely valuable, but he must have the tools with which to work. If he does not obtain them a man of less ability with better organization and better equip- ment will outdistance him. Good judgment is the application of knowledge gained by experience. This is derived partly by direct observa- tion and partly from statistics compiled by others which have been digested and the salient points retained. If the manager is really a man of '' good judgment " he will pro- vide himself with the organization and the system which will furnish him with correct information. An accurate cost sys- tem is an essential part of such an organization. CHAPTER III The Various Elements of Cost It is well to admit, before going into the subject in detail, that from the point of view of the manager it is impracticable to obtain costs that are scientifically accurate. To obtain such costs will "recjuire machinery so complex that the real reason for the existence of the factory, that is, the produc- tion of work at a cost which will permit it to be sold at a profit, may be lost sight of in striving for scientifically ac- curate records. In a few words, the purpose of costs is twofold : The first is to furnish the cost of the products so that the selling price can be fixed, or if the selling price is fixed by competi- tion, to determine if the product can be manufactured at a profit. The second is for the benefit of the manager, to show him where economies may be eflfected. An information which is useful for these two purposes is valuable and should be obtained if this can be done without excessive cost or disadvantages which outweigh the advan- tages. Reports and data which do not serve either of these ends are useless, an unnecessary expense, and may by their complication and multiplicity of detail obscure the real ob- jects sought. In the present day, with the systems of shop management which are most generally used, it is not possible to obtain costs with the degree of accuracy that is believed neces- sary by many progressive managers, but with advance- ment in shop management there wiU be corresponding ad- vancement in the degree of accuracy of costs. I believe that the day is not far distant when scientific shop management will be almost universal and when that day comes, costs 23 24 COST KEEPING AND SCIENTIFIC MANAGEMENT which are approximately scientifically correct will not only be possible, but the rule. In the meantime great improvement can be made in ex- isting methods, and it is my purpose to attempt to point out defects in methods frequently followed, and to attempt to describe methods which will give more accurate results, and at the same time not require an undue amount of clerical labor. The most important object sought, however, is to arouse in- terest among engineers, owners and managers in the im- portance of improvement in the accuracy of cost records. Production costs consist of direct labor, direct material, and the indirect costs. It is difficult to give a general, but rigid, definition of these elements, but in each system at least there must be a rigid definition if accuracy is to be attained. DIRECT LABOR. Direct labor is often called productive labor, and is de- fined as all labor which is employed directly in the produc- tion of the output, as distinguished from labor indirectly employed on output. A machinist running a lathe turning a crank shaft for an engine under construction is clearly performing productive or direct labor, while the engine tender in the power plant is classed as performing un- productive or indirect labor. There is, however, much labor which is not so clearly defined. There is labor which is directly employed on output, but as it is employed for varying periods during the day on a large number of dififerent jobs, each of which receives but a few minutes of time, it is impracticable to charge the time direct to each job. In a large establishment many cases of this kind can be found, for example: A general helper or laborer em- ployed in a machine shop or foundry who is called on to assist in many jobs during the day; a machine hand in a jobbing wood-working shop or pattern shop running several machines, may work on fifty jobs during the day; a man employed as a " move man " to move work from one machine to another, etc. With the shop organization that is almost uni- THE VARIOUS ELEMENTS OF COST 25 versal it is impossible to correctly charge these men directly to the work on which they are engaged. Any attempt to do so will usually result in the large jobs getting nearly all the charges while the many small jobs get none. In many shops where some attention is given to shop- expense costs, and a more or less blind effort is made to re- duce these expenses, the result will be that the time of such men is divided up by the foreman and charged direct to a few large jobs. It is far better to recognize the fact that this miscellaneous labor engaged directly on output cannot under present conditions be accurately charged to the output, and should be charged as indirect labor. Frequently some of the supervisory force are engaged ex- clusively on one large job, and there are many arguments for charging such men direct to the job. In fact, I know of very few who advocate charging such men otherwise. For ex- ample, one sub- foreman has entire charge under the foreman of the erection of a large engine on the erecting slab; or an assistant foreman, himself with an assistant, has charge of retubing the boilers of a large ship. As these are ex- clusively engaged on the one job, at first thought it would seem proper to charge these direct to the work which has the benefit of their services, and this is the usual practice. On the other hand, when a sub- foreman is engaged at the same time in the supervision of a number of jobs, his time is charged to the indirect order for supervision. Under this system the large jobs mentioned not only pay for their own supervision, but also help to pay for the supervision of other work where the supervisory force is charged to an expense order and pro-rated. Another important objection to this method is that it im- pairs the accuracy of the records. There is an order num- ber in the expense accounts for the shop supervision, and the manager desires each month to know exactly the cost of this supervision. By the usual method this cannot be told, and the comparisons made of the monthly expenditures are of little value, as one month all of the shop supervisory 26 COST KEEPING AND SCIENTIFIC MANAGEMENT force is charged to the supervision number, while the next month much of this cost may be hidden in the direct-labor costs. The supervisory force should never be charged direct to a job, but should always be charged to the supervision number. This, however, does not apply to the supervisory force of an erection gang away from the plant, employed ex- clusively on one job. In this case the supervisory force is charged direct to the job and this job does not receive any part of the expense of shop supervision. This not only refers to foremen, assistant foremen, gang bosses, etc., who are regularly classed as supervisory, but also to mechanics who are acting in a supervisory capacity and who are in the shop termed '' straw bosses." This method increases the shop-expense charges, and on this account is objectionable to rnany, but if cost records are to be used to their full value, the system must be as rigid as possible, and the costs which are compared must always be for the same object or the same service. Under these conditions it is necessary to define direct labor as the labor employed in the production of output, which it is practicable to charge direct to production orders, and does not include labor which, under the cost system used, should be charged to supervision, miscellaneous labor, or other over- head orders. IMPORTANCE OF ACCURACY IN OBTAINING " DIRECT-LABOR CHARGES." It is of the greatest importance to secure accurate direct- labor charges. This is true not only on account of the im- portance of these charges in themselves, but in the great ma- jority of the shops the overhead charges are pro-rated to the different jobs on the basis of direct labor, and inaccuracies in these charges vitiate the accuracy of the distribution of the burden. In the case cited above, relative to charging cer- tain supervision direct to production orders, not only do these orders pay for supervision of other work, but by in- creasing the direct-labor charge the order is made to pay THE VARIOUS ELEMENTS OF COST 2/ for more than its share of all of the overhead charges. It is generally conceded that the best means of securing cor- rect labor charges is by means of the individual service card, or time ticket, as it is sometimes called. A separate card is used for each job on which a man works. In the best or- ganization these cards are made for the workman, and he has only to enter the time he starts and stops a job, and in some shops this is done by means of clocks. The total time charged to jobs must equal the payroll time of the employees. DIRECT MATERIAL. Direct material has been defined as the material that en- ters in and forms a part of the product manufactured. This definition is not exact. Like direct labor there is some ma- terial that enters into the product that cannot be charged as direct material, but must be charged indirectly : glue used in a joiner shop or pattern shop; a few nails or screws used on a repair job; a small amount of solder on sheet-metal work; a few cotter pins on a job in the machine shop; the red lead or litharge used in making joints; the material used with the oxy-acetylene welding plant, and many other similar items. On account of the difficulty of measuring the quantity used of some of this material and the small amounts used of other classes, it is impracticable to charge these direct, and they must be included in the indirect charges. Direct material must, therefore, be defined as the material which enters in the product that it is practicable to charge direct. Much more care than is usually the case should be given to the custody of material and to the charges for material used. Many managers are very particular regarding the charges for labor, while they give but little attention to the charges for material. They insist that the total of the pay- roll must balance with the labor charged to the various or- ders, but they make no effort to balance the material charges. In many establishments much material is stored in the shop, and in some cases is free to all. When this is the case it 28 COST KEEPING AND SCIENTIFIC MANAGEMENT is inevitable that material will be used and not charged to the job. 'Under these conditions there is also considerable waste, due to loss and pilfering. Scrap material which has been left over from a previous job is frequently used without charge or credit. Except in strictly manufacturing estab- lishments it is rare that the material actually used will check with the charges made. There should be strict accountability for all material, and this cannot be accomplished without a rigid store-keeping system. To store all material, however, in a storehouse and send there every time minor miscellaneous material is re- quired, is a mistake. Not only will such a system cause much costly delay, but it will also force a foreman to acquire surreptitiously a small stock in the shop not on charge on the books. In addition to the storehouse there should be established in each shop a well-arranged stock room in which is kept a small stock of miscellaneous minor materials required to meet immediate demands of the shop. In the small shops this can be maintained in connection with the tool room. There should, however, be rigid accountability for this material. Regular stock cards should be maintained and the stock should be frequently inventoried. All material issued for a job which is not used should be returned to the store and the job credited. No material should be allowed in the shop un- less it has been drawn for work under way. I have no doubt that eventually in all but small jobbing shops the bill of material required for every job that can be charged direct will be prepared in the office when the work is planned, and ordered from the store before the work is begun. This is now done in some establishments, but is by *no means general. There is much that can be done to in- sure correct material charges, and if managers will give this subject one-tenth of the attention that they give to labor, large savings will be effected, and the cost records will be more accurate. THE VARIOUS ELEMENTS OF COST 2g INDIRECT COST. The indirect costs are generally called " expense charges," " expense burden," or " overhead expenses." These terms are unfortunate, as they give the idea that they cover the cost of the administration and upkeep of the establishment, and nothing else. P^rom the definitions of direct labor and direct material, it can be seen that both labor and material employed directly in product are included in the indirect costs, although not in any way a part of the expenses of the establishment. In a foundry doing jobbing work, for example, it is an impossibility to accurately charge the helpers directly to the work, and these are usually charged to the indirect order for miscellaneous labor, yet they are engaged entirely on produc- tive work. The sooner managers and others get away from the idea that the percentage of indirect costs to the direct labor is a measure of the efficiency of the establishment, the quicker will there be obtained accurate cost records, and what is still more important, the quicker shall we obtain increased efficiency. The measure of efficiency of an establishment is the total cost of the product, not a part of the cost, and the indirect charges are but a part of the costs. Indirect costs may be defined as the element of the total factory cost of the product which it is not practicable to charge as either direct labor or direct material. TOTAL FACTORY COST. The sum of the direct labor, direct material, and indirect cost is the total factory cost. To obtain the total cost there must be added to the factory cost the selling expense. The selling cost should be kept entirely separate from the factory cost in order that the efficiency of both the factory and the sales department may be accurately determined. Not only should the sales department be charged with the expense of adver- tising, salesmen, etc., but this department should bear its proper proportion of the general expenses, and should be 30 COST KEEPING AND SCIENTIFIC MANAGEMENT charged with the work done by the estimating department for the benefit of sales. ELEMENTS OF THE INDIRECT COSTS. The principal elements of the indirect costs are : Ex- penses of administration; miscellaneous labor and material which it is impracticable to charge direct to product; interest on money invested and rent; depreciation, both from age and use; upkeep of plant; taxes; insurance, fire, accident and cas- ualty; heat, light and power. Some of these expenses are well understood and require no explanation, but others are not understood in the average establishment and before accurate costs can be obtained all must be understood and their importance realized. DEPRECIATION. It cannot be considered strange that little is known in the average shop regarding depreciation when there is so much ignorance regarding this element of cost in quarters where one would expect to find knowledge. In many courts throughout the country it has been decided that depreciation is not an element of cost and should not be charged against income. Hatfield quotes a decision in a California court in which the judge decided that a charge of depreciation against income was "all wrong" and ''not to be tolerated for a moment." Hatfield also states that some years ago the Supreme Court of the United States held, re- garding depreciation : " We are clearly of the opinion that it is not a proper charge. Only such expenditures as are actu- ally made can with any propriety be claimed as a deduction from earnings." On the other hand, the Statutes of Ger- many, France, Belgium, Switzerland and Austria require that depreciation must be charged before profits can be paid. The courts of England have also almost always held that deprecia- tion must be considered, and this has been the ruling in many states in this country. The most important recent ruling is that of the Interstate Commerce Commission that an allow- THE VARIOUS ELEMENTS OF COST 3 1 ance must be made for the depreciation of the equipment of raihoads. All expert accountants are "unanimous that depreciation must be charged to output and there is little doubt that any owner who will give the subject serious consideration will reach the same conclusion. Perhaps one of the best examples of depreciation is that of a valuable patent, for which a large sum of money has been paid. It is known that this has but a certain number of years to run, and that each year its value becomes less. A certain proportion of the money paid for the patent must be written off each year and this must be charged to the product which is manufactured under the patent. This is elementary and is understood even by those who do not consider depreciation of buildings and plant equipment as a part of the cost. Oftentimes expensive plant equipment becomes obsolete and must be discarded in much less time than the life of a patent, and still many owners do not con- sider that the cost of such equipment should be charged to the work produced during the life of the machine. There are two kinds of depreciation, one, the gradual wear- ing out due to age, which cannot be remedied by repair, and the other is due to machines or appliances becoming obsolete. In some classes of equipment the depreciation by wear is the more important, while in other classes used for work in which the process of manufacture is rapidly changing and in which an expensive machine may be out of date and discarded in a few years, the depreciation by obsolescence is the more important. Some expert accountants attempt to keep these two kinds of depreciation separated, but as both can only be approxi- mately estimated there does not appear to be any advantages gained by this separation and it adds to the complication of the accounts. 32 COST KEEPING AND SCIENTIFIC MANAGEMENT HOW IS DEPRECIATION DETERMINED: Depreciation can only be determined by estimating the use- ful life of the building or machine and its scrap value at the end of the period, and spreading the difference between cost and scrap value over the period of life. The life of a building or equipment depends principally upon its character and use. Some buildings, for example a stone storehouse, depreciate very slowly — probably not more than 2 per cent, a year, while others depreciate very rapidly. A wooden blacksmith shop or foundry which is subject to smoke, heat, gases, etc., depreciates very rapidly. A building in which rapidly revolving shafting is employed, or machines operating with considerable shock, as a number of drop- forge hammers, also depreciates rapidly and for such a yearly depreciation of from 4 per cent, to 8 per cent, should be allowed. Machinery depreciates more rapidly than buildings and some classes much more than others. This is true of depre- ciation by use, but greater differences are found in different lines of manufacture due to advances in the methods of manu- facture. In some lines the changes in methods are not radical and are comparatively few and the life of a heavy machine tool can conservatively be considered as 15 to 20 years. In other lines there are radical changes due to new inventions, and these may be frequent and it is not safe to consider the life of the machine as greater than five years. Various estimates of experts are available regarding the rates of depreciation; perhaps those given by Dicksee and Tiffany serve as the best rough guide, but the average rates recommended by the commission of the National Machine Tool Builders' Association are, for the manufacturer, more conservative. These are as follows: 10 per cent, on ma- chinery, 5 per cent, on frame buildings, and 3 per cent, on brick buildings. These rates are for favorable conditions, and apply to the total original value and not to a decreasing value. THE VARIOUS ELEMENTS OF COST 33 However, no rates should be accepted and used without full investigation of the conditions of the equipment under consideration. The Interstate Commerce Commission has re- fused to promulgate standard rates of depreciation, stating that " Conditions under which equipment is used vary so greatly that no uniform rate of depreciation for all roads could reasonably be determined. The proper rate will, of course, vary inversely with the life of the property to which it pertains, and its determination must take into consideration whatever affects the life of the property." Each case must be considered on its merits, and the esti- mates should be made by one of experience and judgment who knows all the conditions; but it is wise to remember that it is far better to err by over-estimating than by under- estimating the depreciation. DETERMINATION OF THE DEPRECIATION TO BE CHARGED OFF EACH YEAR. There are numerous methods offered by accountants for charging off the depreciation yearly. It is considered that from the standpoint of the manager or engineer only two need be presented. The first and simplest, and the one most commonly used, is to divide the difference between the actual first cost and the scrap value by the number of years it is estimated the machine or building will be used, and the quotient gives the yearly amount which must be charged to the cost of the product. The second method is theoretically at least more attractive. The cost charged to the product on account of a machine or building is not only depreciation, but also repairs, and it is desirable that the sum of these two for each year should be fairly uniform. When a building or machine is new the repair cost will be small, and it will increase with increasing age. Therefore to keep the sum of depreciation and repairs fairly constant for each year a high depreciation should be charged when the plant is new, and should be decreased each year. This method of charging depreciation is also in ac- 34 COST KEEPING AND SCIENTIFIC MANAGEMENT cordance with the actual value of a machine or building at a forced sale, as there is no doubt that the reduction in selling price will be greater after the first year of use than the reduc- tion in value from the ninth to the tenth year. Moreover, a new machine is probably competing with old machines, and later, as it grows old, is in turn competing with new machines ; a machine is, therefore, better able to stand the higher charges for depreciation when new; and with the low rate when old is better able to compete with new machines. There are numerous ways of computing the decreasing rate. The method given by Cole is simple and satisfactory. He divides the difference between first cost and scrap value by the years of life, and depreciates each year a fraction comprising the number of years to run as a numerator and the sum of the year numbers as a denominator; for example, if the lifetime is five years, add 5, 4, 3, 2 and i, getting 15, and in the first year write off five-fifteenths, in the second year four-fifteenths, and in the last year one-fifteenth. Applied to a machine costing $200 to last five years and with a scrap value of $20, this works out as follows: $200 — $20 = $180, shrinkage. Denominator, 5 + 4 + 3 + 24-1 = 12. 15; $180-- 15 Year. Depreciation Fraction. Depreciation. Value. I 2 3 4 5 $60. 48. 24. 12. $200. 140. 92. 56. 32. 20. y,5 of $180 yi5 '' THE USUAL METHOD OF ESTIMATING AND APPORTIONING DE- PRECIATION IS UNSATISFACTORY. In many establishments where depreciation is considered the manner of estimating and apportioning the amounts is THE VARIOUS ELEMENTS OF COST 35 almost entirely guesswork. Usually the estimated value of the buildings is taken as a whole and a total yearly deprecia- tion figure fixed. The machine tools and other plant equip- ment are similarly treated as a whole. The total depreciation is then treated as a general expense and is applied either as a percentage of direct labor or on the basis of hours of pro- ductive labor. There may be great variation in the deprecia- tion of the various buildings of the plant, and this is also true of the plant equipment. It is impossible to even approximate to an average rate of depreciation under these conditions. In every plant there should be a complete inventory of the plant equipment and buildings. This inventory can best be kept on cards and the condensed history of every building and every machine should be given on these cards. For each building and each class of tools or equipment the life should be estimated and the yearly depreciation determined and this should be recorded on the inventory cards; from these total depreciation can then be obtained. The usual method of apportioning depreciation is also un- satisfactory. In a large plant the depreciation amounts to a considerable sum, and by Charging this into general expense it is distributed as an average and some shops or departments pay a much higher rate than should be charged, while others pay lower. For example, there is comparatively little equip- ment in a sail loft, a rigging loft, a paint shop, a shipwright's shop, or for a laborers' force, while a large number of men are employed. By charging depreciation to general expense the work in the shops mentioned pays for a large proportion of the depreciation of expensive equipment in the machine shop, electrical shop, sheet-metal shop, joiner shop, etc. It requires no additional work to determine the depreciation for each shop or department and but little additional clerical work to apportion this each month to the department or shop to which it belongs. The shop depreciation then becomes an element of the shop expense and only such depreciation as cannot be charged to the shop goes to the general expense. With the improvements in methods of shop management, de- 36 COST KEEPING AND SCIENTIFIC MANAGEMENT preciation, together with other fixed charges, will be further divided and apportioned to both machine-tool times and labor,, but such methods are to-day not practicable. The disposition of depreciation after it has been charged to product comes within the province of the accountant and not the cost keeper, but briefly it may be stated that the amount charged to product should be credited to the real es- tate and plant equipment accounts and debited to the deprecia- tion account, and should each month be closed into profit and loss. If the establishment is operating at a profit there is available from depreciation a fund, the amount of which just equals the shrinkage in the value of the physical assets of the company due to depreciation. This can be employed to pur- chase new plant equipment or as a sinking fund, but must not be considered as an additional asset. TAXES AND INSURANCE. These expenses require little explanation. The general method of distributing these by charging them to general ex- pense is open to the same objection, stated above, regarding depreciation. They should be apportioned to the shops or departments in accordance with the value and the risks and should be charged to the shop expense, except that portion which cannot be charged to shops and is for the benefit of the whole plant, which should be charged to general expense. Special insurance should be charged direct to the work it covers. An example of this kind is the insurance of a ship building at a shipyard, or if a special product, on account of its nature, temporarily increases the insurance rates on the whole plant or a portion of it. In these cases the additional insurance paid should not be charged to the expense accounts, but should be charged direct to the product which causes the increase in the regular rates. UPKEEP OF PLANT. No question arises regarding ordinary repairs, but there is sometimes a tendency to charge minor additions and changes THE VARIOUS ELEMENTS OF COST 37 and also repairs which are in the nature of renewals to the capital account, and great care -should be exercised in making charges of this nature to this account. No minor changejB or additions should be so charged, and no repairs in the nature of renewals should be charged unless it be clear that they actu- ally add to the market value of the plant. In no case should additions or part renewals be taken up direct in the capital account, but should be carried in separate accounts and so shown on the balance sheet, so that the merit of these trans- actions may be judged. In all ordinary cases the cost of up- keep should be charged to the proper expense account. INTEREST AND RENT. There is much discussion as to whether or not interest should be charged to the product. If the entire plant is rented no one questions that the rent paid should be charged to the cost of production, but when the plant is owned by the company operating it, many consider that interest and rent should not be charged. If it is correct to charge rent in the first case, there should be no question that it is a proper charge in the second. The interest on the investment must be met and this is chargeable whether the concern owns the property or not, for whether return is made to landlords, lenders of capital or to stockholders, the output must produce some means of meeting it. Professor Cole in his treatise on accounting puts this very clearly as follows : " Rent in the ordinary use of the word is composed of two elements: First, payment for exceptional advantages accru- ing to the owner of land or buildings because of location or other natural qualities — as exceptional shipping facilities or low power-cost; second, interest on the improvements made on the land, such as buildings. In the true economic sense, rent is only that part of the payment which is due to the ex- ceptional facilities, as low power-cost. Obviously rent arising from such advantages is in one sense not cost at all, but a measure of gain — it measures the saving by having the use 38 COST KEEPING AND SCIENTIFIC MANAGEMENT of this Special facility. Even though such economic rent is paid to another, it comes back in the saving. It is an out-go, but it is offset by a special income — or, what is the same thing, a reduced expense elsewhere. This has led to the theory that, at least for the manufacturing concern owning the land and buildings which it uses, rent need not be included in the schedules of cost. " The reply to this lies in the answer to the question, What is the purpose of keeping manufacturing accounts? Unless the accounting shows not only a basis of charges for manu- factured goods, but also what are the gains from the conduct of business, it is not worthy of its name. If the concern pays rent, clearly the rent is a cost — as much as the payment for wages; in both cases an outgo is suffered in order that a return may be secured. If the concern is the owner of the property that it uses, two facts require that rent be charged as a cost. First, if the property is valuable enough to yield economic rent (i. e., more than interest on the improvements on the land), it is so because it confers some advantage in louver costs — as cheap power or low freights. If, then, rent is excluded from costs and the cost book shows only actual cost paid to outsiders by the business, prices based on the cost book give to the customer all the advantages of the cheap power or the low freight. Such prices are not normal and can never long continue. The only way to show the facts is to show that the cheapness of power or of freight is abnormal, and this can be done by entering rent as one of the costs. Second, the concern is in this case not merely engaged in manufacturing; it is a landholder, and as such it receives a landholder's revenue as distinguished from a manufacturer's revenue. An important purpose of accounting is to show different kinds of sources of revenue." In practice it is not necessary to separate rent proper from interest, and the two should be carried together as a percentage of the total investment. Interest should be distributed to the product in the same THE VARIOUS ELEMENTS OF COST 39 manner as has been described for taxes, insurance, and de- preciation. The amount charged to the product should be carried to the reserve interest account, and each month should be closed into profit and loss. CHAPTER IV Distribution of Indirect Costs The distribution of indirect costs should depend to a certain extent on whether payment for the work is made on the basis of cost plus a percentage for profit, or by the jobs. In some establishments there is much work for which pay- ment is made by taking the book costs and adding a percentage of profit previously agreed upon. This is frequently the case in large ship-repair jobs, where it is difificult to determine ex- actly the work necessary until everything is uncovered. It is often the case in repair jobs in a machine shop. Frequently large buildings or other large undertakings are paid for in the same manner. Under these conditions the purchaser has the right to check, day by day, the men employed on the work, and also to investigate the book charges. In such cases the indirect charges, if high, may be the cause of much contention, and this may i^^Slilt in the firm not getting future contracts. Very few understand indirect costs, and not a few, who have work done at cost plus a percentage, feel that in the in- direct charges they are paying for something which they do not receive. They realize, of course, that the general ex- penses must be paid, but they consider that 15 to 20 per cent, of the direct-labor charge is ample to cover all legitimate ex- penses, and that anything in excess of this is simply additional profit. An establishment which charges 60 or 70 per cent, for indirect costs will be looked upon as guilty of extortion and not only will never get additional work from the cus- tomer so charged, but its reputation will suffer and it will lose other customers. Scientific ideals are excellent, but, after all, a shop or fac- tory exists to make money. This is essentially a commercial age, and the successful engineer must recognize this fact and 40 DISTRIBUTION OF INDIRECT COSTS 4 1 put aside some of his scientific ideals if, by so doing, he can place the concern for which he is working in a better position to make a commercial success. In an establishment which does much work on the cost plus a profit basis, the cost system must be arranged so that the indirect costs will not appear large. This can readily be done by charging everything possible direct to the work. In this case sub-foremen, leading men, etc., should be charged direct; all miscellaneous material, as oil, waste, emery cloth, etc., and also small tools should be charged direct instead of to the expense number. Machine rates should be used and to these should be attached interest, depreciation, taxes and insurance, not only of the tool, but also of the building. By following these methods the remaining indirect charges will be small, and the percentage added for indirect costs will ap- pear to the buyer reasonable. This also gives the buyer an opportunity each day to check that which has been charged to his account against what has actually been used. In a strictly manufacturing establishment, or in shops where the repair work is taken at a contract price, no such conditions exist, and it is more accurate and more satisfactory to make the charges to product differently. ^^ DISTRIBUTE INDIRECT COSTS IN ACCORDANCE WITH BENEFITS RECEIVED. The distribution of the indirect costs should be made in such a way that each production order will receive charges which closely approximate to the proportional benefits it re- ceives from the various elements of indirect costs. It is well to recognize that any practicable scheme which has been devised or which has been proposed for distributing these costs can be adversely criticized. Any manager or en- gineer can take any proposed system which can be put in op- eration without great cost, and advance many good reasons to show that it is inaccurate. But it should be remembered that a system proposed by these same critics will be subject to the same fate at the hands of others. 42 COST KEEPING AND SCIENTIFIC MANAGEMENT As stated before, scientific accuracy cannot be obtained. Moreover, a system well suited to one establishment is not ^ suited to another. The only wise course is for a manager himself to thoroughly study cost accounting, and then secure an expert to work out, under the general instructions of the manager, the details of the system. Few managers have the time to devise and install a system, and at the same time attend to their other duties, but they should thoroughly understand the principles, for unless they do, they will be unable to give the expert the assistance and support needed to enable him to work to the best advantage. DISTRIBUTION BY MACHINE RATES THE MOST SCIENTIFIC ( METHOD. ~^In the present day, machinery performs a very important part in the production of work. Very expensive machines are designed and built to reduce labor charges, and thousands of automatic and semi-automatic machines are to-day doing the work that was formerly done by many thousands of highly- paid mechanics. It would seem that the machine-tool time is the most accurate and most satisfactory method of distrib- uting the indirect costs, and nearly all engineers consider this the most accurate, but some do not consider it the most satis- factory method. A great many of the indirect expenses of a factory attach themselves naturally to the machine tools, as will be seen from the analysis of this method. We have seen in previous chapters the disadvantages of charging interest, depreciation, taxes and insurance to general expense and distributing this on the basis of direct labor. These troublesome items of ex- pense naturally attach themselves to the machines. As a large part of the cost of the plant is machinery, and as a large part of the cost of real estate, buildings, etc., is for the benefit of machinery, it is natural that the expenses men- tioned should be distributed on the basis of machine-tool time instead of labor time. Take first the machine itself; the interest on the money in- DISTRIBUTION OF INDIRECT COSTS 43 vested in the tool itself and its foundations, the depreciation, taxes and insurance due to the tool can be paid for by the work produced by the tool. The power consumed in running the tool and repairs to it should be charged to the product of the machine. It would, therefore, seem that there can be no question that at least these expenses should be based on the machine time. The land occupied by the shop, and the build- ing itself, are as much for the benefit of the machines as for the labor employed. The expenses due to interest, deprecia- tion, taxes, insurance and repairs of buildings and land can be apportioned to the machine time by making the distribution on the basis of floor space occupied by the machines. A num- ber of other expenses attach themselves readily to the ma- chines, and by going through these carefully it seems as if it might be possible to establish an accurate rate for each ma- chine and appliance, which will leave but few expenses to be apportioned on the basis of labor. There is no doubt that this method, if it can be followed, is more accurate than distribution on the basis of labor alone. I believe that in years to come the indirect expenses will be distributed in this manner, that is, partly by machine times and partly by labor. At the present time, however, it is im- practicable in many shops, and there are very few where it can be used with any degree of accuracy. In carrying out such a system it is necessary to make many assumptions, which may be correct, but which are more likely to be very much in error, and the results are likely to be fully as inaccurate as if direct labor had been used as the basis for distribution, and the machine rate involves much more clerical work. DIFFICULTIES IN FOLLOWING MACHINE-RATE SYSTEM. A few of the difficulties which will be encountered in at- tempting to follow this system will be given : From the sci- entific point of view the cost of power should be distributed to the machines that use the power. In some of the best treatises on accounting we are told that the power expense should be 44 COST KEEPING AND SCIENTIFIC MANAGEMENT SO distributed and the subject is then usually dismissed with a general statement to the effect that the proportion of the total power used by each machine should be measured or es- timated and the power expense distributed on this basis. This is well enough for the expert accountant, but the man- agers and engineers well know that it is not practicable to determine the power used by the various machines under varying conditions, and that so-called estimates of power used by each machine are nothing more than guesses. If the power were entirely electric, and the machines were motor driven, after extended observations fairly accurate es- timates might be made, but even under these conditions the rate for each machine will vary in accordance with the work done. In many shops there is electric, steam, compressed air and hydraulic power, and it is impossible to even approxi- mately distribute the power expense to the machines in ac- cordance with the actual power used. Under present condi- tions a manager can feel well satisfied if he can approximately determine the proportion of the total power cost that should be borne by each shop. We are also told that the cost of heat should be kept sep- arately and apportioned according to cubical contents, and that the cost of light should be apportioned in accordance with floor area. The manager well knows that this is impos- sible; the lightning circuits are, in nearly all cases, taken from the power mains, and the same boilers that supply steam for the steam hammers supply steam for the testing slab, for heating, for driving tools, and a number of other purposes. Any attempt at scientific accuracy in the distribution of the power expense must necessarily be a failure. If, however, assumptions are made and a machine rate car- rying the greater part of the expense burden is established, other serious difficulties are experienced in applying these rates. It is seldom that any machine tool is continuously em- ployed, and some disposition must be made of the idle time. This can be done by estimating the number of days in the year that the machine will be used and basing the rate on the DISTRIBUTION OF INDIRECT COSTS 45 probable use of the machine, or by charging the idle time of each machine to an expense number and pro-rating this by- direct labor, or by the use of an auxiliary rate for idle time. The use of any of these methods immediately destroys any claims that may have been made for scientific accuracy. There is still another important objection. There are very few shops in which work is carefully routed to the machine best suited for the work, and oftentimes work will go to a large machine with a high rate when it could have been done equally as well in a smaller machine with a lower rate. Or even if the work is carefully routed it will often be found that the smaller machines are crowded with work and to avoid delay the work which should go to the small machine is put in an idle large machine at a much higher rate. These condi- tions completely upset accurate cost keeping and give costs which are very misleading. Whenever machine rates are used in a jobbing shop these difficulties are encountered, and I know of cases where considerable delays have been experi- enced because a foreman who wished to keep down his costs would not put work in an idle machine of a higher rate, but would wait for days to get the work in a lower-rated machine. The machine-rate method is, no doubt, theoretically very attractive, and it is advocated not only by accountants, but also by many engineers, but in practice this system has made no great headway, on account of the difficulty of its applica- tion to the average shop. INACCURACIES OF DISTRIBUTION BY DIRECT-LABOR METHOD. Distribution of the burden by the direct-labor method is ad- mittedly not scientifically accurate, but is by far the most simple and is most generally used. It is, therefore, desirable to examine the inaccuracies of this method. Many of the expenses attached to a manufacturing plant bear no relation to the direct-labor expenditures. This is particularly true of the fixed charges, such as interest, de- preciation, insurance and taxes ; these charges go on whether labor is employed or not, and their distribution by direct- 46 COST KEEPING AND SCIENTIFIC MANAGEMENT labor expenditures cannot be defended except on account of the simplicity of the method and the knowledge that under the shop conditions usually found, any other method is equally inaccurate. Under the direct-labor method, work done in costly auto- matic machines, or in semi-automatic machines with cheap attendants, receives but a small part of the indirect charges, while it should receive a large part. The work at the bench, which requires practically no equipment but does require a skilled machinist at perhaps $4 per day, is charged with twice as much burden as the work in a ten-thousand-dollar machine run by a two-dollar-a-day operator. To carry this still fur- ther, the work in the ten-thousand-dollar strictly automatic machine carries none of the burden, not even power, while rightfully it should carry a large proportion of the burden. On the other hand, it must be admitted that in the average shop these conditions are exceptions, and these can be met by making charges for the use of special machines and de- ducting the amount so charged from the shop-expense burden, distributing the remainder in accordance with the direct-labor expenditures. Any system of cost keeping must be applied intelligently to meet special conditions. This is one of the reasons why only managers and engineers are able to plan a satisfactory system. The expert accountant knows nothing of these conditions, and it is not possible for him to meet them. DISTRIBUTION OF INDIRECT CHARGES BY DIRECT LABOR. There are several ways of distributing the burden in ac- cordance with the direct-labor expenditures. The one most generally used is to determine the proportion of the indirect shop charges to the direct labor expended in that shop, which gives the rate in cents for each dollar expended on direct labor. The general expense rate is determined by dividing the total of the general expenses by the total direct labor of the establishment. These two rates are added and multiplied by the direct labor expended in the shop on each production DISTRIBUTION OF INDIRECT COSTS 47 order, which gives the indirect charges for each order for that shop. For example, in an estabhshment with a machine shop, a blacksmith shop and an electrical shop, the expendi- tures are as follows: Machine Shop : Direct labor charged to production orders $5,ooo Indirect shop charges, labor, material and expenses.. 2,500 Blacksmith Shop : Direct labor charged to production orders 1,000 Indirect shop charges, labor, material and expenses. . 700 Electrical Shop: Direct labor charged to production orders 1,000 Indirect shop charges, labor, material and expenses.. 400 General Expense: The general expenses, not chargeable to a shop, amount to i ,400 The expense rates are then as follows: Machine shop : ^ = 50 cents for each dollar of direct labor expended ; Blacksmith shop: ^ =70 cents; Electrical shop : ■— = 40 cents ; General Expense: ^000+10^+1000 =20 cents. The direct labor charged on each production order in the machine shop is increased by 0.7 ; in the blacksmith shop by 0.9; in the electric shop by 0.6. The total sum of indirect charges thus obtained is the total indirect cost for the order. A production order on which the direct-labor expenditures are: Machine shop, $200; blacksmith shop, $100; and elec- trical shop, $50; will carry the following indirect costs: Machine shop $200 X 0.7 = $140 Blacksmith shop 100 X 0.9 = 90 Electrical shop 50 X 0.6 = 30 Total indirect costs $260 This can be carried in the total cost as a separate item, the elements being direct labor, direct material and indirect costs; or, if desired, the indirect charges may be merged into the labor and material by adding the labor portion of the indirect 48 COST KEEPING AND SCIENTIFIC MANAGEMENT charges to direct labor and adding the portion due to material and expenses to the direct material, the total cost showing only as labor and material. The latter method is strongly advocated by some of the best English authorities — particularly for shipyard accounts. This method has an important advantage, in that it enables the engineer to establish unit prices — per pound, per foot, per piece, etc. — separately for labor and for material. Costs divided in this manner are of assistance in the preparation of estimates for new work, particularly if the work is a large un- dertaking such as the construction of a large ship. Another method for the distribution of the indirect charges is by means of- the direct-labor hours. In accordance with this method the shop-expense rate is determined by dividing the total shop expense by the number of hours of direct labor expended in the shop. The general expense rate is found by dividing the total general expense charges by the total num- ber of hours of direct labor expended in the establishment. These rates are applied as described and illustrated above, except that the hour of direct labor is the unit of distribution instead of the dollar of direct-labor expenditure. There are arguments both for and against each of these two methods. The distribution by expenditures for direct labor is more simple and does not require as much clerical work as the hours of labor method, and it is probably for this reason that it is more generally used. The hours of direct- labor method is a little nearer to the machine-rate method, which will no doubt eventually be used when scientific shop methods become more general. SHALL THE ACTUAL MONTHLY RATES, OR THE AVERAGE RATES, BE USED? In the distribution of the indirect charges, rates determined by previous experience, as the last year's rates, are some- times used instead of the actual rates determined each month. For the purpose of cost keeping there can be no objection to using the actual rates determined each month, and this method DISTRIBUTION OF INDIRECT COSTS 49 has many advantages. In the preparation of estimates for new work, however, the average rates should be used or, bet- ter still, the average rates corrected for conditions that are expected when the work will be undertaken. In this way any abnormal conditions affecting the monthly rates will not show in the estimates. By using the actual monthly rates for cost keeping the entire expense is distributed and there is no necessity for a loss and gain expense account. SIMPLEST METHOD BEST FOR THE GREAT MAJORITY OF SHOPS. The importance of better cost-keeping methods in removing demoralizing competition and establishing stable conditions in much of the repair and manufacture work, has been previ- ously pointed out. The establishments that it is desired to reach are not the ones where the manager is debating whether he shall distribute the charges for heat in accordance with floor area occupied by a machine or the cubical contents taken up by the machine. The establishments that I desire to reach are the thousands where the manager does not include in the costs charges for depreciation or interest, and if these are considered at all it is only to take out of the profits at the end of the year a lump sum for these and other fixed charges, and the amount depends on the amount of the profits. If these. thousands of establishments can be reached and mana- gers and owners can be interested in better cost methods, a great deal of good will be accomplished. It is, therefore, desirable to present a skeleton cost system in the simplest form. The most simple methods which re- quire the least amount of clerical labor are, therefore, chosen and the distribution of the indirect costs is made by means of the direct-labor expenditures. With interest awakened in the subject of cost accounting many managers will study the question as applied to their own conditions, and each can go as far as he likes or as far as his conditions will warrant in his effort to secure greater ac- curacy. If a manager prefers he can use the productive- 50 COST KEEPING AND SCIENTIFIC MANAGEMENT hour rates to distribute the indirect charges with practically no changes in the methods outlined. Or, if he has some ex- pensive automatic or semi-automatic machine tools, for which he wishes to charge rates, he can establish the rates and charge these to the production orders and subtract the amounts thus charged from the shop expense. Perhaps in some shops where cost methods have received but little attention in the past, machine rates can be success- fully established, but it is recommended that before the ma- chine-rate system is started a good shop organizer be secured to work out all details. THE WORK IN EACH SHOP OR DEPARTMENT SHOULD CARRY ITS OWN EXPENSE. The expenditures made for the benefit of the work in a shop or department should be distributed to the work ac- Tcomplished in that department. Each shop or department should, therefore, have a separate expense account, which is subdivided into a sufficient number of sub-accounts to enable a manager to know exactly for what each expenditure is made. It is only in this way that ex- travagance can be checked, and the benefits derived from each expenditure determined. A common method of but one expense account for each shop against which all expense for the shop is charged is very unsatisfactory and "leads to extravagance, and it is impossible to analyze the expenditures. Not only should the shop expense carry the usual expendi- tures made to this account, but it should carry its proper share of the fixed charges. Interest and rent based on the investment in land, buildings and equipment should be in- cluded; depreciation of buildings and equipment should be included; taxes to shop land, buildings and equipment should be included ; insurance of shop buildings and equipment should also be included. The amount of these fixed charges that should be carried by the shop expense is easily determined ; for interest, taxes DISTRIBUTION OF INDIRECT COSTS 5 1 and insurance it is only necessary to determine the amount of the shop investment or value as a proportion of the total in- vestment or value, and use this proportion applied to the total charges under each head for the entire plant ; for depreciation the actual amounts to be written off due to the shop buildings and equipment should be used. The proper proportion of the total power-house expense should be included in the shop- expense account, but this is not so easily determined. When so many are advocating the distribution of this ex- pense to each machine we can at least claim that a fair ap- proximation can be obtained for each shop. If electric power only is used the power consumed by each shop can be obtained exactly from meter readings. This, however, is seldom the case, as ordinarily steam, compressed air, hydraulic and elec- tric power are used, and the situation is further complicated by the fact that in many establishments power is used outside of the shop by men from the shop ; for example, compressed air by the machinists for running air tools, or electric power for the same purpose or for electric lights, or both forms of power for hoists for handling material in erection work. These same conditions exist for nearly every shop in the establishment. Under these conditions it is impossible to measure the amount of power used by each shop and the men from the shop. The proportion of the power-house expense to be borne by each shop or department must, therefore, be estimated. In making this estimate consideration should be given to the following conditions in each shop: Number of machines requiring power and total horsepower required; proportion of time machines are in operation; the amount of power required by men working outside of the shop; the quantity of work in each shop. From consideration of these conditions the manager de- termines the proportion of the total power expense that should be borne by each shop. This proportion may vary from month to month owing to change in conditions, and the per- 52 COST KEEPING AND SCIENTIFIC MANAGEMENT centage to be charged to each shop should be determined each month. No doubt some will consider that due to the inaccuracy of estimates obtained in this manner the power expense might as well be charged to the general expense account and pro-rated direct with that account and thus reduce the clerical work. This view is not well taken, for we know that some shops, for example, the paint shop, employ a comparatively large number of men and use but little power, while the forging shop, employing a less number of men, uses a very large amount of power. By charging power to the general expense each dollar expended in the paint shop for direct labor carries as much burden for power as each dollar in the forging shop. By distribution to shops, even though based on estimates, these glaring inequalities can be avoided. POWER-PLANT EXPENSE. The power-plant expense should be recorded under appro- priate subheads as described for the shop expense. There should be included in this not only the expenditures for re- pairs and maintenance of buildings and equipment, and labor and material employed in the production and transmission of power, but there should also be included charges "^or deprecia- tion, interest, taxes and insurance due to power-house build- ings, land, machinery and transmission lines. The up-keep of transmission lines from the power house to the shops should be charged to the power-plant expense. Transmission lines and power machinery inside of the shops should be charged to the shop expense. This is a more or less arbi- trary division, but it is reasonable and works well in practice. The power expense for each month is apportioned to the various shops or departments in the manner previously de- scribed. STOREHOUSE EXPENSE. The storehouse should be conducted as a separate depart- ment and should have an expense account properly subdivided. DISTRIBUTION OF INDIRECT COSTS 53 The total expense of the storehouse and purchasing depart- ment should be distributed to material issued for production orders and this expense disappears, becoming an element of the cost of the material. The storehouse expense must include interest, taxes and insurance on storehouse land, buildings, equipment and stock. Depreciation of buildings and equipment must be charged, and in a separate account depreciation of stock, and losses due to breakage and waste must be charged. The storehouse expense should be distributed each month to the issues for that month. Generally this should be ap- plied as a percentage of value, but in the case of articles like lumber, structural steel, etc., received in large quantities, and where the expenditures for receiving, transporting and piling are large, separate orders should be issued for this work, and the cost should be charged direct to the cost of the material. GENERAL EXPENSE. The general expense includes the cost of administration, office expenses, fixed charges, etc., that cannot be located to shops and departments, and the expense of operating and maintaining general facilities or equipment for the use of all shops and departments, such as railway tracks, roads, yard cranes, general yard labor, floating property, railway freight service, etc. GENERAL EXPENSE AND SHOP EXPENSE TO BE DISTRIBUTED TO PRODUCTION ORDERS. By the methods outlined only general expense and shop expense are distributed to production orders. These are dis- tributed at the end of each month as previously described. While the storehouse expense is distributed to material issued for production orders, for convenience it is found best in practice to distribute this at the end of each month as a per- centage on the total value of the material charged to each pro- duction order. It will, therefore, appear on the cost of work card as an indirect expense. With the distribution of these 54 COST KEEPING AND SCIENTIFIC MANAGEMENT indirect charges to production orders the total factory cost is shown; but to obtain total cost the selling expense must be included. SELLING EXPENSE. As a monthly balance sheet is desired, the selling expense should be distributed each month. This can be applied to the product actually sold, which is the proper way for a man- ufacturing concern like a machine-tool builder. In a jobbing repair shop, or in an establishment like a shipyard, where there is both repair and construction work and where con- tracts require several years to complete, it is impracticable to distribute the selling expense to the product sold. In these cases the selling expenses should be kept separately, but should be merged with the general expense and distributed with it. The factory cost will in these cases then include the selling cost. CHAPTER V The Production Order, Shop Order and Cost Section Records In outlining the cost system no attempt will be made to de- scribe an organization, and but few forms will be given. In the first place, to describe an organization giving all forms will require more space than is available, and in the second place there is but little advantage gained in doing this. Con- ditions vary so greatly that an organization and forms which are ideal for one establishment will be entirely unsuited to another. The general principles are, however, the same, and when these are understood it is not difficult, in devising the details, to apply these principles to the conditions existing in each shop. In any but the smallest establishments there are usually several shops or departments, and in the system outlined pro- vision will be made for several shops. If it is desired to apply the methods described to an establishment with but one shop, this can readily be done. I have selected a shipyard as an example, because it contains many dissimilar shops, and further because I have been intimately associated with ship- yard accounts and management for many years. uniform size blank forms. Too often little attention is given to uniform sizes for blank forms. In many establishments practically every blank is of a different size. This makes filing more difficult and there are no advantages. The forms can and should be reduced to a few standard sizes and every new blank should be made to conform to a standard size. Vertical filing is generally used and has many 55 56 COST KEEPING AND SCIENTIFIC MANAGEMENT advantages. The standard sizes selected for forms should lit standard vertical filing cases. All cost records should be kept on cards and not in books. The advantages of card records are well known and no com- ment is required. THE PRODUCTION ORDER. The production order, which will be called the " Job order," is the authority for the factory to undertake work. It should be signed by the manager or his representative, who is author- ized to order work. No work should be undertaken except on written job orders or on standing indirect cost orders. The job order should indicate either on its face, or by ac- companying plans and specifications, exactly the work that is to be accomplished. In many repair jobs it is not possible at first to give in detail the work to be accomplished. In such cases a preliminary order should be issued to make a com- plete survey of the job to determine exactly the work neces- sary, and when this is accomplished to issue job orders for the work itself. It is very bad practice to issue job orders in general terms and follow the job order with oral instructions for the work actually required. The order must at least be in duplicate, one copy to the cost file and one copy to the shop or department that is to do the work. Ordinarily from four to eight copies will be re- quired in order that information can be given to all who are interested or responsible for any part of the work. The order should be typewritten and the paper used should be of a size for the typewriter and permit of manifolding; it should be a standard size, and when a number of copies are regularly required, it is desirable to use different colors, for example, white for cost file, blue to the foreman responsible for the job, pink to other foremen who have some work on the job, salmon to the superintendent, etc. A convenient size and type of job order is shown in Fig. i. PRODUCTION ORDER AND, COST SECTION RECORDS 57 Job Order No Title Sub-Title... Appropriation Gen'l Head NAVY YARD, MARE ISLAND, CAL., Sir:- You will please 19. ESTIMATED COST ACTUAL COST Labor Material Indirect • Total ___^^_^_^^ Authority » Date of Completion To Respectfully, To be returned to office upon completion of work Fig. I. Job Order issued by The Main Office. Size 6" by SVa". A regular system for numbering orders should be followed. Job orders for output will be designated by numerals ; stand- ing expense orders- will be designated by letters; special ex- pense orders will be numerals followed by the classification letters showing the expense account to which the order be- longs and into which the cost will be carried for record and for distribution. All service cards for labor, performed and recj^uisitions for material obtained will bear the symbol or charge number of the job order for the work which obtains the benefit of the labor and material. SHOP ORDERS ISSUED BY AUTHORITY OF THE PRODUCTION ORDER. It is seldom that all the work required by a production order can be accomplished in one department or one shop. 58 COST KEEPING AND SCIENTIFIC MANAGEMENT MFG, DEPT. 1101. NAVY YARD, MARE ISLAND. CAL. SHOP ORDER. OUTPUT ACCOUNT. JOB ORDER NO TITLE SUBTITLE APPROPRIATION GENERAL HEAD- TO SHOP. You will do the foUow^ing work charging labor and material, as above : WORK DELIVERED COMPLETED BY. FOREMAN ..„ S HOP ORIGINAL AND DUPLICATE TO BE FORWARDED TO SHOP IN WHICH WORK IS DONE. FOREMAN RECEIVING ORDER WILL PUT IN DATE OF RECEIPT AND DATE ON WHICH WORK WILL BE COMPLETED. RETAIN ORIGINAL AND IMMEDIATELY RETURN DUPLICATE. WHEN JOB IS COMPLETED FOREMAN DOING WORK WILL FILL IN ACTUAL DATE OF COMPLETION AND FORWARD TO SHOP THAT ISSUED THE ORDER AND IF WORK IS SATISFACTORY ORDER WILL BE INITIALED AND RETURNED TO THE FOREMAN WHO DID THE WORK. ORDER WAS RECEIVED. WILL BE COMPLETED . AND THE WORK FOREMAN WORK ACTUALLY COMPLETED. FOREMAN IS WORK SATISFACTORY? Fig. 2. FOREMAN Shop Order for Output issued by one foreman on another by authority of a job order. size 6" by 81/2". PRODUCTION ORDER AND COST SECTION RECORDS 59 MFG. DEPT. 1102 NAVY YARD, MARE ISLAND, CAL. SHOP ORDER. EXPENSE ACCOUNT JOB ORDER NO TO SHOP . ESTIMATED COST LABOR ESTIMATED COST MATERIAL _ TOTA L ... APPROVED BY INSTRUCTIONS. 1, ORIGINAL AND DUPLICATE TO BE FORWARDED TO THE FOREMAN WHO IS TO DO THE WORK. WHO WILL FILL IN THE ESTIMATE AND FORWARD BOTH COPIES TO THE OFFICER AUTHORIZED TO APPROVE THE WORK. WHO WILL FILL IN THE DATE OF RE- CEIPT AND DATE OF PROMISED COMPLETION. INITIAL. RETAIN ORIGINAL. FORWARD DUPLICATE TO SHOP REQUESTING WORK AND PROCEED WITH THE WORK, 2. WHEN COMPLETED. DATE OF COMPLETION WILL BE FILLED IN AND ORIGINAL FORWARDED TO FOREMAN REQUIRING WORK. WHO WILL EXAMINE WORK, STATE IF SAT- ISFACTORY. INITIAL AND RETURN TO FOREMAN WHO DID THE WORK. WORK REQUIRED. WORK DELIVERED COMPLETED BY. FOREMAN „_ S HOP ORDER WAS RECEIVED.. WILL BE COMPLETED. WORK ACTUALLY COMPLETED_.... IS WORK SATISFACTORY? AND THE WORK FOREMAN FOREMAN FOREMAN Fig. 3. Shop Order for Expense Account Work. This must be ap- proved BY THE Shop Superintendent. Size 6" by 8V2". 6o COST KEEPING AND SCIENTIFIC MANAGEMENT When the work required in several shops is well defined, the foreman having primary cognizance of the whole job is des- ignated on the order and the foremen of other shops having some part of the work are given copies, which is their au- thority to proceed with this work. In many cases, however, miscellaneous incidental work will be required of shops other than those holding job orders. When work of this kind is required it is obtained by the fore- man holding the order issuing a secondary order called a *' shop order " for the work desired. This should never be done verbally, but should always be a written order on a standard form and should definitely describe the work to be accomplished. The shop order should bear the same charge number as the production order. In Fig. 2 is shown a shop-order form for output work, which has given satisfaction. In Fig. 3 a shop-order form for expense-account work is shown. It will be noted that the order for the output work does not require approval, while the expense-account work requires the approval of the shop superintendent. MUSTERING THE WORKMEN. There are several satisfactory methods for mustering the workmen. When the plant consists of a number of shops more or less scattered, it is necessary to have a check at the workmen's entrance and also at their places of work. This can best be done in the following manner : A brass-numbered check is issued to each workman, the number being the work- man's number for the payroll, for tool issues and for charg- ing time. Check boards, one for each shop or trade, are at the entrance to the plant, and the workman as he comes in hangs the check on a hook under his number; when he goes out he removes the check. In this way the checks also serve as a pass into the works. The illustration, Fig. 4, shows the checking station for a large establishment with scattered shops. When the muster is over, on muster-check cards the numbers that have not mustered are noted and these cards PRODUCTION ORDER AND COST SECTION RECORDS 6l 62 COST KEEPING AND SCIENTIFIC MANAGEMENT are sent to the office to be checked against the muster-card re- ports from the shops. Employees arriving late are passed in on special reports made by the gate keeper to the main time office ; those leaving at other than the regular quitting time are passed out on fore- man's passes w^hich are taken up at the gate and turned in to the main office. In the shops and other places of w^ork there are registering clocks on v^hich each workman is required to register arrival and departure. The clocks also serve to register on the serv- ice cards the time of beginning and completing each job. If the clocks are used for the latter purpose, more than one clock will be required for each shop, unless the shop is small, or much time will be lost in workmen going from work to the clock. In shipyards a number of clocks must be main- tained for outside work, so that the workman may register where he is working. When it is desired to shift a workman from one place to another a notice to register the next muster at a designated station is placed on his number at the clock and his muster card is placed at the new station. The payroll is made up by the time section from the muster cards as registered by the clocks. The cost records are made up separately by the cost section from the service cards. The daily charges to jobs as taken from the service cards must check with the total daily payroll entries from the muster cards. In plants where the work is not widely scattered or where the number of workmen is small, the use of brass checks at the entrance gate may be dispensed with, as the clock muster will fill all requirements. RECORD OF LABOR CHARGES. The time of all employees must be charged to either a pro- duction-job order or an expense order. This should be done by means of the service card. On these are given the job-order number, a brief statement of the work, the workman's name, PRODUCTION ORDER AND COST SECTION RECORDS 63 check number and rate of pay, the hour of beginning and stop- ping the work and the time employed. There is a separate card for each job and new cards each day. The cards of the day are sent each night to the main office ; when work is not completed the card is marked " not finished " and a new dupli- cate card is made out for the next day. These cards should be made out for the workmen, except for the time of starting and stopping a job, and these times should be recorded by the workmen with the registering clocks. The cards should be examined by the sub-foreman in charge and if correct should be initialed by him. Jobs of work and the corresponding card should always be kept ahead of each workman, so that there will be no delays on account of waiting for work. In small shops where there is no routing system, the service cards may be made out by the workman. A service card of a different color should be used for over-time work. In the main office the cards of each shop, trade or depart- ment are sorted by job numbers, and the charge for labor for the day for the shop, trade or department is transferred to the job-order card, which is described below. The service cards are filed by job-order numbers. RECORD OF MATERIAL CHARGES. Material is obtained by means of requisitions on the store- keeper. A separate requisition is made for each job num- ber, in triplicate, one copy being retained by the shop as a record and also for checking material when received, and two copies go to the storekeeper. The prices are entered on these, and one is sent to the cost department, the other being retained by the store as a voucher for the issue. Miscellaneous minor material is obtained from the shop store on minor-material slips. Once a week these are col- lected by job numbers, and regular requisitions in duplicate are sent to the storekeeper to cover the issues. These are priced and sent to the cost department. This method allows miscellaneous minor material to be secured without delay and 64 COST KEEPING AND SCIENTIFIC MANAGEMENT also reduces the paper work by making but one requisition for a number of small items required during the week. Material drawn out for a job but not used must be credited to the job. This is done by returning the material to store with a credit requisition. The same form is used for credit material as for material drawn, except that the requisition has written across its face, '' Credit Material." The material is taken up on the books of the storekeeper, the requisition is priced and a copy sent to the cost department and is en- tered as credit material on the cost-of-work card. If the excess material can be used on another job in the shop, the credit requisition sent to the storekeeper is accompanied by a regular requisition charging the same material to the new job and the material is retained in the shop. LABOR AND MATERIAL CHARGED TO EXPENSE ORDERS. Charges for labor and material to the expense orders are made exactly as for production orders, as outlined above. The charges for supervisory force, general labor, issuing tools, grinding tools, small repairs, and miscellaneous material are made without any special orders, and are charged to standing expense orders which will be given later. Large repairs, while chargeable to the expense accounts, vShould be made to special expense orders in order that the cost of each job may be ascertained. These charges are transferred at the end of the month to the proper expense account and are distributed to the production orders with the other expenses. COST SECTION RECORDS. The cost section receives each day the service cards show- ing the distribution of labor to each production order and each expense order, and receives from the storekeeper the priced requisitions of material issued for each order. To record these there are required for each order, whether production or expense, a *' job order " card, a '' cost of work " card, and a '' summary of material requisitions " card. PRODUCTION ORDER AND COST SECTION RECORDS 65 With these three sets of cards the costs can be kept with a small amount of clerical labor, and in a way that will give the manager the information that he requires. JOB-ORDER CARD. By means of the job-order cards the direct labor expendi- tures are distributed daily to the various orders by shops, trades or departments, as desired. The card is ruled in con- venient form to show under each shop, trade or department the daily expenditures for direct labor and the total to date, and also the estimated cost of the work. A convenient form for this purpose is shown in Figs. 5 and 6. The expenditures in each shop are taken from the service cards and entered on the job-order card. At the end of the month the total labor expenditure in each shop is entered in the next to the last column of the job-order card. With the expense rates for each shop the indirect charges are entered for each shop in the last column and the total indirect charges determined, and these are transferred, together with the total direct-labor charges, to the cost-of-work card. The information given on the job-order cards can be made of much value. In my work I have required that these cards be delivered each afternoon at four o'clock to the assistant naval constructor in general charge of the work, and by means of the information thus obtained he is able, as described in a previous chapter, to keep in close touch with the work and the daily charges. The cards are collected at eight o'clock the next morning and returned to the cost section. COST FIGURES SHOULD BE USED, AND NOT TREATED AS MERE RECORDS. At this time I wish to point out that there is always strenuous objection from a cost department to any system or scheme which will take records from the files of that de- partment. It will be stated that records will be lost and that such a system will greatly interfere with the work of the cost department. 66 COST KEEPING AND SCIENTIFIC MANAGEMENT £ o — r to 5^ to a ■^ -1-) < CO Estimate Appropriatioi 191 Labor $ M'aterial Indirect Tot«i ? Job Or^er No CO CI ^ ^ 75 g _ §s C5 ^ 2§ t« — ^ 1 _ 5 i 3 o ^ " -s gi r ~" 6 -s ^ ~ o t-a 53 ~ ~ ~ 8 I— t 2 ~" I! i! ■1 g •a 1 1 ?3 s 1 ii 1 3 .i 1 J3 t 1, ! 1 I* 1 1 cc H ^^ ••^■■' ^•' ^* ^^ •^ '™' ^■i' a. o m 1 1 1 1 1 1 li 1 1 1 i 1 Si s 1 1 II 2 1 1 1* 5 1 1 ! 1 g S 1 PRODUCTION ORDER AND 'COST SECTION RECORDS 67 Here again the Important objective is forgotten or over- shadowed by unimportant or petty details. Far too often the cost department sees only the importance of the costs as records, and the importance of these records in carrying out the real work of the factory is not realized. Unfortunately in the great majority of cases the influence of the cost de- partment is such that its ideas prevail, and the records of cost might as well be kept in sealed glass cases for all the good they do in giving information to those who are directly re- sponsible for the work and its cost. There is no reason why the record cards should be lost, but even if, a card should be lost now and then, new cards can be made with but little clerical labor. It may not please the cost section, but what does it matter if the cards become "dog-eared" and dirty; it only shows that they are serving their legitimate purpose. The manager should hold the cost department with a firm hand and make that department understand that its principal duty is to furnish information to the superintendents, heads of departments, and foremen. Everywhere there is the same complaint from the factory proper of difficulty in obtaining promptly information from the cost department, and in the majority of places those who are responsible for the work have ceased to struggle for in- formation regarding costs. Usually the costs are records, and nothing but records, and are but little more value than waste paper so far as giv- ing assistance in the efficient production of the work. THE COST-OF-WORK CARD. A convenient form for the cost-of-work card is shown in Fig. 7. On this card there are entered each month, the direct labor and the indirect charges for the month, which are ob- tained from the job-order card, and the totals to the end of the month ; the material cost for the month, which includes storehouse expense, and the net total cost of material, which includes deductions for " credit material," which data are ob- 68 COST KEEPING AND SCIENTIFIC MANAGEMENT tained from the summary-of-material-requisition cards. The cost-of-work cards not only show current monthly charges under the three heads, labor, material and indirect charges, •3 - 1 o ■3 1 i 1 Fiscal Year 191 | I Cost per Month Total Coet Including Month | Labor Material Indireot Total Labor Material Indirect Total 1 July Aug. 2? Sep. mi i Oct. No». Deo. g Jan. Feb. Mar. Apr. '% May U^ ii June A j & < Fig. 7. Cost of Work Card, Front. Back is similar, but without the order brief. but also show the total cost to the end of the month under each of these heads. The estimated cost of the work is also given on this card. SUMMARY OF MATERIAL REQUISITIONS. The priced requisitions for material are received by the cost section from the storekeeper as the issues are made. At the end of the month the requisitions for the month are clipped together, and the total of the issues made up. On the " Summary of Material Requisitions " card. Fig. 8, the numbers of the requisitions and the value of the monthly issue are entered. The storehouse expense percentage is ap- plied and the total cost of the material determined. To this is added the prior cost, and the credit material is subtracted, giving the total net cost of material to the end of the month. No allowance or credit for storehouse expense is made on returned material. The value of the monthly issues and also the total material cost to the end of the month are transferred to the cost-of- PRODUCTION ORDER AND COST SECTION RECORDS 69 work card. The material requisitions clipped together by rnonths are filed with the summary card. At the end of each month the storekeeper furnishes the cost department with a summary of the material issued during the month and the total of the material charged must check with the total given on the summary. 1 1 111 1 1§ a 1 « ^ !^ S ! Q ! '§ <-» EequisitionCoBt July Aug. Sep. Oct. Nov. Dec. Store Expenses.. ___% Cost per Month Previous Cost Total Credit Material Cost to end Month EequisitionCost Jan. Feb. Mar. Apr. May. June Store Expenses _ .% Coat per Month Previous Cost Total Credit Material Cost to end Month Fig. 8. Summary of Material Requisitions Record Card. It will be noted that but little clerical work is required in recording the material to be charged to each job. There is no copying of material items; the original requisitions serve for checking the materials in the shop, for a voucher to the storekeeper for the issue, and also as a cost record. If it is desired to know in detail the material charged to a job the original requisitions filed with the summary card give this ; if only the value is required, it is shown on the cost- of-work card. ADVANTAGES AND DISADVANTAGES. The job-order card shows the expenditures for direct labor day by day, and can be checked each day as the work pro- gresses. The cost-of-work card shows the total expenditures month by month, but gives no details of labor or material. If these are required the job-order card and the material 70 COST KEEPING AND SCIENTIFIC MANAGEMENT requisitions must be consulted. If it is desired to obtain the cost to date of a job at any time except the end of the month, this cannot be done directly ; it is necessary to take from the cost-of-work card the cost to the beginning of the month and add the following: direct labor from the job-order card and the estimated indirect charges, direct material from the current month's requisitions plus the percentage of store- house expense. This, however, can be done very quickly. Any system which requires daily entries to the cost-of- work card for labor and material involves a large amount of clerical work, and also requires a large and unhandy record card. The system described is very simple, requires but little clerical work, and will give very satisfactory re- sults. CHAPTER VI Indirect Charges The indirect charges will bb taken up under general ex- pense; shop expense; power, heat and light; storehouse ex- pense; part plant development; selling expense. Each shop will be designated by a letter, as " B " for the boat shop, " M " for the machine shop, " S " for the smith shop, " P " for the pattern shop, etc. The letter " G " will designate general expense, and " S " will be the symbol for shop expense. The letter " G " followed by other symbols will designate the various general expense accounts, while the letter " S " followed by other symbols designates the various shop expense accounts. For example, " SB " is the designation for the shop expense account of the boat shop, " SM " for the machine shop, " SS " for the smith shop, " SP " for the pattern shop, etc. The subdivisions under each of the general heads will be designated by additional letters, as " SMA " supervisory force of machine shop, " SMD " dressing and grinding machine shop tools, etc. The symbols used for a subdivision should be the same in all shops ; for example, " D " is the symbol selected for dress- ing and grinding tools and " SMD " is the charge symbol for dressing and grinding machine shop tools, then " SSD " should be the charge symbol for dressing and grinding smith shop tools, and " SPD " for the pattern shop, etc. G GENERAL EXPENSE. Includes salaries of general officers and main-office expense, except those chargeable to selling expense and storehouse expense. Includes fixed charges that cannot be located against a shop or department. Includes labor and material 71 ^2 COST KEEPING AND SCIENTIFIC MANAGEMENT expended for the repair and maintenance of buildings and equipment which cannot be located against a shop or depart- ment. Covers all expenditures, the details of which are given below under the subheads: GA Salaries of general officers and assistants, excluding storehouse and sales department. GB Office salaries ; Salaries of clerks, messengers, stenog- raphers, janitors and others employed in the general office. Does not include any salaries in storehouse or sales de- partment. GC Cleaning and care of yard outside of shops: Labor and material expended in cleaning yard. Includes cost of men driving teams for cleaning purposes, but does not include any general stable expense. GD Drawing office: Salaries of chief draftsmen and others in - drawing office when not chargeable direct to output; all drawing-office material; details given under subheads. No charges are made direct to GD, but must be made to subhead symbols. GE Experiments for the benefit of engineering or manu- facturing: Includes labor and material required to make experimeiits for the benefit of the economical administra- tion orahe plant, but does not include costs of experi- ments for the benefit of a production order, which should be charged direct. No charges will be made to this num- ber except by order from the office. GG Repairs and maintenance of floating property: In- cludes labor and material expended in the repair and maintenance of floating property, such as pile drivers, dredges, floats, barges, derricks and launches. GH Hauling, handling stores and shipments: The cost of hauling and handling material from shop to shop when impracticable to make charges direct to production or- ders. The cost of boxing and handling for shipment and cost of outgoing freight when impracticable to charge direct to production orders. Does not include hauling INDIRECT CHARGES 73 and, handling material for storehouse which should be charged to storehouse expense. Does not include cost of railway freight service. GI Stable expense: Includes expense of upkeep of horses, wagons, etc. Drivers should be charged to production orders or to other expense orders. GJ Legal expense. GK Dues and assessments for associations and societies. GL Leave and holidays: Includes pay for officers and oth- ers for holidays given with pay. GM. Patents : Cost of obtaining and keeping alive. GN Telephone and telegraph : Includes all expenses in- curred for telephone and telegraph, which are not charge- able to storehouse or sales department. Includes re- pairs, maintenance and operation of yard telephone service. GO General office fixtures and furniture : Labor and ma- terial for repairs to fixtures and furniture in general offices, not including drawing office, storehouse or sales department. Includes repairs to desks, cabinets, carpets, clocks, bells, safes, calculating machines, window shades, file cases, etc. GP Plant repairs outside of shops : Labor and material for repair of machinery and equipment outside of shops, or which is not for the use of a single shop. Includes cranes, derricks (not floating), locomotives, locomotive cranes, railroad equipment (not including tracks), etc. Does not include labor and material for running these ap- pliances. Repairs estimated to exceed $ioo will be made on special orders and charged to this account. These orders will carry no indirect charges; GQ Operation of plant equipment outside of shops: Labor and material for the operation of railway service, loco- motive cranes, derricks, cranes and launches when it is impracticable to make charges direct to production orders. GR Roads, railway tracks, wharves, and general yard re- pairs : Labor and material for repair and maintenance of walks, roads, subways, railroad tracks, plate racks, 74 COST KEEPING AND SCIENTIFIC MANAGEMENT piers and wharves, sewers, fire protection system (not including water system), fences, weighing apparatus, etc. Repairs estimated to exceed $ioo will be made to special orders and charged to this account. These orders will carry no indirect charges. GS Office supplies and postage: Includes all supplies re- quired for the general offices, not including shop, draw- ing room, storehouse, or sales department offices. In- cludes books, stationery, postage, newspaper and maga- zine subscriptions, etc. GT Traveling expenses: Traveling expenses not chargea- ble to a particular product and not for the benefit of sales. GU GV Miscellaneous : To cover cost of miscellaneous special expenses, such as bad debts, entertaining, etc. No charges to be made to this number without an order from the man- ager. GW Watchmen: Labor and material for watchman serv- ice. GX Part plant development: One-half of cost of charges made under " XG " orders which are not chargeable to any shop or department. GY GZ Repairs and maintenance of buildings : Labor and ma- terial expended for repairs to buildings, crane runways, lavatories outside of shops, wiring and lights main of- fice, etc., which are not chargeable to shop expense or storehouse expense. Repairs estimated to exceed $ioo will be made on special orders and charged to this account. These orders will not carry any indirect expense. GF Fixed charges: Such as interest, depreciation, taxes, insurance, not chargeable to shops or departments, as per subheads given below : GFD Depreciation not chargeable to a shop or de- partment. GFF Fire and accident insurance not chargeable to a shop or department. INDIRECT CHARGES 75 GFI Interest on investment not chargeable to a shop or department. GFN Indemnity insurance not chargeable to a shop or department. GFT Taxes not chargeable to a shop or department. GD Drawing Office : GDA Miscellaneous wages: Includes the pay of chief draftsman and leading draftsmen and those stowing and recording plans; includes pay of blueprinters ; includes the pay of all draftsmen who cannot be charged to production orders, or to the estimating department. GDB Fixtures and furniture: Includes labor and material expended for repairs and maintenance of drawing tables, fixtures and furniture, and draw- ing instruments. GDC Wages of estimating department : Includes the pay of the estimating department and draftsmen en- gaged on estimates when these charges cannot be made direct to production orders or to the sales department. GDS Stores and supplies: Includes all stores and supplies, such as ink, paper, tracing cloth, station- ery, etc., used in the drawing office and estimating department. S SHOP EXPENSE. The subdivision of the shop expense accounts for the dif- ferent shops is very similar, and to save space those of but one shop, the machine shop, will be given. SM Shop Expense, Machine Shop: SMA Supervisory and office force: Includes wages paid to foremen, assistant foremen, and all men acting in a supervisory capacity. Includes the pay of planners, clerks, messengers and others employed in the shop office. 76 COST KEEPING AND SCIENTIFIC MANAGEMENT SMB Miscellaneous labor: Wages which it is im- practicable to charge to production orders, such as shop cleaners, crane operators, move men, gen- eral floor helpers, etc., but does not include any labor that can be charged to other SM orders. SMC Fixtures and furniture: Labor and material for repair and maintenance of fixtures and fur- niture, both fixed and movable, such as benches, shelving, desks, stools, clocks, bells, trays, tote boxes, hand carts, etc. Any changes or additions will only be made on order from the office. Re- pairs estimated to exceed $50 will be made on spe- cial orders and charged to this account. These orders will not carry indirect charges. SMD Dressing and grinding old tools: Includes the dressing and grinding of old tools only and the transportation to and from the shop. The dressing and grinding of new tools is not included in this order, this work being charged to the order for the manufacture of the tools. Charges are to be made against the shop using the tools and not against the shop doing the work. SME Maintenance of small and loose tool equip- ment: Repair of large loose tools, such as vises, hydraulic jacks, pulley blocks, anvils, etc. Re- pairs to pneumatic tools and pneumatic hoists are not to be charged to this order. Includes repair (not dressing and grinding) of small tools; in- cludes the purchase or manufacture of such tools, as drills, chisels, files, milling cutters, taps, dies, planer, lathe and shaper tools, etc., when such tools merely maintain and do not increase the tool- room stock. Tools that increase the stock will be supplied on written orders from the main office and charged to XM orders. Charges must be made to the shop that is to use the tools and not to the shop that does the work. INDIRECT CHARGES 7/ SMG Special tools : Repairs and maintenance of jigs, dies, gauges, templets, etc. Only covers re- pairs and replacements and not additions. Charges are to be made to the shop which is to use the tools and not against the shop that does the work. Repairs estimated to exceed $ioo will be made on special orders and charged to this account. These orders will not carry indirect charges. SMH Pneumatic tools and hose : Repair and main- tenance of the pneumatic tools for the machine shop and machine shop force working outside of the shop, such as drills, hammers, and air motors for driving boring bars. Includes cost of air hose for machine shop. Does not include pneumatic hoists, which are chargeable to SMK. SMI Belting: Repairs and maintenance of belting. Includes new belting for replacing old, belt lacing, glue, tools, etc. Charges for new belting with new equipment are to be made to specific or- ders. SMJ Power transmission: Includes labor and ma- terial for the maintenance, repair and operation of line shafting, countershafting, piping and wiring inside of shops for the transmission of power. In- cludes motors not forming a part of a machine tool, includes electric controllers not forming a part of a machine tool. Does not include belting. Does not include repairs to light wiring nor radia- tors. Repairs estimated to exceed $ioo will be made on special orders and charged to this ac- count. These orders will not carry indirect charges. SMK Cranes, hoists and elevators: Includes labor and material for repairs and maintenance of cranes, hoists and elevators. Includes pneumatic hoists. Does not include cost of operation. Repairs es- timated to exceed $ioo will be made on special or- ^8 COST KEEPING AND SCIENTIFIC MANAGEMENT ders and charged to this account. These orders will not carry indirect charges. SML SMM Repairs to machine tools: Includes labor and material for repairs to machine tools. Where motors are direct connected and form a part of the machine, repairs to motors and controllers will be charged to this order. Repairs estimated to exceed $ioo will be made on special orders and charged to this account. These orders will not carry indirect charges. SMN SMO SMP Power, heat and light: Monthly cost or pro- portionate share of power, heat and light. No charges will be made direct to this order. At the end of each month the cost of machine-shop power will be transferred from the power account to this account. SMR Correction of errors: Labor and material re- quired to correct errors made by the machine shop. All errors must be reported and the correction charged to this number. Correction of errors es- timated to cost in excess of $50 will be done on special orders and charged to this account. These orders will carry no indirect charges. SMS General stores and supplies: Includes mis- cellaneous material, such as waste, oil, brooms, etc., for the use of the shop. Also material used on output which, on account of its character and the small quantities used on each job, cannot be charged direct. SMT Operations of tool room: Includes wages of men working in the tool issue room, also the tool boys. Does not include labor of toolmakers, which should be charged to work on which en- gaged. INDIRECT CHARGES 79 SMX Part plant development: Monthly charges for one-half the part plant development charges for the benefit of the machine shop. No charges are made direct to this order. At the end of each month one-half of the charges against XM orders are transferred to this account. SMZ Repairs and maintenance of buildings: In- cludes labor and material expended in the repair and maintenance of machine-shop buildings, crane runways, foundations for machine shops, inside drains and sewers, lavatories in shop, plumbing, radiators in shop, light wiring in shop, globes, lamps and carbons. Repairs estimated to exceed $ioo will be done on special orders and charged to this account. These orders will carry no indirect charges. SMF Machine-shop fixed charges : As given in sub- heads which follow: SMFD Depreciation of machine-shop build- ings, machinery, equipment and tools. SMFF Fire and accident insurance on ma- chine-shop buildings and equipment. SMFI Interest on money invested in machine- shop land, buildings and equipment. SMFN Indemnity insurance for machine- shop force. SMFT Taxes on machine-shop land, build- ings and equipment. P POWER, HEAT AND LIGHT. \ Power-house labor: All labor connected with the op- eration of boilers, engines, generators, air compressors and other power machinery. Includes salary of engineer in charge. Does not include labor or repairs except when repairs are made by the regular power-house attendants. Does not include repairs and attendance of wiring and piping outside of power station for the transmission of power. 8o COST KEEPING AND SCIENTIFIC MANAGEMENT PB Repairs to boilers: Labor and material for repairs to boilers, uptakes, stacks, boiler fittings, injectors, feed pumps, water heaters, coal and ash-handling apparatus, or oil pumps and burners. Repairs estimated to exceed $ioo will be made on special orders and charged to this account. These orders will not carry indirect charges. PC Repairs to air compressors : Labor and material for repairs to compressors, intercoolers and outercoolers. Repairs estimated to exceed $ioo will be made on special orders and charged to this account. These orders will not carry indirect charges. PD Distributing system, electric: Labor and material for repairs and attendance on electrical distributing system outside of power plants and outside of shops. Includes wiring, poles, static transformers, conduits and lamps out- side of shops. Repairs estimated to cost in excess of $ioo will be made on special orders and charged to this account. These orders will not carry indirect charges. PE Repairs to electric generators, switchboard and wiring inside of power station: Labor and material for repairs to electric generators and engines driving same, switch- board, and wiring inside of power house. Repairs esti- mated to cost in excess of $ioo will be made on special orders and charged to this account. These orders will not carry indirect charges. PF Power-house fuel: Cost of fuel, including labor for handling same. Cost of removing ashes. PG Distributing system, steam: Labor and material for repairs and attendance for the steam-distributing system, in- cluding heating lines, from power house to shops. Repairs estimated to exceed $ioo will be made on special orders and charged to this account. These orders will carry no indirect charges. PH Repairs to hydraulic machinery: Labor and material for repairs to hydraulic pumps and motors driving same, and accumulators. Repairs costing in excess of $ioo will INDlRECT"^ CHARGES 8 1 be made on special orders and charged to this account. These orders will not carry indirect charges. PI Distributing system, hydraulic : Labor and material for repairs and attendance for the hydraulic distributing sys- tem from power house to shops. Includes accumulators outside of power plant. Repairs estimated to cost in ex- cess of $ioo will be made on special orders and charged to this account. These orders will not carry indirect charges. PM Repairs to miscellaneous machinery. Labor and ma- terial for repairs to miscellaneous machinery not included under other numbers, such as condensers, air pumps, cranes, motors, transformers and other auxiliary machin- ery. Repairs estimated to cost in excess of $ioo will be made on special orders and charged to this account. These orders will not carry indirect charges. PN Distributing system, pneumatic: Labor and material for repairs and attendance on pneumatic distributing sys- tem from the power house to the shops. Includes supply of hose and portable pipe lines run for the benefit of several shops or a number of different jobs. Includes cost of inspectors for waste of air and abuse of air tools. Repairs estimated to cost in excess of $ioo will be made on special orders and charged to this account. These or- ders will carry no indirect charges. PO Lubricating oil : Cost of lubricating oil for power plant, including cost of handling. PP Repairs to piping: Labor and material for repairs to all piping inside of power plant. Repairs estimated to cost in excess of $ioo will be made on special orders and charged to this account. These orders will carry no in- direct charges. PO Repairs to water system: Labor and material for re- pairs to water systems from power house and outside of shops. Does not include cost of water purchased, which is charged to PS. Repairs estimated to exceed $ioo will 82 COST KEEPING AND SCIENTIFIC MANAGEMENT be made on special orders and charged to this account. These orders will carry no indirect charges. PR Fixtures, furniture and tools: Labor and material for repair and maintenance of fixtures, furniture and tools in power house, such as desks, chairs, lockers, shovels, scrapers, flue cleaners, wrenches, jacks, etc. PS Stores and supplies: All stores and supplies for power plant except fuel and lubricating oils. Includes waste, packing, stationery, water, brooms, brushes, soap, boiler compounds, etc. PT Interest: Monthly charge for interest on money in- vested in land, buildings, machinery, tools and equipment of power house and power lines. PU Depreciation : Monthly charge for depreciation of buildings, tools and equipment of power house and power lines. PV Taxes: Monthly charge for taxes on land, buildings, tools and equipment of power house and power lines. PW Insurance: Monthly charge for insurance of power plant and equipment. PY Electric current purchased : Cost of electric current purchased from outside plants. PZ Repairs and maintenance of power-house buildings: Includes labor and material expended in the repair and maintenance of power-house buildings, crane runways, foundations for boilers, engines and other machinery, inside drains and sewers, lavatories, plumbing, radiators, light wiring, lamps and carbons. Repairs estimated to cost in excess of $ioo will be made on special orders and charged to this account. These orders will carry no indi- rect charges. DISTRIBUTION OF POWER EXPENSE. The total of all "P" charges — power-house expense — is each month distributed to the various shops and the store- house, in accordance with the estimated amount of power that has been used by each. No distribution is made to indirect' CHARGES 83 *' general expense," though a small part has been used for heating and lighting the main offices. The amounts so dis- tributed are taken up in the proper account under shop ex- pense or storehouse expense. H STOREHOUSE EXPENSE. HA Salaries of officers of storehouse and purchasing de- partment. HB Salaries of clerks, stenographers, messengers and jani- tors. HC Salaries of storehouse labor not included in HA and HB. HD Handling stores : Labor and material for handling stores to and from storehouse, not including regular store men. Includes drivers for teams and operators of loco- motive cranes when handling stores. Special orders will be issued for handling quantities of heavy or bulky ma- terial and the cost located direct to the cost of the ma- terial. HE Inspecting and testing: Labor and material for testing and inspecting 'material delivered. Includes cost of chem- ical analyses and physical tests. HF Repairs to fixtures and furniture : Labor and material for maintenance of office and storehouse furniture and fixtures, including shelving, bells, clocks, elevators, speak- ing tubes, tools, typewriters, comptometers, etc. Repairs estimated to exceed $50 will be made on special orders and charged to this account. These orders do not carry any indirect charges. HI Insurance: Monthly charge for insurance of store- house buildings and stock. HJ Depreciation of buildings: Monthly charge for depre- ciation of storehouse buildings. Does not include waste and depreciation of stock. HK Depreciation and waste of stock: Monthly charge for depreciation and waste of storehouse stock. 84 COST KEEPING AND SCIENTIFIC MANAGEMENT HL Interest: Monthly charge for interest on money in- vested in storehouse buildings and stock. HM Freight and express: Expenses for incoming freight and express when it is not practicable to locate this direct to the material. When practicable the freight or express will be added to the purchase price of the material. HP Power, light and heat: Proportionate share of power- house expense. No charges are to be made to this order, direct, but at the end of each month the amount charged will be transferred to this account from the power ac- count. HS Office supplies and expenses: Includes all office and storehouse supplies, including stationery, books, brooms, etc. Includes expense of telegrams, postage and telephones for the benefit of the storehouse. HT Taxes: Monthly charge for taxes due to storehouse land, buildings and stock. HZ Repairs and maintenance of storehouse buildings: In- cludes labor and material expended in the repair and maintenance of storehouse buildings, lavatories, plumbing, wiring and lights, drains and sewers inside of buildings. Repairs estimated to exceed $100 will be made on special orders and charged to this account. These orders will not carry any indirect charges. DISTRIBUTION OF STOREHOUSE EXPENSE. No indirect charges will be made to any storehouse orders, as these are in themselves indirect charges. The storehouse expense will be distributed on the basis of the value of stores issued to the manufacturing department. In the cost depart- ment, at the end of each month a percentage will be added to the total cost of material drawn from store during the month for each order. This percentage is based on previous experience. A loss and gain account will be kept, showing each month the total expense charged to job orders and the actual expense, and the percentages used will be corrected from time to time so as to keep this account approximately balanced.^ INDIRECT "charges 85 The depreciation of the storehouse buildings will be carried to the regular depreciation account. The depreciation and waste of stock will be taken up in a separate account which will be credited with losses in stock, shown by inventory, and the account at the end of the year will be closed into profit and loss. X PART PLANT DEVELOPMENT. Includes the cost of articles manufactured or purchased which, while they add to the equipment and increase the plant valuation, are of such a nature that their life is short. These are small and loose tools, pneumatic tools, fixtures and furni- ture, which are not replacements, but add to the stock, also new patterns, which cannot be charged to production orders. One-half of the charges under this account are carried each month to the proper shop expense or to general expense, and the remainder is taken up under special capital accounts which are eliminated in two years by depreciation charges. No charges will be made to part plant development accounts ex- cept on specific written order from the manager. There should be no standing job orders under this account, for if used, work which is in reality expense account work will prob- ably be charged to these orders. Job orders for work under this account are numbered with numerals followed with designating letters showing the shop or general expense account. For example, the order for ad- ditional small tools for the machine shop will be numbered 125XM; and the order for additional forges for the smith shop will be numbered 126XS. The part of the account which is taken up under the capital account is considered as " output " of the factory and as such carries its proportion of the indirect charges, while the part transferred to the expense accounts, being itself an expense, does not carry indirect charges. In other words, one-half of the X charges carry indirect charges and one-half do not. 86 COST KEEPING AND SCIENTIFIC MANAGEMENT PLANT DEVELOPMENT. Work done for plant development should be treated as if the work were for a customer. Output job orders should be issued and the cost should include indirect costs. The total cost of each job or undertaking should be taken up under ap- propriate sub-accounts of the capital account. Care should be exercised that no work which does not give a real increase in the value of the plant is considered as plant development. E SELLING EXPENSE. Includes all expenses incurred in selling the product, such as salaries, advertising, postage, traveling expenses, discounts,' etc. Includes proportion of fixed charges for office building. Includes charges for services of estimating department and drawing office when for the benefit of sales. Details of the charges are given under the subheads: EA Salaries of officers of sales department. EB Salaries of salesmen. EC Salaries of clerks, stenographers, messengers and jani- tors. ED Discounts. EE Estimates: Expenses due to the preparation of plans and estimates for the benefit of sales. EF Repairs to fixtures and furniture of sales department. EG Advertising. ES Office supplies and expenses : Sales-department office supplies, including postage, telegrams and telephones. ET Traveling expenses for the benefit of sales. EU Fixed charges : Includes a monthly charge for rent of office room which includes depreciation, interest, taxes and insurance. EV Miscellaneous: Includes expenses not otherwise classi- fied. Such as entertaining, etc. INDIRECT CHARGES 87 DISTRIBUTION OF SELLING EXPENSE. In a manufacturing establishment the selHng expense should each month be distributed to the product sold. The expense rate will be determined by dividing the total of the selling ex- pense by the value of the product sold; each sale should bear its proportion of the selling cost. In a jobbing repair shop, or in an establishment like a ship- yard, where there is both repair and construction work and where contracts require several years to complete, it is im- practicable to distribute the selling expense to the product sold. In these cases the selling expense should be treated as an ele- ment of general expense and distributed with it. CHAPTER VII Supervision of the Expense Accounts the disadvantage of superficial criticism. The relation of overhead charges to total cost is little under- stood except by experienced managers and by those who have made a study of the subject. An analysis and study of the overhead charges by a competent manager is necessary for the efficient working of an industrial plant. Superficial criticism of these charges, and action taken thereon, however, may re- sult in a decrease in efficiency. THE WORKS manager VERSUS FINANCIAL CONTROL. In nearly all cases in industrial life the " operating ex- pense " is a bone of contention between the financial control and the works manager. In many cases — yes, in the major- ity — the financial end of the establishment knows nothing of shop management, but is well informed regarding accounting methods and knows the effect produced on stockholders and the general public by a statement of high operating expenses in the annual report. High operating expenses do not look well in financial reports, and it is often very difficult for the works management to persuade the financial power that in many cases high operating expenses result in efficiency and lower cost of the output. If the establishment is a manufacturing concern where the cost can be accurately determined, and compared with previ- ous costs, or with costs of competitors as shown by their selling price, the works manager has an opportunity to prove his side of the case, but if it is a jobbing concern, or a repair plant, where no such comparison can be made, the manager has little opportunity for proving his case, and he will, in SUPERVISION OF EXPENSE ACCOUNTS 89 many cases, be required to reduce the operating expense, al- though he knows that such reduction means a loss to his com- pany. This is a disheartening experience which is forced on many managers. IGNORANCE OF THE RELATION OF OVERHEAD CHARGES TO TOTAL COST. The lack of knowledge of the relation existing between overhead expense and total cost is by no means confined to the financial power, as it even sometimes extends to managers themselves. It is astonishing how little is known concerning this subject. Some good business men — men who should know — have failed to grasp the true meaning of overhead expense and its relation to the total cost. I know of one important repair establishment which makes large repairs for another concern on the basis of actual cost plus a percentage of profit. The manager of the concern for whom the repairs are made is considered an excellent business man who can drive a hard bargain. The manager of the re- pair establishment well knows that endless trouble will ensue if the bill presented contains the proper percentage of over- head charges, so the bill shows about half the actual overhead expense, with the direct charges padded to make up the bal- ance. Many actually do not know what goes to make up the over- head expense. Very few outside of experienced managers know that much productive labor, or to make it clearer, direct labor, cannot be charged directly to a job, as this labor is em- ployed on several jobs at the same time, and must necessarily be distributed to the jobs either on the basis of direct labor charged or on a tonnage basis. Many do not know that cer- tain material must be charged in the same way, and that this material, though it appears in the overhead charges, is actu- ally used on the job. I have heard those in a position to criticize, in a position where the criticism would be accepted as of value, express the most severe criticism of the management of a shop where the 90 COST KEEPING AND SCIENTIFIC MANAGEMENT pro-rated charges, including general expense, amounted to I GO per cent., stating that it cost as much to run the shop as it did to do the work in the shop! It was thought that the overhead expense consisted of charges for the supervisory force, clerks, cost of power and minor repairs to tools. It was not considered that in any well-managed establishment, the overhead charges could amount to loo per cent, of the labor charged. It is needless to say the one making this criti- cism never had the opportunity of analyzing the overhead charges in a large well-conducted foundry where costs are ac- curately determined. Such is the ignorance with which man- agers have to contend. DANGER OF SUPERFICIAL CRITICISM. In repair plants, or in establishments where work of large magnitude is undertaken which requires several years to com- plete, as in shipbuilding, it is difficult to compare costs or to measure the output. Frequently, also, the supreme control of the establishment is in a city office far distant from the plant, and knowledge of the operation of the plant is obtained from monthly reports and an occasional visit. Under these conditions direct costs and total costs cannot well be criticized, and the criticism therefore naturally turns to the expense account. There is apparently something in overhead charges which attracts the criticism of nearly every- one, for one hears criticism of these charges from those who have little idea of what goes to make up these charges and who have not a faint conception of the subject in its bearing on total cost. This tendency must be due to the belief that the payment of money for overhead expense is expenditure with- out adequate return. Superficial criticism of the expense accounts by those in authority will probably result in decreased efficiency. In one large establishment with which I am familiar the shop-expense accounts are kept down to the lowest point with- out regard to the efficiency of the tools in the shops. I was shown the care taken to keep these expenses down and was SUPERVISION OF EXPENSE ACCOUNTS 9I told how the expense had been cut in half and that it was believed that the concern had a lower shop expense than its competitors. The shops surely showed this — there was no necessity for seeing the accounts. Machines were in poor condition; belts were as bad as they could be; the small tool equipment was atrocious. Moreover, the foreman on every opportunity charged shop repairs to the direct cost of some big job in the shop, rather than charge to the expense num- ber. There is not the slightest doubt that the blind effort of someone in authority to reduce shop expense is resulting in large losses to this concern. When a concern begins to lose money and the order is given to economize in the hope of changing losses to profits, it is almost invariably true that reductions will immediately be made in the overhead expense, notwithstanding the fact that the remedy required may be more and better supervision and consequently higher overhead. When the expense account is cut, the majority, including some managers, feel that the cut is just so much saved. The increase in direct costs cannot be seen ; it may be several weeks or months before there is an increase, as the momentum of past conditions cannot be dissipated immediately. There is little doubt that the effort made to economize by cutting the overhead expense has carried many establishments to ruin. Unfortunately, overhead expense is generally known as a percentage of the direct labor charges, and the more the effi- cient manager reduces his direct labor costs, the higher his overhead expenses appear to be. There are given below several examples of shops which have come directly under my observation In which the subject of shop expense required intelligent consideration. In each case the increase, either real or apparent, of the shop expense meant increase in efficiency while the decrease resulted in a re- duction in efficiency. 92 COST KEEPING AND SCIENTIFIC MANAGEMENT THE SHOP WITH MACHINERY IN POOR CONDITION AND WITH A POOR EQUIPMENT OF HAND TOOLS. An experienced manager who knows his business well knows that if he is to get work done at low cost, he must supply adequate tools with which his men are to work. One can in practically all cases judge of the efficiency of a shop by an inspection of the machinery and the tool-room equipment. A well-equipped shop is not always an efficient shop, but it is cer- tain that a poorly-equipped shop with machines and hand tools in bad condition is never an efficient shop. The higher the wages, the more important it is to provide an excellent tool equipment. A short time ago an important shop, located in a district where wages are very high, came under my observation and I found the tool equipment in atrocious condition. The costs were excessive and it was surprising that these conditions should have existed so long without correction. If low shop expense percentage is the aim, it is easily accomplished by not spending money to bring the tool equipment up to a proper standard. Not only is the actual expense kept low, but the expense percentage shows very low, as the direct labor cost to which the expense cost is applied to obtain the percentage is very high. THE SHOP IN WHICH HIGH-PRICED MECHANICS ARE EMPLOYED ON WORK THAT SHOULD BE DONE BY BOYS AND HELPERS. A great many Government shops fall in this class, though the Government has no monopoly in this line. I recently had occasion to investigate a boiler shop and found everywhere first-class boilermakers doing work that should be done by boys and helpers. Boilermakers were cutting off tubes, filing the burs after the tubes were cut, polishing the ends of the tubes, placing the tubes in position, attending the motors driv- ing the expanders and other work of this character. A com- petent manager knows the work that should be done by boys and helpers. He is in touch with the best industrial practice. SUPERVISION OF EXPENSE ACCOUNTS 93 He knows what the other fellow is doing. Such a manager will replace his $4 a day boilermakers with $2 helpers and $1 boys wherever possible. He will reduce costs. But what is ^ the result with his shop expense ? For every dollar that he reduces his direct cost, his percentage of shop expense goes up. K it were possible for him to replace all of his $4 boiler- makers by $2 helpers without reducing the output, he has re- duced his direct costs by half and doubled the shop-expense percentage. If the aim Is to reduce the shop-expense percentage, this can readily be done. No effort is required by the manager; all that is required is for him to do nothing — the percentage will go down of its own accord. The foreman had rather have mechanics than helpers; they require less supervision; they give him less trouble. Besides, he has no desire to get into trouble with the unions, and the members of the unions are his best friends. He, therefore, employs mechanics wherever possible rather than boys and helpers wherever possible. The result is a large labor roll and a small percentage of shop expense. THE SHOP IN WHICH WORK IS DONE BY HAND INSTEAD OF WITH MACHINES. The boiler shop previously referred to Is an excellent exam- ple of this class. Tubes were cut out by boilermakers with sledges and hand chisels. Tubes were expanded in some cases by hand-operated expanders. Boilermakers with hand files removed the burs on the tubes made by the cutting-off saw. All of these hand operations were replaced by machine operations and the direct labor cost greatly reduced, the total cost was reduced, the labor roll was reduced, but the actual shop expense was slightly increased, and the shop-expense percentage was largely increased. H the manager can replace every hand operation by ma- chines, that is, use altogether automatic machinery, he will no doubt enormously reduce his direct cost and total cost, but he will greatly increase the shop expense and the shop-expense 94 COST KEEPING AND SCIENTIFIC MANAGEMENT percentage will reach infinity. Surely no one will criticize such a manager for high shop expense, yet to-day one hears criticism as senseless as this. THE SHOP IN WHICH THE OUTPUT IS LOW AND THERE IS MUCH LOAFING. If a manager takes over a shop in which the output is low, where the men are not doing a full day's work, and succeeds in bettering conditions and increasing the output per man, he will for the same amount of work reduce his labor roll, but at the same time increase his shop-expense percentage. Surely such a manager is not to be criticized. It will be just as sensi- ble to commend the manager who acquires a well-run shop and allows his men to loaf to make a larger labor roll in order that he can show a reduction in his shop expense. OTHER METHODS OF REDUCING SHOP EXPENSE. There are other methods than those previously indicated by which the shop expense may be reduced without any increase in efficiency, or which may result in a decrease in efficiency. In many shops, for example a foundry, there is much miscel- laneous labor employed on many different jobs. This labor cannot equitably be charged direct, and is distributed to the jobs either on a tonnage or direct labor basis, as an indirect charge. Those who wish to make a good showing with the indirect charges frequently arbitrarily charge this labor direct to jobs with the result that a few large jobs bear this expense while the small jobs get none of it. So eager are some to make a good showing with the expense accounts that frequently men employed as leading-men, or strictly in a supervisory capacity, though not known as fore- men or assistant foremen, are charged direct to the jobs in- stead of being properly charged to the supervisory number. The only result of charges of this kind is to make the costs less accurate, and fool someone in authority into believing that he has through good management obtained low expense ac- counts. SUPERVISION OF EXPENSE ACCOUNTS 95 COMPARISON OF OVERHEAD EXPENSE PERCENTAGES OF DIFFER- ENT ESTABLISHMENTS MEANS NOTHING. Even though estabHshments of the same general character have the same cost-keeping system, which is far from being the case, a comparison of the expense accounts is of Httle value, and a comparison of the expense percentages is a waste of time. Before there can be a comparison of any value of expense accounts, the detail methods of charging must be standard, the methods of management must be standard, the facilities must be very much the same, and the working conditions the same. An establishment having the highest expense charges may easily be the most efficient, while the one with the lowest may be the most inefficient. The overhead charges are in no sense a measure of the efficiency of a plant; the measure of effi- ciency is total cost, and not a part of the total cost. HOW CAN PROPER CONTROL OF THE EXPENSE ACCOUNTS BE SECURED ? The analysis, study and control of the expense account is a most interesting field to the manager of experience who knows his job. It is Greek to one who does not. If you have enough confidence in a manager to place him in charge of your establishment, let him control the expense accounts; do not tell him to reduce expenses by cutting the expense ac- counts; if the product is costing too much, it may be that the cost may be reduced by increasing the overhead ; hold him re- sponsible for total costs and not a portion of the total costs. The cost-keeping system should, however, be such that an inspection will readily show where the overhead charges have gone. Each month there should be prepared for the manager a complete analysis of the expense accounts. These can best be shown month by month in parallel columns. Fig. 9 gives the analysis of the shop expense. Each shop has a separate expense account, subdivided as necessary, and 96 COST KEEPING AND SCIENTIFIC MANAGEMENT there should be an analysis sheet for each shop. With this sheet before him for each shop a manager can tell exactly where the mo^ey is going. He can see at once any abnormal Manufacturing Department. Shop Expense Report. Machine Shop — "SM" Account. July. August. Symbol. Labor. Material. Labor. Material. Supervisory and office force SMA Miscellaneous labor SMB Fixtures and furniture SMC Dressing and grinding old tools SMD Maintenance of small- and loose-tool equipment SME SMF SMG Pneumatic tools and hose.. SMH Belting SMI 1 Power transmission SMJ Cranes, hoists and elevators SMK SML Repairs to machine tools... SMM SMN — SMO Power, heat and light SMP Correction of errors SMR General stores and supplies SMS Operation of tool room.... SMT — Part plant development SMX Repairs and maintenance of buildings SMZ Fig. 9. Form for Analyses of the Shop Expense. expenditures and find out the cause. He should have each charge investigated until he has obtained a working minimum and thereafter he will only have to deal with the exceptions. Fig. 10 shows the analysis month by month of the general expense. This analysis should be studied and treated as de- scribed for the shop expense. SUPERVISION OF EXPENSE ACCOUNTS 97 Manufacturing Department. General Expense Report. "G" Account. Symbol. July. August. Labor. Material. Labor. Material. Salaries of General Officers GA Office Salaries GB Cleaning and Care of Yard Outside of Shops. .; GC Drawing Office GD Experiments GE Fixed Charges GF Repairs and Maintenance of Floating Property GG Hauling, Handling Stores, and Shipping GH Stable Expense GI Legal Expense GJ Dues and Assessments GK Leave and Holidays GL Patents GM Telephone and Telegraph.. GN General Office Fixtures and Furniture ...... GO Plant Repairs Outside Shops GP Office Supplies and Postage GS Travelling Expenses GT GU Miscellaneous GV Watchmen GW Part Plant Development... GX GY Repairs and Maintenance of Buildings GZ Analyses of the General Expense. S c 1 1 "rt tj |_ 1 Q S a; o 0! -5 c u S § s e .2 < 1 1 1 1 1 1 1 1 1 15 u-tj H 0) u o 1 1 1 1 1 1 1 Z, o So O J3 .b 8 0) > rt .-I -5 c 3 u < " O E u < 1 1 1 1 1 H OJ c 1 1 1 b X . 0^ <" 1 w "rt u ^O tl. 'S £ o rt ^ c ^ £ s B § 1 < a E j 2 o <; S 3 « 1 1 1 1 1 ~ 1 1 1 1 t/2 1 1 1 0.^ 1 1 1 1 CB -5 •-J c e < b ** 1 1 1 1 1 1 ~l~ 1 1 oj a 1 0.^ [rt (J S 2 1 1 rt 1 c s 9 O 1 S < j£ 1 1 1 c o fesi 1 1 i 1 1 1 1 s o P.- 1 1 .2 2i • 1 H "S c 1 o c 3 O S S a <; S ■ < ^ a< o ii] 0) Q o z 1 OS 1 9 H c f p- c C fc % ^ _, U t- % ;z 0. cr f- M^ U B IS c/ i CA c/ c/ t/ 1 C/3 c/ c/ CA s cr t/ r^ J ^ < >^ 3 to 1 1 Z < »< c 8 a U3 l< a c c "o a c c tr > o 1 1- 0, 0. o XI 03 1 o , o a c c ' 1 ^ i 1 D n & fe •i o 15 Ih 1 1 ^ % _aj c 1 03 o o U u 3 O I. 15 ^ C c X ^ X3 a 11 £ c 15 98 SUPERVISION OF EXPENSE ACCOUNTS 99 A similar comparative report should be made each month for the power-house expense, storehouse expense, selling ex- pense, and the drawing-office expense. Fig. II is a summary of all the expense accounts, showing the expenditures this month, last month, and the average of the year to date. It also shows the direct labor charges in each shop and the percentage of each class of overhead to the direct labor charged. With this information a manager should be able to abso- lutely control the expense accounts. CHAPTER VIII Methods Followed in the Payment of Labor As the methods for the payment of labor are generally known and the advantages and disadvantages of the various systems are fairly well understood, but brief reference will be made to this subject. Day Work: — Payment in accordance with the number of hours worked is the method most generally employed and is the most unsatisfactory. Under this system there is little incentive for a workman to exert himself, and consequently the output is very low. It is not uncommon for a man work- ing by the day to double or treble his output when put on piece work. There is little doubt, however, that day work as it is usually found can be greatly improved. In piece work, premium work, bonus work, etc., the output of each man is carefully recorded each day, and the management knows the relative efficiency of the men. In day work it is the rare ex- ception to find records of the output of each man, and the real efficiency of the man is unknown ; the management's in- formation on this important subject is based on the general knowledge of the foreman that a workman is a '' good man " or a '' poor man." It is surprising that w^hen knowledge takes the place of guess-work — when the efficiency of a man is based on the quantity of work of standard quality as measured day by day — to find that a number of " good men " become *' poor men," and a number of '' poor men " become '' good men." Correct records made each day of the amount of work accomplished by each man, with increased pay for the deserving and reductions and discharge for the poorer men will make a wonderful improvement in the ordinary day-work shop. If such records are kept and the pay of the men is graded in accordance with the output and no other change is I GO METHODS FOLLOWED IN THE PAYMENT OF LABOR 101 made in the shop the output in the usual run of day-work shops will be increased not less than 25 per cent. In a sub- sequent chapter will be recorded the improvement that has actually been obtained by keeping records of the output of each man. The day-work system at best is not satisfactory; to obtain the best results each workman must have an incentive to put forth his best efforts, and if he does put forth his best efforts his reward must be liberal and immediate. Workmen as a rule do not look far in the future; a possible distant reward will seldom bring forth extra exertions from the average workman; to secure the best results the reward should be im- mediate; if a workman puts forth extra efforts and accom- plishes more than the usual amount of work he should know the next morning the amount of the reward he is to receive for his extra efforts. This is the only way in which the maxi- mum output can be obtained from the average workman, and under the day-work system at its best this is impossible. mPontract System: — The contract system consists of assign- ing definite jobs of work to a competent workman at a stipu- lated price and allowing him to employ his own workmen, and follow his own methods, and giving him the use of the plant equipment necessary for the work. In one of the large shipyards this system is extensively em- ployed and appears to give excellent results — at least, excel- lent when compared with results previously obtained under the day-work system. The contractors in this yard are generally men who were formerly employed as assistant foremen and leading men. The management and the contractor agree on a price for a given job of work; the company em.ploys the men and pays them day wages, and by mutual agreement, they are assigned to work with the contractor. When the job is finished the amount that has been paid out by the company on the contract is deducted from the agreed price and the balance paid to the contractor, who distributes the profits to himself and to the various workers. The company sees that every worker is I02 COST KEEPING AND SCIENTIFIC MANAGEMENT paid the prevailing day wages, but the distribution of the profits is left to the contractor. The company keeps books for the contractor and knows the cost of the job, and thus knows whether the contract price is high or low. The con- tractor knows the abilities of the small number of men em- ployed and he knows the work that each accomplishes, and if a just distribution is made of a portion of the profits to the workmen as a bonus, the incentive is provided and a large out- put can be obtained from the workers. Some of the results obtained in this establishment can truly be called astonishing if the inefficiency of day labor and also the inefficiency of the usual supervisory force were not known and considered. In several cases assistant foremen, as con- tractors, retained supervision of work which had been under their charge under the day-work system ; the same men were employed, and the shop conditions remained the same, yet the contract price was about half the previous cost to the com- pany, and still the contractor earned substantial profits after paying a good bonus to the workmen. If any manager has any lingering doubt regarding the de- sirability of paying a bonus to foremen and assistent foremen, as well as to workmen, these doubts should be dispelled by an investigation of the contract system at this establishment. This contract system is, in effect, a bonus system, and not only do the deserving workmen receive a bonus, but the men in charge of the work also receive a substantial reward. This system has changed mediocre or inefficient gang bosses into an efficient supervisory force. In some cases the contract price is low and no profit is made. In these cases the management considers each case on its merits. If it appears that the fault is due to the price being too low rather than poor management on the part of the contractor, the loss is not charged to the contractor. If it is believed that the loss is due to poor management, and particularly if the records show that the contractor has made substantial profits on previous contracts, the loss is charged against him. ^ METHODS FOLLOWED IN THE PAYMENT OF LABOR IO3 The contract system is an improvement on the day-work system, but it is open to objections. The contractor and his men may abuse tools and plant equipment in their efforts to obtain large output, and there is an opportunity for work to be done on the contract job by men not employed under the con- tractor. There is the tendency on the part of the contractor to soldier on some jobs, for example, if the contract price is high, the contractor knows that if his profits are too large the price of the next job will be cut; he knows within very close limits the profit that the company will allow him to make with- out cutting the price, and in these cases he will soldier on the job sufficiently to prevent the price being cut. The case is similar in every respect, and the motives are the same, as those of a piece-worker who soldiers to prevent the employer from learning how quickly the work can be done, and the soldiering in both cases is to prevent cutting the price. There is no accurate knowledge on the part of either the contractor or of the management as to what the job should cost. There are, no doubt, on some jobs previous costs, but these in many cases are far from what the job should cost. Both the contractor and the management having no accurate knowledge of the money value of the job, there must ensue the inevitable bargaining in which each attempts to deceive the other, before the contract price is fixed. Aside from the objections noted, the contract system, as described, appears to be a drifting system, even though it drifts in the right direction. The management, confessing that it does not know how much a worker should accomplish, confessing that it is not willing to take the necessary steps to find out how much a man should do, confessing that it is un- able to devise a scheme of management and a scheme for the payment of labor which will bring forth the very best from every workman, turns over its burden and- its responsibilities to one of its subordinate assistant foremen to work out in a small way the problem which the management confesses that it is not able to work out in a large way. The Premiuui System: — The premium plan of paying for I04 COST KEEPING AND SCIENTIFIC MANAGEMENT labor was devised by Mr. F. A. Halgey, and is in successful operation in a large number of important plants both in this country and abroad. It is described by Mr. Halsey in a paper read before the Society of Mechanical Engineers, from which the following is a quotation : " The plan assumes two slightly different forms, according to the nature of the work; one form being suited to work pro- duced in such quantities as to be reducible to a strictly manu- facturing basis, and the other form to the more limited produc- tion of average practice. In both forms the essential principle is the same, as follows: The time required to do a given piece of work is determined from previous experience, and the workman, in addition to his usual daily wages, is offered a premium for every hour by which he reduces that time on future "work, the amount of the premium being less than his rate of wages. Making the hourly premium less than the hourly wages is the foundation stone on which rest all the merits of the system, since by it, if an hour is saved on a given product the cost of the work is less and the earnings of the workman are greater than if the hour is not saved, the workman being in effect paid for saving time. Assume a case in detail: Under the old plan a piece of work requires ten hours for its production, and the wages paid is thirty cents per hour. Under the new plan a premium of ten cents is offered the workman for each hour which he saves over the ten previously required. If the time be reduced succes- sively to five hours the results will be as shown on page 105. " This table illustrates the manner in which the cost of the work diminishes and the workman's earnings increase to- gether until, to cite the extreme case of the last line, if the out- put be doubled, the wages paid per piece will be reduced 33 i"3 pci" cent., but the workman's earnings per hour will be increased 33 1-3 per cent. Were the premium less than ten cents per hour, the reduction in cost for each hour saved would be greater, and the workman's earnings less. On the other hand, the workman would have a smaller incentive, and the time would not be reduced so much. The output would METHODS FOLLOWED IN THE PAYMENT OF LABOR 105 be less, and the net result might be worse for both employer and employee. This raises the inevitable question: What should be the rate of the premium? Nothing but good sense and judgment can decide in any case. In certain classes of work an increase of production is accompanied with a propor- tionate increase of muscular exertion, and if the work is al- ready laborious a liberal premium will be required to produce results. In other classes of work increased production re- quires only increased attention to speeds and feeds with an in- Column No. I Column No. 2 Column No. 3 Column No. 4 Column No. 5 Time Consumed Wages per Piece Premium Total Cost of Work — Column 2 + Column 3. Workman's Earnings per Hour =: Col. 4 -f- Column I. Hours $ $ $ $ 10 3.00 0.00 3.00 .30 9 2.70 .10 2.80 •311 8 2.40 .20 2.60 .325 7 6 2.10 1.80 •30 .40 2.40 2.20 •343 .366 5 1.50 •50 2.00 .40 crease of manual dexterity and an avoidance of lost time. In such cases a more moderate premium will suffice. Any at- tempt, how^ever, on the part of the employer to be greedy and squeeze the lemon too dry w^ill defeat its own object, since if a trifling premium be offered, the workman will not consider it worth while to exert himself for so small a reward, and the expected increase of output will not take place. On the other hand, if the premium offered be too high, the employer will simply pay more than necessary for his work, though less than he has been paying. If the rate of premium is de- cided upon judiciously, it may and should be made perma- nent. No cutting down of the rate should ever be made un- less, indeed, improved processes destroy the significance of the first base. Every increase of earnings is necessarily ac- I06 COST KEEPING AND SCIENTIFIC MANAGEMENT companied by a corresponding decrease of cost, and if the premium be such as to give these a satisfactory relation, the workman may be assured that there will be no limit set to his earnings; that the greater they are the more satisfactory they will be to the employer. The importance of this cannot be too strongly insisted upon. If the premiums be cut the workmen will rightly understand it to mean, as under the piece-work plan, that their earnings are not to be permitted to pass a certain limit, and that too much exertion is unsafe. The very purpose of the plan is to avoid this by so dividing the savings between employer and employee as to remove the necessity for cutting the rate, and hence enable the workman's earnings to be limited only by his own ability and activity. The baneful feature of the piece-work plan is thus completely obviated, and instead of periodical cuts with their resulting ill-feeling, the premiums lead the workman to greater and greater effort, resulting in a constant increase of output, de- crease of cost, and increase of earnings. ** The broad-minded employer will not fail to recognize that his own gain from the system comes largely from the in- creased production from a given plant, since not only does the system reduce the wages cost of the piece of work in hand, but in so doing it increases the capacity of the plant for other work to follow. The advantages from this source are so great as to render unnecessary and refined hair-splitting as to the rate of the premium. " Such is the premium plan, and the writer confidently pre- dicts that the more it is studied the more perfect will appear its adaptation to the requirements of industrial enterprise and human nature. Surely, a system which increases output, de- creases cost, and increases workman's earnings simultaneously, without friction, and by the silent force of its appeal to every man's desire for a larger income, is worthy of attention. In addition to the commanding features noted it has others of lesser note. The transition to it from the day's work plan is easy and natural. It does not involve a reorganization of the system of bookkeeping, but only an addition, and a small one. METHODS FOLLOWED IN THE PAYMENT OF LABOR I07 to the existing system. No opposition to it, organized or otherwise, is possible, since there is simply an offer to gratify one of the strongest passions of human nature, and the diffi- culty often found in introducing piece work cannot occur with this." The premium system is in marked contrast to the Bonus System and the Differential Piece Rate System, in that in the premium system no attempt is made to determine the time in which the work should be done, while with the bonus and the differential piece-rate system an exact determination of the time required to do the work is the foundation on which the success of the application of the system depends. While with the premium plan the maximum output will seldom be obtained, and the management in a measure lets the workmen make the pace, and allows the workmen to decide the methods to be followed, it must not be overlooked that this system can be introduced with little difficulty in many shops, where it would be impossible to introduce the bonus system or the dif- ferential piece-rate system without the assistance of an expert. The premium system is a great improvement over day work and over the piece-work system as ordinarily employed. No elaborate rate-setting department is required, for the standard times are the times that have been taken to do work under ordinary day work, and on this account the system can be put in successful operation in any plant by the management without outside assistance. Th e Bonus System: — The bonus system was devised by Mr. H. L. Gantt, and has been employed by him in a number of plants with great success. In a paper read before the So- ciety of Mechanical Engineers Mr. Gantt describes the system as follows: " Under this system each man has his work assigned him in the form of a task to be done by a prescribed method with definite appliances and to be completed within a certain time. The task is based on a detailed investigation by a trained ex- pert of the best methods of doing the work; and the task set- ter, or his assistant, acts as an instructor to teach the work- I08 COST KEEPING AND SCIENTIFIC MANAGEMENT men to do the work in the manner and time specified. If the work is done within the time allowed by the expert, and is up to the standard for quality, the workman receives extra com- pensation in addition to his day's pay. If it is not done in the time set, or is not up to the standard for quality, the workman receives his day's pay only. "... A task must always be set for performing a definite operation in a specific manner, a minimum time being set for its accomplishment. As compensation, the workman is paid for the time set plus a percentage (usually 20 to 50) of that time, provided the work is done in the time allowed or less. If the time taken is more than the time allowed, the workman gets his day's pay only. The fact that in setting the task the manner of performing the operation is specified enables us to set another task for the same operation if we develop a better or quicker method. "If after having performed his task a workman wishes to suggest a quicker or better method for doing the same work, he is given an opportunity if possible to demonstrate his method. If the suggested method really proves to be quicker or better, it is adopted as the standard, and the workman is given a suitable reward. No workman, however, is allowed to make suggestions until he has first done the work in the man- ner and time specified. ". . . As used by the writer, the Task and Bonus Sys- tem of pay is really a combination of the best features of both day and piece work. The workman is assured his day rate while being taught to perform his task, and as the bonus for its accomplishment is a percentage of the time allowed, the compensation when the task has been performed is a fixed quantity, and is thus really the equivalent of a piece rate. Our method of payment then is piece work for the skilled, and day work for the unskilled, it being remembered that if there is only work enough for a few, it will always be given to the skilled. This acts as a powerful stimulus to the unskilled, and all who have any ambition try to get into the bonus class. This cannot be too clearly borne in mind, for zve have here METHODS FOLLOWED IN THE PAYMENT OF LABOR IO9 all the advantages of day work combined with those of piece work without the disadvantage of either, for the day worker who has no ambition to become a bonus worker usually of his own accord seeks work elsewhere, and our working force soon becomes composed of bonus workers, and day workers who are trying to become bonus workers." The Differential Piece-Rate System: — The differential rate system of piece work was devised by Mr. Fred W. Taylor and was used with great success by him both at Midvale and Bethlehem. It consists briefly in offering two different rates for the same job; a high price per piece in case the work is finished in the shortest possible time and in perfect condition, and a low price, if it takes a longer time to do the job, or if there are any imperfections in the work. The high rate should be such that the workman can earn more per day than is usually paid in similar establishments. This system is di- rectly the opposite of the ordinary plan of piece work, in which the wages of the workmen are reduced when they in- crease their productivity. Mr. Taylor in his paper describing the differential rate, read before the Society of Mechanical Engineers, says: " The first case in which a differential rate was applied fur- nished a good illustration of what can be accomplished by it. " A standard steel forging, many thousands of which are used each year, had for several years been turned at the rate of from four to five per day under the ordinary system of piece work, 50 cents per piece being the price paid for the work. After analyzing the job and determining the shortest time required to do each of the elementary operations of which it was composed, and then summing up the total, the writer became convinced that it was possible to turn ten pieces a day. To finish the forgings at this rate, however, the machinists were obliged to work at their maximum pace from morning to night, and the lathes were run as fast as the tools would al- low, and under a heavy feed. " It will be appreciated that this was a big day's work, both for men and machines, when it is understood that it involved no COST KEEPING AND SCIENTIFIC MANAGEMENT removing, with a single 1 6-inch lathe, having two saddles, an average of more than 800 pounds of steel chips in ten hours. In place of the 50-cent rate that they had been paid before, they were given 35 cents per piece when they turned them at the speed of 10 per day, and when they produced less than 10, they received only 25 cents per piece. " It took considerable trouble to induce the men to turn at this high speed, since they did not at first fully appreciate that it was the intention of the firm to allow them to earn perma- nently at the rate of $3.50 per day. But from the day they first turned 10 pieces to the present time, a period of more than ten years, the men who understood their work have scarcely failed a single day to turn at this rate. Throughout that time, until the beginning of the recent fall in the scale of wages throughout the country, the rate was not cut. " During this whole period the competitors of the company never succeeded in averaging over half of this production per lathe, although they knew and even saw what was being done at Midvale. They, however, did not allow their men to earn over from $2 to $2.50 per day, and so never even approached the maximum output. " The following table will show the economy of paying high wages under the differential rate in doing the above job : COST OF PRODUCTION PER LATHE PER DAY ORDINARY SYSTEM OF PIECE DIFFERENTIAL RATE SYSTEM WORK Man's Wages $2.50 Man's Wages $3-5p Machine Cost 3.37 Machine Cost 3-3^ Total Cost per Day. . .$5.87 Total Cost per Day. . .$6.87 5 pieces produced. 10 pieces produced. Cost per piece $i-i7 Cost per piece $0.69 " The above result was mostly, though not entirely, due to the differential rate. The superior system of managing all of the small details of the shop counted for considerable. " There has never been a strike by men working under dif- ferential rates, although these rates have been applied at the METHODS FOLLOWED IN THE PAYMENT OF LABOR III Midvale Steel Works for the past ten years ; and the steel busi- ness has proved during this period the most fruitful field for labor organizations and strikes. And this notwithstanding the Midvale Company has never prevented its men from joining any labor organization. All of the best men in the company saw clearly that the success of a labor organization meant the lowering of their wages, in order that the inferior men might earn more, and, of course, could not be persuaded to join. " I attribute a great part of this success in avoiding strikes to the high wages which the best men were able to earn with the differential rates, and to the pleasant feeling fostered by this system; but this is by no means the whole cause. It has for years been the policy of that company to stimulate the personal ambition of every man in their employ, by promoting them either in wages or position whenever they deserved it, and the opportunity came." Fixing Rates and Standard Times: — Both Mr. Taylor and Mr. Gantt attach great importance to the scientific rate-fixing department. Mr. Gantt's bonus system is based on standard times which are set after the best methods have been de- termined by experts and standardized. Mr. Taylor's high and low rates are determined in the same manner. Both Mr. Taylor and Mr. Gantt consider that both systems will fail without scientific rate-fixing; indeed, this is the most impor- tant element of both of these systems. Mr. Taylor in his paper says, " Of the two devices for in- creasing the output of a shop, the differential rate and the scientific rate-fixing department, the latter is by far the more important. The differential rate is invaluable at the start, as a means of convincing men that the management is in earnest in its intention of paying a premium for hard work; and it at all times furnishes the best means of maintaining the top notch of production; but when, through its application, the men and the management have come to appreciate the mutual benefit of harmonious cooperation and respect for each other's rights, it ceases to be an absolute necessity. On the other hand, the rate-fixing department, for an establishment doing a large 112 COST KEEPING AND SCIENTIFIC MANAGEMENT variety of work, becomes absolutely indispensable. The longer it is in operation the more necessary it becomes." Mr. Gantt says, regarding task setting, " Inasmuch as, after a satisfactory method has been established, a large pro- portion of the work of the task setter is the study of the time in which operations can be performed, he is popularly known as the Time Study man. This term has lead to a misconcep- tion of his duties and has caused many honest people to claim that they were putting in our methods when they have put a stop-watch in the hands of a bright clerk and told him to find out how quickly the best men were doing certain work. Unquestionably they have in many cases been able to set more accurate piece rates by this method than they had been able to set by the older methods, but they are still far from our ideal, in which the best expert available investigates the work, standardizes the appliances and methods and sets a task that involves utilizing them to their very best efficiency. While the stop-watch is often used to establish a method, it is used to determine the time needed to do the work only when the standard methods and appliances are used efficiently. Stop- watch observations on work done inefficiently or with ill- adapted appliances, or by poor methods, is absurd and serves only to bring into disrepute all work in which the stop-watch is used. Moreover, such use of the stop-watch justly excites the contempt and opposition of the workman. " To make real and permanent progress, the expert must be able to standardize appliances and methods and write up such instructions as will enable an intelligent workman to follow them. Such standards become permanent, and if the work- man is paid a proper bonus for doing the work in the manner and time set, he not only helps maintain the standards, but soon begins to exert his influence to help the progress of standardi- zation." There is another important result which comes from the establishment of a scientific rate department. The work of this department brings out in a prominent manner the necessity for carefully systematizing all the details of the management METHODS FOLLOWED IN fHE PAYMENT OF LABOR II3 of the shop. Unless this is done the rate department can make no progress; a rate is fixed based on the best quahty of high speed tools, the machine in excellent order, and the belt in proper condition, while the work may be done with poor tools on a machine out of adjustment. Under these conditions a rate-making department is worse than useless, yet these are conditions which will be found in the average job- bing shop. With a rate department, such important details as proper care of machines, care of belting, proper shape of cutting tools, grinding and issue of tools, care of appliances, etc., must be carefully studied and standarized. Referring to this subject Mr. Gantt says, " The fact, so repeatedly emphasized by Mr. Taylor, that tasks should be set only as the result of a scientific investigation, has proven of an educational value hardly to be over-estimated, for the scientific investigation of a process that has been developed without the assistance of science almost always reveals in- consistencies which it is possible to eliminate, thus perfecting the process and at the same time reducing its cost. It is this scientific investigation that points to improvement in methods and educates owners and managers. . . ." Mr. Taylor speaks even more strongly, saying, " In many cases the greatest good resulting from the application of these systems is the indirect gain which comes from the enforced standardization of all details and conditions, large and small, surrounding the work. All of the ordinary systems can be, and are almost always applied without adopting and maintain- ing thorough shop standards. But the task idea cannot be carried out without them." CHAPTER IX Management A TREATISE on cost keeping can not be complete without con- sideration of the fundamental principles of management. Not many years ago it was considered that defects in management should be located by an analysis of costs and a study of the various elements of total cost. Much can be accomplished in this way, as pointed out in preceding chapters, but it should not be overlooked that this is not the best method to follow; this is not scientific treatment of an important problem which can best be solved by scientific methods. With a good system an analysis of the cost figures will indicate defects in management, and will show the waste of both labor and material. These defects can be remedied, and the wastes avoided in future work, but the losses already incurred cannot be recalled. If every defect shown by an analysis of costs be corrected — and in many cases this will involve radical changes in organization and methods — the establishment will eventually reach a high state of efficiency, but this will require time, and many managers now realize that at best this is. but a drifting method. The problem should be approached in a scientific manner; the root of the evil should be attacked; the organization and methods should be studied and analyzed, the defects discov- ered and remedied; there should be proper planning of all work, followed by effective foremanship to see that the work is executed as planned. It must not be assumed that accurate cost keeping and de- tailed analysis pf costs plays no part in this system ; it is an essential part of the system ; it is even more effective than when defects in organization and methods of management have not first been corrected, for the analysis will now defi- 114 MANAGEMENT II5 nitely place the blame for excessive production costs. An accurate cost system is an integral part of the scheme of or- ganization and it performs its function just as every other part of the system or every individual in the organization performs its or his function. During recent years shop management has received a great deal of attention from competent engineers a'nd managers. The correct type of management has been widely discussed and much has been written on the subject. On one hand, competent engineers who have studied the subject for years recommend a system of management which largely increases the number of non-producers and increases the cost of management. These engineers claim that the in- creased returns will pay many times over for the increased cost of management. They point to the successful establish- ments which are using this type of management ; they give numerous examples where costs have been enormously re- duced and at the same time wages have been increased ; they claim that the system which they advocate will settle many of the differences between capital and labor, and that under this system there will be cordial cooperation between em- ployers and employees. The advocates of this system claim that the general principles of this type of management are applicable to all forms of industrial work, and point to the remarkable results which have been obtained where these prin- ciples have been observed, not only in machine shops, but also to miscellaneous work done by common labor, such ^s handling pig iron, shoveling coal, excavation work, etc. They also show that similar results have been obtained in the textile mills, in the bleacheries, in bricklaying, in tli€ erection of build- ings, and also in general contracting work. Mr. Fred W. Taylor, of Philadelphia, is the originator of this type of management, and he has for years labored in- cessantly for progress in management. Mr. Taylor believes that management is an art, in that it is the systematic applica- tion of knowledge and skill in effecting a desired result. In his essay on '' Shop Management," he states, *' Management Il6 COST KEEPING AND SCIENTIFIC MANAGEMENT is destined to become more of an art, and many of the ele- ments which are now beheved to be outside the field of exact knowledge will soon be standarized, tabulated, accepted and used, as are now the many elements of engineering. Manage- ment will be studied as an art and will rest upon well-recog- nized, clearly-defined and fixed principles instead of depending upon more or less hazy ideas received from a limited observa- tion of the few organizations with which the individual may have come in contact." As science is systematized knowl- edge, Mr. Taylor's type of management is justly called " Scien- tific Management," and this term is now not only accepted by the engineering profession, but also by the world at large, as descriptive of the principles of management advocated by Mr. Taylor and his associates. On the other hand, some managers of large successful es- tablishments take issue with Mr. Taylor and assert that the detail methods advocated are not necessary; they claim that the detail planning of all work takes all initiative from the workmen and will in time*make them mere machines. Un- fortunately many men in the shop who do not understand the principles of scientific management or the detail methods re- quired to apply these principles, believe all of the criticism they hear and read of these methods and are ready to oppose any changes which they think lead towards " Taylor Meth- ods." While the number of managers and engineers who oppose scientific management will each year grow smaller and the opposition w^ill in time disappear, it seems desirable to consider the reasons for this opposition. Is scientific management the use of a lot of reports, blank forms, and red-tape methods, employing an army of non-pro- ducers, who increase the overhead expense and produce no adequate return? If so, it is a fraud parading under an at- tractive name. Or, is it a scientific treatment of an important industrial problem? There are some who appear to believe that scientific man- agement is nothing but red-tape methods with an army of clerks and other non-producers principally employed in making ' MANAGEMENT II7 written reports and filling many blank forms. These can see no results, in increased profits, from this type of manage- ment. They see only the means for accomplishing an end; they see the machinery and not the finished product; the ma- chinery looks complicated and they mistake it for the product. The machinery is only incidental; it is not scientific man- agement, it is only the means for securing scientific manage- ment. There are managers of the old school who believe in the '' good, old-fashioned way.'* These know nothing of scien- tific methods and they have little patience with those who advocate changes. Why do these managers tolerate a drafting room or a designing staff? Why not return to the good, old-fashioned rule-of-thumb methods and the drafting work done by the superintendent and foreman on the floor of the shop? There is just as much reason for this as for the anti- quated shop methods. Just as much money can be saved by scientific methods in the shop as has been saved by scientific methods- in design work. Under these conditions it is not remarkable that progress is slow. As the aims of those who advocate scientific manage- ment are more generally known, much of the opposition will disappear. If scientific management be properly defined, this definition can be applied to the various forms of management in use, or that may be proposed, and the bogus and real determined. It is nothing more than a strict application of the principles of good management. The details must be made to suit the requirements of each case. There can be no hard and fast rule. Each problem must be carefully studied, and the meth- ods made to fit the requirements. Mr. Taylor has concisely defined management as *' knowing exactly what you want men to do and then seeing that they do it in the best and cheapest way." This definition may be elaborated, as follows : Il8 COST KEEPING AND SCIENTIFIC • MANAGEMENT Scientific Management provides: First : — A careful analysis to determine before work is un- dertaken, exactly what is to be accomplished. Second: — The determination of the best way to accomplish the work in the quickest time at the lowest cost. Third : — The employment of the best machines, best facili- ties, and the best men available to carry out the work in the best way, as previously determined. Fourth : — Cordial cooperation between employers and em- ployees, in order that both may put forth the best efforts to secure low production costs. Fifth: — An accurate record of the cost of the work in such detail that the various elements of cost may be quickly de- termined. No doubt many managers will exclaim that there is noth- ing new in this definition. They consider the principles enun- ciated so simple, so elementary, so plain to everyone, that they are surprised that anyone should write on this- subject. They are amused that the high-sounding term '' Scientific Management " should be applied to what is nothing more than good management. They are satisfied that their establish- ments have been managed for years in accordance with these principles. These are correct, that Scientific Management is nothing more than good management, but are they correct that this is the system of management generally followed? There is little doubt that in the majority of shipyards, machine shops, foundries, etc., throughout the country the requirements of scientific management as define*! above are not obtained, yet owners and managers do not realize this. Before defects can be corrected they must be known : before an owner or manager asserts that the system of management which he employs se- cures the results obtained by scientific management he should make a careful investigation of his own plant and analyze his methods, or, better still, have someone in whom he has confi- dence make this investigation. MANAGEMENT I IQ Is a careful analysis made of the work to be accomplished before the work is undertaken? In new work drawings are supplied, and in manufacture work these are usually in great detail. Frequently, however, the so-called drawings are merely outlines which are given to a workman with general instructions. The workman has to study out the details and in some cases has to make sketches from which he works. Is he best fitted for this work? Is it economical to employ him on this class of work? Fre- quently the workman encounters a difficulty which he cannot overcome. He wastes much time vainly trying to find a way out, and is finally forced to go to the foreman for infor- mation. The foreman is engaged with other duties and it may be some time before he can give the question attention. Perhaps the foreman cannot solve the difficulty, and he too wastes time trying to do so, and is finally forced to go to the drafting room, which should have supplied the information in the first place. In repair work it is the exception that a careful analysis is | made of the work to be accomplished before the job is under- ' taken. The general trouble is, of course, known, but the actual j work to be accomplished is not determined before the work is | begun. The general rule is to assign the work, with general instructions, to a competent mechanic. The workman then begins to tear apart and he himself decides on much of the work. Soon, however, he strikes something which he cannot decide. He tells the foreman of this and the job is held up until a decision is reached. Often the foreman does not care to make a decision and he refers the question to the superin- tendent. The latter has many such questions to decide and many other duties. It may be several days before the work- man gets definite instructions. In the meantime the job is dragging or is actually held up. When work is carried out in this manner, the machine work is done as it develops, cast- ings or forgings are ordered when it Is found that they are needed, and material is not ordered from store until it is j actually required by the workman. This procedure causes I20 COST KEEPING AND SCIENTIFIC MANAGEMENT delay after delay; the workman attempts to appear busy; if the foreman sees that nothing is accomplished while the work- man waits for information, machine work, forgings, or ma- terial, he may take the workman away from the job until the material or information arrives, but it is probable that the workman will successfully kill time until he can proceed. If a record is kept of the time spent by the workman in hunting for information and hunting for tools, and the time wasted waiting for machine work, castings, forgings and other material, it will be found that this time in many cases actually exceeds the time required to do the work. If the large final cost of the job attracts the attention of the manager, he can- not discover where the money has gone. He knows that the cost is far too great and when he takes the foreman to task the blame is usually placed on the workman, who may be a com- petent, hard-working mechanic. It is not his fault; it is the fault of the system under which he works. Superintendents and foremen will deny that these faults exist; each will state that there are no delays of this kind. These conditions are bound to exist; they cannot be avoided under the system of shop management usually employed. It must be admitted that the work to be done must be ac- curately determined by someone. Is it best to have it de- termined by the workman as the work progresses? Is it profitable to employ a mechanic on work of this character? The work to be accomplished must be determined, and the logical way — the scientific way — is to have this carefully done before the job is started. If it is necessary to entirely dismantle a machine to discover what is to be done, do this before men are put on the job proper. Tear down the ma- chine, have competent men determine exactly what is to be done, order material, castings, and forgings and the neces- sary machine work, and do not start the job until this is done. Are the best methods for accomplishing the work determined before the work is undertaken? The second requirement of good management naturally fol- lows the first; after the work to be done has been determined, MANAGEMENT 121 the best way of doing the work should be determined. There are very few shops where any effort is made to determine the best means for accomphshing the work. The mechanic who has the job decides in many cases the methods to be fol- lowed. Mr. Fred W. Taylor has gone into this fully and has clearly shown that it is impossible for the mechanic to determine in machine operations the best feed, depth of cut, and speed. Mr. Taylor has proved the enormous savings that can be effected by having these determined by someone who is competent to do this. Little consideration or thought is given in many shops to the class of machine to which work should go. The work is often assigned to a machine because the operator at that machine is nearly out of a job. In a shop under my supervision I noticed that frames for water-tight doors were faced on a planer. I suggested to the foreman that they could be done more quickly on a slab milling machine which was idle. He assured me that this had been carefully considered. This is the answer you expect and it is the one you will nearly always get. The job was changed to the slab milling machine and the time was cut in half. The selection of the proper machine is only one of the many important elements of the best way of accomplishing the work. As a general rule the shop is run by a foreman and a few assistants, the number depending on the size of the shop. These assistants are called from job to job as trouble develops and often several jobs are waiting for the assistant; nothing is schemed out ahead ; the assistants are worked to their limit and only give their attention to jobs which require / immediate attention; they can do no more. Are the men best suited to each class of work employed? Is the best use made of machines and facilities? The third element of scientific management requires that men be employed who are best suited for each class of work, and that machines, tools and other shop facilities shall be in excellent condition. In almost any jobbing shop, and in many large establishments there will be found men employed on 122 COST KEEPING AND SCIENTIFIC MANAGEMENT work which can be done equally as well by boys; mechanics will be found on work which should be done by trained labor- ers. In some places these conditions are due to the require- ments of labor unions or at least to avoid any trouble with the unions. In the majority of cases, however, it is a natural result of the system of shop management employed. While it is true that an intelligent laborer can be trained in a few weeks or in a few months to do certain classes of work usually done by mechanics, he must have instruction and assistance. If put on the work and left to himself he will not only spoil work, but he will be ridiculed by his shopmates and will soon become discouraged and give up the job. In shops where the ordinary system of management is employed neither the fore- man nor his assistants have any time to train workmen; they can only give attention to the immediate pressing duties. Under these conditions it is impossible to employ laborers on this class of work. In the ordinary shop the foreman nearly , always desires to employ mechanics on this class of work. He I feels that mechanics will make fewer mistakes and will re- I quire much less attention than handy men or trained laborers. Under the usual conditions foremen cannot be blamed for wish- j ing to employ skilled men on all work. One of the most frequent causes of the excessive cost of work is the poor condition of machines and facilities. A careful examination will, in many cases, show that machine tools are not in the best condition, belts are poor, the supply I of hand tools is inadequate, and facilities which would greatly 'reduce costs are lacking. In a large establishment which I recently visited, I noted that drills, reamers, etc., furnished the workmen were not in good condition. I questioned one of the men and he told me that it was the exception to get a good tool from the tool room. In the tool room I found that no inspection was given the tools when returned other than that given by the laborer jwho received them. Unless a tool was broken, or the edge completely gone, it went back to the racks for re-issue. A casual inspection showed the tools in the racks in bad condi- MANAGEMENT 1 23 tion. The tools were issued to high-priced mechanics and they were expected to produce results. The men worked at "day work" and it did not matter to them. Piece work ) would have opened the eyes of the management to the con- ' dition of the equipment. The assistant foreman in charge of the part of the shop in'wdiich the tool room was located and in charge of the tool room, stated that when the men em- ployed on the grinders ran out of a job they went over the tools stored in the racks and " touched them up." Can one believe these conditions possible? This was found in a large establishment which employs several thousand workmen. Is there cordial cooperation between employers and em- , > ployees to increase output and reduce production costs? The fourth element of good management is cooperation between employer and employees. This is the most important element of management and it is entirely lacking in the great majority of shops. In many shops excellent relations exist be- tween the management and the workmen, but this is not co- operation. Cooperation has two sides, and many employers see but one side ; they believe in the men cooperating with the management to obtain low production cost, but they do not think that it is any part of the duty of the management to co- operate with the men to enable them to earn high wages. True cooperation cannot be obtained unless there are mutual benefits. If an employer expects his men to assist in securing low production costs, he must assist the men in securing high wages. Mr. Taylor, in his papers and books attaches the greatest importance to this part of the subject; by his system and his methods he has been able to bring about true coopera- tion between workmen and management and this is because each obtains that for which he is striving — the workman high wages, and the management low labor cost. The fifth element of good management is an accurate rec- ord of the cost of the work. This is obtained in very few establishments other than strictly manufacturing shops, and in many of these accurate costs are not obtained. This element has already been considered in some detail. l^ 124 COST KEEPING AND SCIENTIFIC MANAGEMENT To follow the principles of good management is not a simple problem. If owners and managers will be honest with themselves and carefully examine the operation of their plants the great majority will find that the essential requirements of scientific management are not met. It must be admitted that these requirements are essential; practically all are willing to accept these principles. Then, why not enforce them? When the owner or manager really studies these principles as applied to his business he discovers that it is not a simple problem to carry them out ; he sees that it will require a com- plete reorganization of his staff to do this; he sees that he will require expert help to make the changes necessary and that it will require a large staff to carry on the work after the changes are made. This will cost money — in some cases a great deal of money. He is now making a reasonable profit; he dislikes changes and this is one which will involve calling outside help, actually turning over for the time being the control of a large part of the management to an outsider. This will cause friction and opposition from many of his permanent staff. It requires courage and the strength of his convictions to make a change of this kind. If he consults with his staff every argument will be used to prevent the change. They consider it a reflection on their management; they see trouble and perhaps danger ahead for themselves. Before making the decision that it is not worth while, the manager should make a careful investigation. He is probably an able man who has had much shop experience ; he has risen on account of his ability. For a number of years, being a competent manager, he has not devoted his time to details; he has been occupied with the big affairs of management and has only been dealing with the exceptions in the shops. Let him turn over the management to an assistant as if he were going to the mountains for a month ; then go into the shops instead. Don't let him concern himself with the man- agement; don't let him be drawn into it. This will be diffi- cult, but for the success of the plan I propose it is necessary. MANAGEMENT I25 He is no longer the manager but is a shop expert making a critical examination of his own plant. Select a job in progress — preferably a repair job; take this work and study it from beginning to end. No doubt the foremen and assistants will give the greater part of their at- tention to it, but that will make little difference. He will find delays, lack of facilities, waits for material, poor methods, lack of proper information for carrying on the work, and he will see on every side where money can be saved. Take a new job in progress, follow it from the raw material to the finished article. Find out when the material was ordered, who ordered it and how he obtained the necessary informa- tion. Find out how the material was obtained from the store- house, when it arrived in the shop and what is the next step. Study each of these details, get all of the facts. At each step study to see the improvement that can be made. Follow this job through the shop — department to department — shop to shop — in the same manner. No matter if every foreman and assistant are concentrated on the job, he will find enough lost money to open his eyes. At the same time note what is happening with other jobs in the shop while the foremen are concentrated on the par- ticular jobs which he is analyzing. Let him examine the ma- chine tools and find out in detail how they are kept up. Ex- amine closely the condition of the belts and find out who. is responsible for their condition. Take a machine at random, put in some high-speed tool steel and put on a test, using cut, feed and speed which he knows should be possible. See if the belt will pull it. See if the machine is in condition to stand the test. Examine the castings from the foundry to see if the patternmaker has provided too much finish. See how this finish is removed; see if on brass castings more cuts are made than are required. See if unimportant dimensions are marked on the drawings. Isn't it a fact that men at machines are taking as much care to finish to unimportant dimensions as to important dimensions? Examine carefully the small- 126 COST KEEPING AND SCIENTIFIC MANAGEMENT tool equipment; take out the tools from the racks in the tool room and examine their condition. If managers will make the examination suggested, I am satisfied that before two weeks have passed many will be ready to hunt for new foremen. It is not the fault of the foreman ; it is the system. Go to the root, don't scratch on the surface. The best foreman on earth can not produce the best results with the system in use. The system must be changed ; scientific, common-sense methods must take the place of the haphazard, go-it-blind methods now followed. CHAPTER X Wasted Time Detected by Time Studies If time wasted by employees can be eliminated there will not be so much complaint of the high cost of living Mr. H. L. Gantt in his book, " Work, Wages and Profits/' has shown that the inefficiency of labor has an important bearing on the pres- ent high cost of living. Wasted time is the principal reason for inefficient labor. Very few owners or managers realize that an enormous amount of time is wasted by men in their employ. They know, of course, that some labor is wasted, but there is no record of the amount of this, and it is generally assumed that this is an unavoidable loss. If an accurate record can be made of the actual productive working time of each employee, and the total productive time compared with the payroll time, the difference will be found to be very large. The losses due to this difference will be so great that no manager will be content, once he has the information, to consider it an un- avoidable loss, but will ascertain the cause, and seek a remedy. Wasted time, while due to many causes, may be classed under four general heads, viz. : Loafing. Under this head there are the wastes due not only to men deliberately loafing, but also the losses due to men soldiering or nursing their jobs. With many men killing- time is almost an art. Very often men are apparently in- dustrious, but the amount of work accomplished is small. In the average well-conducted factory the losses due to men deliberately loafing are comparatively small, but those due to men soldiering are large. This is a waste which is not easy to detect, and the remedy is difficult. 127 128 COST KEEPING AND SCIENTIFIC MANAGEMENT Mr. Fred W. Taylor, in one of his papers before the So- ciety of Mechanical Engineers, on '' Shop Management," says, " So universal is soldiering for this purpose (to keep employers ignorant of how fast work can be done) that hardly a competent workman can be found in a large estab- lishment, whether he works by the day or on piece work, contract work, or under any of the ordinary systems, who does not devote a considerable part of his time to studying just how slow he can work and still convince his employer that he is going at a good pace." Employment on Unsuitable Work. Under this head are losses due to the employment of men on work which can be more economically performed by others. An example of waste due to this cause is a workman making sketches from which to work, which is not infrequent in jobbing repair shops. Other examples are ; workmen grinding their tools, lacing belts for their machines, going to the tool room for tools, and repairing break-downs of their machines. Under this head should also be included waste due to the workman doing much preparatory work before he can undertake the actual work which has been assigned to him, such as the preparation of the machine and tools for the job, hunting information as to exactly what is required, or hunting for material. The losses under this head in the average shop are us- ually large. They are not only due to wasted labor, but are also due to wasted machine-tool time. Lost Time due to Unnecessary Waits. Under this head are losses due to waits on account of lack of information or lack of material. There is also a loss, which is much larger than is suspected, due to delays in the assignment of the next job. There is little excuse for the losses under this head, yet in the average jobbing shop the waste due to these causes is not inconsiderable. Poor Equipment. The losses under tliis head are due to time wasted on account of poor arrangement of tools or equip- WASTE TIME DETECTED BY TIME STUDIES I2g ment, inferior equipment, or lack of necessary tools and facilities. A furnace improperly placed in relation to a steam ham- mer will cause unnecessary steps on the part of the men which may result in considerable wasted time. A grouping of machine tools which requires work to go back over the same route several times causes delay and wasted time. Break-downs of machine tools are frequent sources of loss. Poor belting, or lack of attention to belts, not only cause stoppages due to breaking of belts, but also large losses due to the poor pulling capacity of the belt, which prevents the machines working to anywhere near their capacity. Time is frequently wasted on account of lack of necessary equipment, as an insufficient number of steam hammers will cause losses due to smiths waiting for a hammer, and further, furnishes an excuse to cover soldiering or loafing. The progressive manager must know what is taking place in his plant, if he expects to obtain satisfactory results. He must know the losses due to loafing; which are the faults of the workmen. He must know the loss due to men waiting for information, material or jobs; which is due to faults of organization. He must know the loss due to poorly ar- ranged or imperfect plant equipment or lack of equipment; which is a fault of the management. Before difficulties can be removed or overcome, a manager must first be convinced that they exist. Before he can select and apply corrective measures he must know the extent and na- ture of each loss. With this information he knows the remedy, or if he does not, he is in a position to search until he finds it. Many managers fail on account of guesswork. They guess at the cause, and guess at the remedy, and failure is inevita- ble. A manager may know that the output is small and that manufacture costs are high; competitive selling prices will usually tell him this much. But unless he knows the cause, he must necessarily guess at the remedy. In guessing at the 130 COST KEEPING AND SCIENTIFIC MANAGEMENT remedy the entire blame is usually placed with the employees, either workmen or foremen, or with both; when, in reality, the greater part of the blame should be placed with the man- agement. Under these conditions the first guess for the remedy is an attempt to drive the men to greater efforts — to increased output. This is doomed to failure; workmen do not respond to drive methods. They know, better than the management, that the reason for low output is due in a great measure to faults for which they are not responsible; faults due to poor organization, poor equipment or poor management. There is no action which a manager can take that will do more harm than to blame the workmen as a whole with faults which be- long elsewhere. They resist the drive methods ; they become dissatisfied and sullen, or even destructive when there is little chance of detection. The proper procedure is to first find the cause. This can only be accomplished by detail observation. The best means for doing this is by stop-watch unit time studies. This method was first successfully followed by Mr. Fred W. Tay- lor, and since then has been used by many others with great success. Even those who do not accept Mr. Taylor's teachings in their entirety, must admit the great advantages to be gained from unit time studies. A manager should have exact knowledge of the amount of time wasted and the cause of the loss. This information can be obtained from time studies. There will, of course, be less time wasted than is usual, on account of the men doing better while under observation ; but notwithstanding this, the losses exposed, the defects in organization and equipment brought to light, will astonish even the most skeptical man- ager. He will immediately see the necessity for improvement. He will wonder how it has been possible for him to miss so many glaring defects for so long; many of which can be easily and quickly corrected. Improvement will begin from that date, and new light hav- WASTE TIME DETECTED BY TIME STUDIES I3I ing dawned, the improvements will continue and increase, un- til scientific management in that plant will become a fact, not a theory to discuss when there is nothing else to do. The output of the drop forge shop at the Mare Island Navy Yard was not satisfactory. There are no drop forgers on the Pacific Coast and the one employed was brought from the East. He was a man of many years' experience, and the quality of his work was excellent, but the output was far below what it should have been. It was not possible to employ piece work or the premium system. The usually followed method of telling the man that the output must be increased was followed, with the usual result — no improvement. The man would have thrown up his job and returned East before he would increase the output and thereby admit that he had been soldiering in the past. This is in accordance with human nature, and human nature must be studied if success is to be attained. An experienced observer was assigned to discover the trouble, and also the remedy. Without attempting to change any of the conditions he made s^op-watch time studies of every minute of the forger's day. The form of the obser- vation sheet is shown in Fig. 12 and is self-explanatory. The heavy black line in the middle of the vertical columns repre- sents graphically the operation of the workman for each ten seconds of time. At the end of each day the sum of the times in each column is obtained and a chart similar to those shown in Fig. 13 is made. This chart shows at a glance the actual productive time and clearly locates the large losses. In observation No. i of Fig. 13, the productive time is small, while the time lost in waiting for heats amounts to one-half the day. It is clear that to make any marked im- provement in production, steps must be taken to reduce the time " waiting for heats." This must be the point of attack. The material used is i^-mch by 3 j^ -inches, in sufficient length to make four forgings. Three bars were first placed in the furnace lying flat. The operator forged three pieces from each bar and then tlie fourth or end of one bar, before OB6 'Syey^770A/ c5^£ST '-^a -r- / ^//^ rr-jra ' /-a/p "l3 Sr IV ^~3o,*. //7A/ "P"^^^^ -T^^r.^T^^G-^ ^~T>,^. kT-S^ 1 VVo/P-r-V5"v.. \/Ku. X X ^s- ■" ■^C ■^7 - ^8 if 4S- - ^9 ifO so 1/0 %f/ _ f/^ ^^ «r^ — ^s- en ^7 Us- )*r '"■ X ^& \^ *|.r^ ^J>^/A» ar MStt-^/V. ^f \40 \mo /£>.oo 1 - %r^i^ o- c> ^-/O ?Z-30 ^-/s /'-fs 20 e -"*— 1 Fig. 12. Form for Observation Sheet for time studies to determine defects in methods or equipment. WASTE TIME DETECTED BY TIME STUDIES 1 33 putting in a new cold bar, and as he drew out the end of the others, new bars were placed in the furnace. By this method there is considerable interval of time between the forging of the last piece of the first heat and the first piece of the second heat; this time being required for the second heat to reach the required temperature. When questioned regarding his methods the operator claimed that the furnace could not heat faster. The furnace was ex- amined and found to be in excellent condition. If the state- ments of the operator are correct it will require a larger fur- nace to reduce the excessive waiting time. It, however, was not believed that the operator's estimate of the heating ca- pacity of the furnace was correct. Six bars were then placed in the furnace 07t edge, for the working heat. The bars had three pieces forged from each, and as each bar was taken from the furnace for the last piece, it was replaced by a cold bar. The furnace did its part of the work well and no difficulty was experienced in obtaining a forging heat quickly. By the new method twenty-four pieces were forged from each heat instead of twelve, and the interval between heats was reduced one-half. The results obtained from the second method of operation are shown on the chart, Observation No. 2 in Fig. 13, and the large increase in production is graphically represented. The output was increased from 180 forgings per day to 320. No doubt some will claim that it did not require time studies to locate a fault that should have been apparent to the foreman; some will claim that the superintendent should have noticed the trouble and immediately applied the remedy; and that with competent foremen and a superintendent of ex- perience time studies are a useless expense. In nearly all cases after a trouble has been located, and the remedy found, it seems simple. The defect stands out conspicuously, the remedy appears self-evident, and surprise is expressed that the trouble should have continued for so long a time without discovery. 134 COST KEEPING AND SCIENTIFIC MANAGEMENT The example given is selected because the defect was glar- ing, because the remedy is simple. It does seem strange that foremen, superintendents and managers pass over day by day, month after month, faults as glaring as the one exposed in the example given. Yet, these glaring defects are passed over, and may continue for years. Any manager who believes that few defects exist in his pljmt is deceiving himself; he is retarding progress and better efficiency by these beliefs. Let him try a few stop-watch ob- servations and he will discover many faults as striking as the one given. Time studies bring to the attention of the manager faults which he does not believe exist, faults so grave that he does not believe it possible for them to exist in his establishment. Without these studies these faults may continue undiscovered for years. With these investigations, the faults are brought to light and the remedy stands out, as bright as the noon-day sun. While the principal value of time studies is in exposing defects in methods, organization and equipment, and pointing out the remedy, they are also of value in that they point out fundamental conditions under which the work is accomplished, and cause study and investigation to be devoted to bettering these fundamental conditions. In a large blacksmith shop at the Mare Island Navy Yard time studies disclosed the usual glaring defects; many of which were immediately corrected. They also exposed the very large amount of time in which the smiths are not work- ing at the hammer or the anvil, but are tending their fires or waiting for a heat. Improvement was made by requiring better supervision, which produced closer attention on the part of the men, but the unavoidable loss was large. To produce further appreciable improvement, required changes in the fundamental conditions which will reduce the time required to take the heats. Coal was the fuel used, and I gave careful consideration WASTE TIME DETECTED BY TIME STUDIES 135 I- I- Vl I I 136 COST KEEPING AND SCIENTIFIC MANAGEMENT to the subject of improvement in the quality of the fuel. After much study, investigation, and many experiments it was determined that crude oil can be successfully burned, not only in furnaces, but also in open blacksmith forges. The first blacksmith shop in the world to use oil exclusively was the result, and this was brought about by the use of time studies. With this change the time required to take the heats was greatly reduced, and owing to this, the output of the smiths was increased forty per cent. In addition to this great improvement, the cost of fuel was also reduced more than one- half. To obtain the best results, a manager or an engineer should be fully informed of all fundamental conditions, and all sur- rounding circumstances. He is then in a position to take up the work intelligently; he knows where the large savings can be effected. He does not at first bother with the small sav- ings which may be possible, but immediately attacks the large losses, in order that he may make the great reductions in cost immediately, and will later give his attention to the small losses. Stop-watch time studies give this information, and they give it in such a way that the remedy is pointed out, or at least suggested. Knowledge of conditions, as given by time studies, is the first step towards an economical administration ; it is a step which leads to scientific management. CHAPTER XI The Principles of Scientific Management Which can BE Followed by a Manager In recent hearings before the Interstate Commerce Commis- sion, the testimony of such engineers as Gantt, Emerson, Go- ing, Gilbreth and others that tremendous improvement can be made in all classes of industrial work by scientific methods, startled the newspaper and magazine world. The newspapers and magazines have given the work of Mr. Taylor, and other progressive engineers who have followed his methods, wide publicity, and this has excited the interest, not only of engi- neers, but also of the general public, in scientific management. This will materially aid in the advancement of the cause of scientific management and it is probable that more progress will be made in the next five years than has been made in the past twenty years. It will, however, be a number of years before the principles of scientific management are generally followed. It will take time for these principles to be understood, and it will take even longer to master the detail methods which should be used in applying these principles. Again, many managers and engineers who have followed with considerable financial suc- cess the ordinary type of management will at first see little reason for changing to the new type. It will also be difficult to find competent men to introduce scientific methods. It requires not only ability but also long experience to become an expert in Scientific Management. Mr. Taylor in his paper on " Shop Management " states, *' The first step after deciding upon the type of organization, should be the selection of a competent man to take charge of the in- troduction of the new system ; and the manager should think himself fortunate if he can get such a man at almost any 137 138 COST KEEPING AND SCIENTIFIC MANAGEMENT price, since the task is a difficult and thankless one and but few men can be found who possess the necessary information coupled with the knowledge of men, the nerve, and the tact required for success in this work." The services of the few men who are competent to introduce this type of management will be in great demand, and for the next few years the supply of competent men will not meet the demand. Any manager who attempts to introduce this type of man- agement without the aid of an expert will fail, but much can be done by managers to improve conditions which exist in many establishments. In making changes the steps taken should always be towards scientific management; not only will these steps better conditions, reduce inefficiency, and thereby reduce costs, but they will arouse, first, interest, and later, enthusiasm for the best form of management. I shall attempt to outline steps which can be undertaken by the manager, and which in thousands of shops will bring im- provement. Mr. Taylor lays emphasis upon the necessity for every man in an establishment, high and low, having a clearly defined daily task laid out before him. We must, however, creep before we walk. In thousands of establishments the duties of partners and important officials are so loosely defined that in many cases it is difficult or impossible to tell where the work of one ends and another begins. Before a daily task can be laid out, the duties of each must be clearly defined. In many establishments important officials do not know their duties; they, of course, have duties assigned them, but they cannot define with any exactness the detail work that they should accomplish. The superintendents, foremen, and me- chanics have httle idea of the detail duties and authority of each official of the company. These conditions lead to much confusion, constant irritation, many delays, and consequent inefficiency. Many will no doubt seriously question that the description given applies to the general run of industrial estab- lishments. I hope that they are right and I am wrong, but THE PRINCIPLES OF SCIENTIFIC MANAGEMENT 1 39 my observation leads me to believe that the conditions stated are more or less general. It is the exception to find detailed written instructions clearly defining the duties and authority of important officials, much less subordinate officers, foremen, assistant foremen, etc. Many will claim that even if there are no written in- structions, each man's duties and responsibilities are defined, and that each knows the boundaries of not only his own du- ties, but also those of the other important officials of the es- tablishment. This is very rarely true. A test of the correct- ness of this statement is to require each official to make a written statement defining in detail his duties and responsi- bilities ; also require each to define the general duties of other executive officers with whom he does business. The general manager should also attempt to make a diagram showing the important functions of each member of the organization and their relations to each other. In many establishments these tests will bring surprising results; it will be found that duties and responsibilities over- lap and that few have a clear idea of their own duties or those of officers with whom they each day deal. The general manager will also frequently find that he has difficulty in mak- ing a satisfactory diagram of the organization. In establishments where these unsatisfactory conditions ex- ist the first step is to determine the duties and responsibilities of every general and subordinate official, and it should always be borne in mind that responsibility should be accompanied by its corresponding measure of authority. When the duties of each have been determined they should be clearly defined in writing, not only for the information of the official concerned, but for the information of all holding positions of authority. A diagram of the organization should also be prepared which will show the general limits of authority and responsi- bility of each head of department or division, and will indi- cate their relations to each other. This should be posted throughout the works in order that everyone in the establish- 140 COST KEEPING AND SCIENTIFIC MANAGEMENT ment may know the general scheme of organization, and the limits of authority of all responsible officers. The organization should be such that dissimilar duties will not be assigned to the same man. Similar duties should, as far as possible, be brought together to be performed by one man or group of men, and the men selected for these duties should be the ones who are best qualified for the work. There are very few men who excel in many different lines of work. Even with men of great ability it will be found that they us- ually excel in but one line of work, and this is the line to which they have devoted their time and talents — that on which they have specialized. In many of the large and important establishments through- out this country little attempt is made to carefully group work of a like nature under one head. In some of the largest and most important shipyards, employing five thousand or more men, the organization provides for about half of nearly a score of shops to be under the manager of the Hull De- partment and half under the manager of the Machinery De- partment. The work in some shops under one manager is very similar to work in other shops under the other manager. In shops where the work is dissimilar the same methods and the same type of organization can be employed to advantage. The erection work is dependent upon the shop work, and very often the work in one shop is dependent upon the work in another ; to secure satisfactory results it is essential that there should be cordial coordination and cooperation not only between the two managers, but also between the various shop fore- men. The control of these shops should be vested in one depart- ment; there should be one shop superintendent who has con- trol of all shops and the work in them. In time this superintendent will have a planning department to direct all operations. With this kind of an organization tools, meth- ods, etc., are standardized, and there will be cooperation and coordination between the shops. This is nothing more than THE PRINCIPLES OF SCIENTIFIC MANAGEMENT I4I Mr. Taylor's functional foremanship applied higher. The shop superintendent should be chosen from men who are experts in shop management. He will bring the numerous shop organizations of the establishment into one homogeneous organization. He will give the shops expert supervision where before they received little or no supervision other than that given by the foreman. I doubt if in any shipyard where the organization described exists either the manager in charge of the Hull Department or the manager of the Engine Department will willingly allow the shops now under their general supervision to go under the control of a shop superintendent — even if they know that the man to fill the position is an expert. This disposition is not only due to the natural inclination to hold on to what one has, but each of these managers has the fear that if he lets the shop go from under his control he will not get good service; he believes that the work belongs to him and that he can do it better than anyone else, and believes that if the shops should go under a shop superintendent delays in the progress of work will be the result. This is the same condition and the same feeling that Mr. M. L. Cooke found among the leading universities of this country. Instead of functional duties Mr. Cooke found that important professors devote a large part of their time to work for which they are not fitted and which can better be done by others. Yet in nearly all cases these professors wish to retain this extraneous work. Mr. Cooke gives one striking example : In one university there are three machine shops within the college grounds, and each of these is directed by one or more college professors, weighted down as they are with other functions foreign to this one. Mr. Cooke states, regarding the attitude of the professors towards centralized management for the shops, ** Every one of the professors is firmly convinced that, if his particular shop were under the control of anyone outside his department, (i) he would have to wait longer for things, (2) the work would not be so well done, and (3) would not cost less." Yet everyone who has 142 COST KEEPING AND SCIENTIFIC MANAGEMENT experience in shop management knows that centralized man- agement of these shops will be of advantage not only to the university but also to each individual department. A shop superintendent who attempts to place the shops on a functional basis, encounters similar opposition when he begins to rearrange the duties of the various foremen and assistants. The belting in a group of shops located near each other had been cared for in a systematic manner by a prop- erly instructed belt man with adequate equipment, for several years with excellent results. It was desired to extend the system to take in a group of wood-working shops located about three hundred yards away. The foreman joiner was surprised that I should make such a proposition, and after making general objections to the scheme, exclaimed, " Ac- cording to these instructions, if the belt on the sticker breaks, no man in the joiner shop is allowed to lace the belt, but I must 'phone to the machine shop to have the belt man do a little job that can be done by half a dozen men in the joiner shop." I answered, " Exactly, Mr. Smith, but we don't expect belts to break." Mr. Smith interrupted me before I finished — *' But they do break, I had three break last zveek!" If I had needed any convincing proof of the need of a belt man in that shop I had it there. I explained to Mr. Smith that we intended to prevent breaks in belts, and directed him to make a personal report to me of every belt failure in the shop after the instructions went into effect. He was satisfied that he would make many reports, yet not one was made; there was not a failure in the shop for over two years. The industrial world should free itself from the slavery of the idea that to get a thing done well you must do it your- self. Every successful specialist is living proof that this is not true. In functional management each man performs those functions which he is best fitted to perform, and he is not allowed to do work of which he has not expert knowl- edge, nor is he allowed to do work which can be done as well by a man of less value. THE PRINCIPLES OF SCIENTIFIC MANAGEMENT I43 The Hull Manager and Engine Manager should realize if they give consideration to the subject that an expert shop superintendent will in time give far better service than is obtained under present conditions. Not only will this change be of benefit to the whole plant, but it will directly benefit the two individual departments. The shop superintendent must make good to retain his position. He understands that every delay, if but a few hours, will now be noted, while under the old organization delays of days went unnoticed. In a short time there will be no delays; work will be so arranged that when a new job comes into the shop a promise can be given of the day on which it will go out, and the promise will be kept. This is a change in organization and methods which can be made by a manager, and is one which will bring excellent results, and at the same time is a step towards scientific man- agement. In a similar manner careful consideration should be given work assigned to all executive officers with the view of arranging for functional management. Each head of depart- ment or division should interest himself in the general prin- ciples of scientific management, and slowly but surely should bring about changes in his department — each change being a step towards the goal of scientific methods. In this man- ner improvement can be made, and at the same time a most important result will be achieved, that is, many will become interested in the new form of management and some will become enthusiastic; and as the possibilities are month by month unfolded all will finally be convinced of the necessity of obtaining the scientific type of management in all of its details. It has already been stated, and it should be emphasized, that it will be impossible for a manager or a subordinate to introduce in any establishment the scientific methods which are advocated by Mr. Taylor and his associates. This can not be done with any success without the services of an expert. The manager and heads of departments can, however, do 144 COST KEEPING AND SCIENTIFIC MANAGEMENT much which leads to scientific methods, and in this and sub- sequent chapters I shall describe methods which can be under- taken by a manager, and if followed will increase output. If an expert is finally employed to install the system in all its details the preliminary work which has been done by the manager will make the path of the expert easy and the work can be completed in less time than would otherwise be re- quired. Not only will the physical conditions in the shop be right for the system, but, .what is more important, the manager and his assistants will already be convinced of the advantages to be gained by further extension of scientific methods. The expert will therefore have little or no oppo- sition; on the contrary, he will have assistance in every step. Under these conditions he will expend all his energy in build- ing up and not expend a great deal of his time and energy in holding up the little which he has already built, which is sometimes the case when manager and assistants are not in entire sympathy with the changes. In undertaking preliminary steps towards scientific meth- ods, the manager and heads of departments should confine their efforts to changes which will not antagonize the work- men. No attempt should be made to establish a bonus system of payment or a piece-rate system. This, together with the rate-making department, should be left for the expert. Other changes, however, can be made which will greatly improve the unsatisfactory conditions which are found in many shops. To illustrate, I shall take a large establishment like the shipyard to which reference has been made and assume that a qualified shop superintendent has been ap- pointed, and will indicate the steps which he can take to improve conditions. The first step taken by the shop superintendent is one which will be disapproved by the majority of old-time managers and owners, for he will immediately obtain several compe- tent assistants. To many managers efficiency varies inversely as the number of non-producers, and the efficient head of department is the one who can show low expense accounts. THE PRINCIPLES OF SCIENTIFIC MANAGEMENT I45 Sometimes a competent man in the position of shop superin- tendent, fearing adverse criticism, will attempt to carry on the current work and at the same time make improvements without the aid of assistants. This is a mistake which is not only of disadvantage to the establishment, but will in nearly all cases result disastrously for the superintendent. Before accepting the position, the general methods to be fol- lowed should be outlined to the managernent, and it should be made clear that competent assistants will be required. The shop superintendent will at first have the opposition of the foremen of the several shops. This is to be expected, for while in the past these foremen have nominally been under the supervision of the managers of the two departments, they have been allowed to run the shops as they saw fit, subject only to the general directions of the managers, while under the new regime the shop superintendent will actually control, and he will establish standards which must be followed. The opposition will eventually disappear, but at first the superin- tendent will have but little assistance from the foremen in changes undertaken. The superintendent must, therefore, be sure of his ground, and a thorough study must be made of conditions. In investigating conditions, it is desirable that a single duty or investigation should be assigned to an assistant, and he should continue on this duty until the desired results are ob- tained. For example, the investigation of small tools should be assigned to one assistant, belts to another, maintenance of machine tools to another, or a single assistant should take up these subjects one at a time. It should be remembered that while investigations and changes are being undertaken, that the output in the shops must not suffer. The work must be completed as quickly and as cheaply as before, and soon there must be evidence ,of improvement. The superintendent at first must devote a great deal of his time to current work and routine matters, and he should in the beginning assign one assistant to follow up work and remove difficulties which cause delays. Delay 146 COST KEEPING AND SCIENTIFIC MANAGEMENT of work will be the most frequent complaint and whether these complaints, compared with previous performances, are just or not, all cause for complaint must be removed. Above all things the work must go through the various shops promptly. No changes should be made until thoroughly investigated and the effects fully considered. The assistants assigned to definite tasks should be required, after full investigation, to make complete written reports describing existing conditions and changes recommended, with a statement of the probable result of the proposed changes, if carried into effect. This method in the first place trains the assistant ; the superin- tendent will no doubt find omissions in the reports, and points which have not been considered, and the assistant should be required to go over the subject again; this tends to make the assistant thorough. It also insures that every change will be fully considered, and that there will be no snap judgment. The superintendent, after considering the report, should make such investigation as he considers necessary to verify the statements of the assistant. He will then decide the changes to be made, and will indicate these to the assistant, who will prepare detail written instructions to govern the new methods. These will be passed on by the superintendent, and when approved by him will be issued as orders to the shops. It will then be the assistant's duty to not only see that the instructions are carried out, but he must be the instructor who is to teach the foremen, assistant foremen and others the new methods; he must be ready to remove all difficulties and must see that the change is accomplished with the mini- mum irritation and friction. To accomplish satisfactory re- sults it is evident that the assistant must have mastered the subject — he must have become an expert on that particular work. This is of great importance and the experienced and wise superintendent will satisfy himself, before he issues in- structions for the change, that the assistant has in reality mastered every detail and has fully considered the effect of every change in methods. If every proposition is fully considered in tlie manner indi- THE PRINCIPLES OF SCIENTIFIC MANAGEMENT I47 cated, there will be no going backward ; there will be no put- ting changes into effect " on trial," and there will be the minimum interference with the work in the shops. SMALL TOOL EQUIPMENT. One of the important questions to consider is the small tool equipment. In the majority of shops an investigation of this subject with intelligent changes will result in great improve- ment. The kinds of tool steel that are to be used for various pur- poses must be determined and should be made standard. It is most unsatisfactory to have two or more kinds of tool steel for the same purpose, yet in many shops little attention is given to this subject. It is very common to see twist drills of carbon steel and high speed steel issued indiscriminately from the tool room; a workman will receive a carbon steel drill and when this is dulled it will be replaced by a high speed drill, or vice versa. Rate making or standard times are ob- viously impossible under these conditions. Tool steel of uniform quality must be obtained for lathe, planer, shaper tools, etc. The Navy Department has, with the assistance of civilian experts, developed specifications for tool steel by means of which steel of uniform quality can be obtained and at the same time competition secured. The specifications are not given here, as they must necessarily change with the advances made in the manufacture of tool steel, but they can be obtained either from the Navy Depart- ment or the tool makers. In commercial shops it will usually be satisfactory to select certain brands of high grade tool steel and adhere to these. The quality of tool steel having been settled the size and shape of tools for various purposes must be determined. In the average shop the sizes and shapes are almost as numerous as there are men in the shops. The standard sizes should be as few as possible, yet should be sufficient for the general run of work. The shape of tools has been fully investigated by Mr. Taylor and his associates, and it is only necessary to 148 COST KEEPING AND SCIENTIFIC MANAGEMENT follow the standards described in Mr. Taylor's book, " The Art of Cutting Metals." A grinding machine which will accurately produce the standard shapes can be purchased at reasonable cost. It will therefore require but little investi- gation to decide on standard shapes, and to obtain the means for obtaining standard tools. The next step is to obtain an ample supply of tools, and to have grinding for all shops done in a central grinding room, with a central tool issuing room adjacent to the grind- ing room. The dulled tools should be collected each day from the shop tool rooms and replaced with sharpened tools. The tools to be ground are segregated and ground in quantities. All grindstones should be removed from the shops proper, and the workmen should be prohibited from grinding tools. The grinding of all standard tools should be accomplished in the central grinding room, but special tools may be ground in the shop tool room. The workmen should not be allowed to go to the tool room for tools, but the tools should be supplied to the machines by tool boys. The shop tool issue room should be conveniently located and should be arranged for a neat and compact stowage of tools. There should be a correct card inventory of every tool and appliance stored in the issue room and this should be kept up-to-date. The double check system should be used for issuing tools; the man's check with his number is hung on the tool rack, while the tool check, giving the name of the tool, is hung on a hook under the man's number. In this way a tool can be immediately located, or the number of tools issued to each man determined. When edged tools are turned in to the issue room they should not be put back in the racks on the inspection of the laborer or helper who issues tools; all edged tools turned in should be placed in tote boxes, and once a day a competent tool maker should visit the issue room to inspect the tools turned in. Measuring instruments should be treated in the same manner. By this method the tools issued are always in good condition. THE PRINCIPLES OF SCIENTIFIC MANAGEMENT I49 The breakage of tools requires consideration; if men are taken to task every time they break a tool, they will nurse the tools, and a reduction in output will be the result; on the other hand, if no action is taken regarding broken tools there will be much carelessness and the breakage will be large. A middle course must be pursued; in the case of small taps, drills, or tools liable to break, no action should be taken when a tool is broken other than record it; in the case of a valuable tool, or when it appears that carelessness is the cause, the man should be required to submit on a regular form a " damage report " which brings forth a full investigation of the cause of the breakage. At the end of the month there should be posted in the shop bulletin board a record of tools broken during the month; this should contain the names of the men and the tools broken by each ; a copy of this record should be furnished the shop superintendent. When men damage tools or machines through carelessness, or habitually break small tools, the facts should be noted on the offender's record card. The tool issue room should be arranged so that needed expansion can be obtained without difficulty. In time not only will tools be kept in this room, but also every appliance, every bolt, every block needed to carry on the work will be stored here, and expansion of the issue room will probably be necessary. The reason for keeping all tools, appliances, etc., in the tool room is the necessity for standard conditions, which, with Scientific Management, is an essential requirement. The rate setter will make a rate or a standard time on the assumption that tools, bolts, blocking and other appliances are in perfect condition. When the workman goes to set his work and bolt it up he finds the threads on the bolt are burred and he has to use a wrench to run the nut down, instead of doing this by hand as the rate maker has estimated; in other words, the conditions are not standard, and without standard conditions there can be no accurate rate setting. If bolts, blocking, fittings, etc., are left at the machines they will not be kept in good condition, and it is only necessary to inspect 150 COST KEEPING AND SCIENTIFIC MANAGEMENT such fittings at the machines in ahiiost any shop to obtain ample verification of these statements. There is still another important reason for keeping all tools and fittings in the tool room. When work is routed, and detail instructions issued to the workmen, it will be one of the duties of the planning department to make a tool list giving every tool, bolt, rigging, etc., that will be required to perform the work. It will be the duty of the tool issue room to collect these tools, and the duty of the gang boss to see that all the tools in good condition are delivered to the workman before he is ready to undertake the work. Unless all tools and appliances are kept in one place, that is, the tool room, it will be difficult for the tool room keeper or the gang boss to carry out these duties. It will not be possible in the establishment under considera- tion to put in effect the system which requires the duties out- lined, but the ideal system should always be kept in view, and every change made should be in the general direction of the ideal system. It should be the hope and aim of the shop superintendent and his assistants, and eventually of every foreman, to reach the ideal system. If this be always kept in view, the path of the expert who finally comes to install the system in its entirety will be an easy one. In connection with the small tool equipment, consideration should be given to the tool-making and repair department, or the tool room proper. After considerable experience and study of this subject I am convinced that in a machine shop managed in accordance with scientific principles there is no need of a tool room, and that all tool making and tool repair work should be carried out in the machine shop proper. Spe- cial machines and specially qualified men will no doubt be engaged at all times on tool work, but this is no reason why they should be put in a separate room and not subject to the same rules as the shop proper. There is much money wasted in tool rooms; the men are not under the same discipline and the same supervision that is given the men in the shop; the output in the tool room is THE PRINCIPLES OF SCIENTIFIC MANAGEMENT I5I usually lower than in the shop; a great deal of work is done in the tool room by highly-paid tool makers that should be done by low-rate machinists; there is often a duplication of machine tools that is unnecessary — often there are machine tools in the tool room which are rarely used, while they could be used to advantage in the shop. There are tool rooms which are not subject to these criticisms, but the average is about as described. Is there any good reason why the tool makers should be separated from the shop proper? I am satisfied that there is not; all tool work, whether new or repair work, should be treated exactly as the other work in the shop; it should be analyzed, routed and rates fixed as will be the case for the regular work. Work requiring extreme accuracy will be routed to the tool makers who are best able to do the work, and the planning department will exercise expert judgment in this, as in all matters over which it has jurisdiction. If the tool room is abolished and the scheme outlined is followed, it will be found that in a very short time the force of expert, highly paid tool makers will be considerably reduced, and that the output will be equally as satis factoiy. It may not be advisable to abandon the tool room until the planning room and all that goes with it, is firmly established, but in making the preliminary changes necessary in the tool issue room and tool room the eventual abandonment of the tool room should be kept in mind. CARE OF BELTING. Perhaps next in importance to the small tool equipment is the care of belting. The losses due to poor belting, and the lack of care of belts is now generally known, yet in many shops little attention is given to this important subject. In the average shop the assistant who is assigned " belts " as a duty will have a field which will bring quick results. Fortunately he will not have to seek far to obtain definite information and instructions regarding the care of belts. In a paper on belting read before the Society of Mechanical 152 COST KEEPING AND SCIENTIFIC MANAGEMENT Engineers by Mr. Fred W. Taylor, and in a paper read before the same society by Mr. Carl G. Barth on '' The Transmis- sion of Power by Leather Belting," will be found all the infor- mation required for a complete understanding of this subject. There is also manufactured and sold at a reasonable price a tension belt bench, together with the necessary outfit, record cards, etc., for properly caring for belting and keeping a record of the belts. Ordinarily but little investigation will be required to show that the condition of the belts is poor; a casual examination will prove this. The investigation, however, should be thor- ough and an accurate record made of conditions. The meth- ods followed in fitting new belts and caring for belts should be described, the records of belting (if any) should be ex- plained, and the actual condition of the belts should be fully described. A full investigation of every subject undertaken trains the assistant to be thorough, and moreover it is important to know and record conditions before changes are made in order that the value of the changes can be measured. Detailed written instructions governing the care of belts and the records to be kept should be issued, and the assistant who investigated the subject should be assigned the duty of instructing the foremen, belt man and the mechanics, and he should see that the instructions are enforced. After the system is in good running order in the machine shop it should be extended to the other shops. The belt bench, belt supplies, etc., should be located in a central station con- venient to all of the shops, and the belt man and necessary assistants should operate from this station. If the machine shop is not too far removed from a central location it is usually the shop in which the belt station should be placed. The illustration. Fig. 14, shows a central belt-repair sta- tion for machine shop, smith shop, pipe shop, shipfitters' shop, wood-working shop, electrical shop and boiler shop at the Mare Island Navy Yard. THE PRINCIPLES OF SCLENTIFIC MANAGEMENT 153 CARE OF MACHINE TOOLS AND TRANSMISSION MACHINERY. In a ** day work " shop where there is little or no incentive for the men to turn out the maximum amount of work, the condition of the machine tools will probably be poor. Many men will let their machines go from bad to worse, with a continually decreasing output, without reporting the fact, until Fig. 14. Central Belt Repair Station at the Mare Island Navy Yard. a complete breakdown and stoppage of work make a report obligatory. Much improvement can be accomplished by keeping the machine tools and appliances in good condition, and this is essential when scientific management is finally realized. If standard times or standard rates are to be set with exactness, all of the conditions under which the work will be done must be known and these conditions must be realized when the work is performed. One of these important factors is that the machine tools and appliances must be in excellent condi- tion, and these conditions must be standard — that is, must be 154 COST KEEPING AND SCIENTIFIC MANAGEMENT maintained. In the great majority of shops the condition of the machine tools is far from excellent, and no provision is made for standardizing conditions. A full investigation should be made of the condition of the machine tools and transmission machinery, particularly line shafting. In many shops it v^ill require a considerable expen- diture of money to put the equipment in efficient condition. Usually the shafting will be found put of line, bearings in bad shape, and many of the machines out of adjustment; it will also frequently be found that the attachments arid equipment for the machine are misplaced or in poor order. These con- ditions must be corrected, even if it costs much money. The new superintendent knows that the shop expenses will rise materially while poor conditions are being made good, and he should have j)ointed this out to the management before he accepted the position of superintendent. After these defects are corrected, arrangements must be made to keep them corrected. This can only be done by obtaining the right man and making him responsible for the condition of the machine tools and educating him to care for them ; we thus have the " repair man." He should be directly responsible for the machines and transmission machinery. It is his duty to see that each workman keeps his machine clean, free from rust, and that standards established for the care and maintenance of the machines and their accessories are rigidly maintained. After the repair man is selected, he should be carefully instructed in his duties, and coached for several weeks. All gang bosses and mechanics must report to him any defects in tools and machinery, or anticipated trouble. CARE OF JIGS, SPECIAL TOOLS, ETC. What jigs, special tools, etc., are on hand, and on what jobs can they be used? Does it seem possible that in many shops this question can- not be answered? Yet this is true; in many shops the jigs and special tools are stored in various places or are left where THE PRINCIPLES OF SCIENTIFIC MANAGEMENT 1 55 last used in the shop, and there is no record of these tools, or of their uses. In some cases jigs and special tools on hand are not used on a job where they can be used to advan- tage, because the foreman did not know of the existence of these tools, or had forgotten them. All tools of this kind should be collected and those which can be used should Le put in good condition and a stowage provided in the tool room. All tools should be marked, and there should be a card index in the tool room and another, giving in detail the uses of these tools, in the planning depart- ment. Until a planning department is obtained, the man who routes the work must know the jigs and special tools that are on hand and their uses. FUNCTIONAL DUTIES. Nothing has been said in the improvements so far outlined regarding functional duties. The shop superintendent will wisely say little about the changes he is making or intends to make; he must overcome a great deal of prejudice and some direct opposition. He must go about his work quietly and make good on every change that he makes. For this reason he selects in the beginning the propositions which afford the largest opportunities and where the changes will affect but few men; he at first takes up work that has been nobody's job and in this way he offends no one. He has said nothing about functional management, yet quietly and without parading the fact, he is slowly putting into effect functional management. He has a belt man solely responsible for care of belts; a repair man charged with the care of machine tools, and slowly but surely the various duties in the shop which are of great importance, but which in the past have been no-man's job, are investigated, classified, like duties brought together, and the methods standardized; then the right men for these duties are selected and carefully trained and are finally put in full charge. There are many of these small duties in the shops which are considered be- neath the notice of the foreman, yet it will pay handsomely 156 COST KEEPING AND SCIENTIFIC MANAGEMENT to have an expert study and standardize these duties and in- struct men as to the best methods to be followed in performing them. The new shop superintendent is no longer new; he now knows all of the supervisory force well — he knows their strong points and their weaknesses; he has already decided which of these will oppose his improvements; he has a very good idea of the ones that he can bring over to his side and the ones that will have to go. When he is sure of the latter class, the quicker he lets them go the better, for he should not expend energy in attempting to convince a man who will not be Convinced, and moreover a man of this kind has influ- ence in the shop and it is well to remove it as soon as possible. The superintendent has also learned the capabilities of many of the best men and knows their attitude towards the new administration and towards the changes that have been made. He knows where there are possibilities for gang bosses and assistants. It is well at this point to warn the new superintendent against bringing in from outside the plant too many assistants, gang bosses, etc. It is, of course, very desirable that the superintendent should have assistants who have worked with him and know his aims and his methods. It is also desirable in nearly all cases to introduce some new blood, but too much new blood is dangerous. It intensifies the opposition of fore- men, assistant foremen and mechanics, as they are led to be- lieve that the superintendent is prejudiced and sees nothing good in the personnel of the old organization and that event- ually all of the bosses will be replaced by outsiders ; it discour- ages ambitious mechanics who expected to rise with the new administration; it reflects on the judgment of the superin- tendents who formerly exercised control over the shop, and these superintendents are in positions of responsibility, where they can assist or oppose the efforts of the shop superintendent. The shop superintendent will do well to confine the new blood to his personal assistants and fill all other positions from the THE PRINCIPLES OF SCIENTIFIC MANAGEMENT 1 57 old force, unless it is impossible to find men who can be trained for the positions. The superintendent is now in a position where he can make changes with confidence; he has secured the respect and con- fidence of not only the management, but also of many of the men; the time is ripe for the open application of func- tional management as applied to foremen and gang bosses. Mr. Taylor in his paper on Shop Management describes the new type of management as follows: " * Functional Management ' consists in so dividing the work of management that each man, from the assistant super- intendent down, shall have as few functions as possible to perform. If practicable the work of each man in the man- agement should be confined to the performance of a single leading function. Under the ordinary or military type the workmen are divided into groups. The men in each group receive their orders from one man only, the foreman or gang boss of that group. This man is the single agent through which the various functions of the management are brought into contact with the men. Certainly the most marked out- ward characteristic of * Functional Management ' lies in the fact that each workman, instead of coming in direct contact with the management at one point only, namely, through his gang boss, receives his daily orders and help directly from eight different bosses, each of whom performs his own par- ticular function. Four of these bpsses are in the planning room and of these, three send their orders to and receive their returns from the men, usually in writing. Four others are in the shop and personally help the men in their work, each boss helping in his own particular line or function only. Some of these bosses come in contact with each man only once or twice a day and then for a few minutes perhaps, while others are with the men all the time, and help each man frequently. The functions of one or two of these bosses require them to come in contact with each workman for so short a time each day that they can perform their particular duties perhaps for 158 COST KEEPING AND SCIENTIFIC MANAGEMENT all of the men in the shop ; and in their line they manage the entire shop, while other bosses are called upon to help their men so much and so often that each boss can perform his function for but a few men, and in this particular line a num- ber of bosses are required, all performing the same function but each having his particular group of men to help. Thus the grouping of the men in the shop is entirely changed, each workman belonging to eight different groups, according to the particular functional boss whom he happens to be working under at the time." Again, Mr. Taylor, in "The Art of Cutting Metals," in the following words applies the principles of functional man- agement to future great achievements : '' The time is coming when all great things will be done by the cooperation of many men, in which each man performs that function for which he is best suited, each man preserves his own individuality and is supreme in his particular function and each man at the same time loses none of his originality and proper personal initiative, and yet is controlled by and must work harmoniously with many other men." The superintendent should understand these general prin- ciples of functional management and should, step by step, put them in effect. Before any step is made in this direction, however, the superintendent's most experienced assistant should make a thorough study of the situation and the super- intendent himself should devote considerable study to it. It will probably appear that considerable rearrangement of machine tools is necessary. Unless the shop superintendent has had much experience in functional management he should not undertake any radical rearrangement of machines and equipment. Now is the time that the expert organizer should be brought in to carry out the complete reorganization. If this cannot be accomplished, the services of such an expert should be obtained for consultation regarding this particular feature of the general improvement. The size and location of the planning department should also be settled at this time, and the advice of an expert is of THE PRINCIPLES OF SCIENTIFIC MANAGEMENT I59 value on this subject. Before real scientific management is obtained, and when the organization is in the stage which we may call " near " scientific management, there will be a planning department which will control the work of the shop, but not in the detail and not in the satisfactory manner that Mr. Taylor's planning department with its scientific rate-fixing department controls the work;. , But while providing a '* near " planning department, the ideal should be kept in view, and provision should be made for the necessary expansion. Following Mr. Taylor's typical organization a shop superin- tendent can assign the work so that each man has as few functions as possible to perform. In every shop this change in itself, without any other, will be of material benefit. Great improvement can be made in this direction by managers and superintendents without the assistance of an expert organizer. The assignment of duties which Mr. Taylor found satisfactory at Midvale and Bethlehem will be applicable to any machine shop, and with slight modifications are applicable to any shop. In addition to the repair man and the belt man, the duties of which have already been described, there should be three types of functional bosses in each shop, viz. : the gang boss, the speed boss, and the inspector, and the number of these will depend on the size of the shop and the general character of the work. The duties of these are given in Chapter XII. PLANNING DEPARTMENT. The next step to be considered is to put in operation a planning department. This department will be far short of the ideal, but nevertheless it will be an improvement. Any manager or engineer who has given any consideration to scientific methods in shop management must be impressed with the necessity in the great majority of shops of improved methods for planning the work. In many shops there is no planning worthy of the name. While it is impossible for a manager or shop superintendent to develop a planning department which will plan the work in all its details, it is possible for a manager or shop superin- l6o COST KEEPING AND SCIENTIFIC MANAGEMENT tendent to develop a department which will plan the main operations and route the work. Such a planning department will analyze the work when orders are received and will see that sufficient information is on hand to proceed with the work; it will make a complete list of the material required, and will notify the storekeeper to reserve the material on hand for the job, and will notify the purchasing department of the material to be purchased and when required ; it will order the patterns of the pattern shop, the castings of the foundry, and the forgings of the smith shop; it will decide if it is advan- tageous to make jigs or special tools and if so will order them ; it will decide in general how the work shall be done and will route the work to the machines and prepare written instruc- tion cards describing what is to be accomplished. All of these duties will be performed not as required, but when the order is received, and the job is analyzed. When the material, castings, forgings, etc., for a job are received in the shop the planning department will issue the instruction cards and will see that the work is undertaken at the proper time and is carried through the shop in proper order. The planning department will establish standard meth- ods for work, and will see that all established standards are adhered to. It will be the source of information for the shop, and it will receive and act on all reports from gang bosses, speed bosses, layout men, inspectors, repair man, etc. It will leave the foreman free from details, in order that he may give his attention to the big things, and to the unusual. The fore- man thus becomes in a way the " Exception man." This kind of a planning department can and will render valuable service in the average shop, and it can readily be expanded into the scientific planning department. With a planning department of this kind the premium system for the payment of labor can be used to excellent advantage. A planning department can be developed by the manager or the shop superintendent, but it is no easy task ; it will require work and study, but the results will pay well for the time and energy expended. In Chapter XII there is given a de- THE PRINCIPLES OF SCIENTIFIC MANAGEMENT l6l scription of a shop-planning department developed by a man- ager, which proved of great value. TIME STUDIES. The study of unit times, before the best methods have been determined and the work standardized, has been declared by some to be worse than a waste of time. This is true if this study is for the purpose of fixing rates or standard times, but if stop-watch time studies are made for the purpose of im- provement in methods, the statement is not correct. Time studies can be made of great use in exposing defects in meth- ods, organization and equipment, and in indicating the remedy. In the shops under consideration, when the planning depart- ment has been established, the time study work under a com- petent assistant should be undertaken. Full records should be made of the observed times and surrounding conditions, to- gether with a statement of the defects discovered, and the recommendations for improvement; one copy of this report should go to the planning department and another to the shop superintendent. A time-study man should be kept continu- ously on this work; he will be invaluable to the planning de- partment in improving methods and equipment. IMPROVEMENT OF PLANT EQUIPMENT. The maintenance of plant equipment is a profitable field for investigation. It is of course easy to recommend the purchase of thousands of dollars' worth of new equipment ; it requires but little consideration to show that better results can be obtained with better equipment, and this is the usual result of an investigation of this subject. It requires, how- ever, a more thorough investigation and more ability and knowledge to obtain better results by a better utilization of the existing equipment, and in nearly all cases this result can be accomplished. The assistant assigned to the investigation of the plant equipment should work under the direction of the planning department, and in cooperation with the time- study man; the observations of the latter should give him l62 COST KEEPING AND SCIENTIFIC MANAGEMENT many leads which, when followed up, will bring about a better utilization of the equipment. As the shops of the plant under consideration are for illus- tration assumed to be located in a shipyard, it may be noted that a very profitable field for investigation is the pneumatic plant and the use of pneumatic tools. In a large shipyard the pneumatic system is extensive, and losses incurred and which may be avoided are ordinarily large. These are wastes due to carelessness, such as leaving valves open; and wastes due to defects in the system, such as leaks in piping, leaks in hose, etc., or improper use of high pressure air. There is also considerable avoidable loss due to abuse of pneumatic tools. An investigation of these conditions, together with remedial measures, will usually result in large savings. It will frequently be found that the purchase of a small amount of additional equipment, or changes in equipment which will require but a moderate outlay, will result in con- siderable increase in output. In these cases the investigator should be prepared to show by conservative figures that the saving is real and not imaginary. In some cases tools are purchased which do not pay interest on the investment, and too much equipment is an error which is sometimes made. In many machine shops, dependence is placed on the over- head traveling crane for handling all material to the machine tools. In the majority of shops where this is the case, an investigation will usually show that there are many delays due to waits for the crane, and that many jobs are inefficiently man-handled. The installation of a number of light jibs on which pneumatic hoists are mounted, for serving the larger machine tools, will result in an elimination of waits, and is an investment which will pay dividends. The illustration, Fig. 15, shows a small machine shop supplied with inexpensive jib cranes for serving the larger machine tools. There are often gross defects in equipment which may be overlooked for years or until a detail investigation, with stop- watch time study, reveals them. In a large boatshop, which did a large business, and has a splendid equipment of overhead THE PRINCIPLES OF SCtENTIFIC MANAGEMENT 163 cranes, machine tools, and other faciHties, a detailed investi- gation brought out the fact that the cutting of timbers, plank- ing, etc., to length was done by hand by highly-paid mechanics, and that the shop was not equipped with a power cut-off saw. The plant equipment is a most interesting subject for inves- tigation, and is a very profitable field. Many will no doubt admit that at first this is a good field for improvement, but Fig. 15. Small Machine Shop, Mare Island Navy Yard. Note the small jib cranes which serve the machine tools. it may seem that in a comparatively short time there will be little to do. At first thought this seems reasonable, but in practice it is not found to be the case, for there is always a field with plenty of work for the plant man. Methods of manufacture cliange rapidly and many improvements are made in plant equipment. For these reasons in a plant of any size it will be of advantage to have at all times in the planning department an expert for the maintenance of plant. 164 COST KEEPING AND SCIENTIFIC MANAGEMENT STANDARDIZATION IN ALL THINGS. In the manner already indicated, everything in the shop, large and small, should be standardized. There must be a Standard way for caring for machinery and appliances ; stand- ard tools, and standard methods for issuing them ; and in fact a standard method for every operation in the shops. Before any standards are adopted, there must be intelligent study and investigation, and the standard shall be the best method known to the men in the establishment who are best qualified to pass on the subject. Every standard which is adopted must be described in detail in writing with necessary sketches or drawings to enable it to be fully understood. As soon as a standard is decided on, it must be put in immediate operation, and must be rigidly enforced; there must be no back-sliding, or going back to go-as-you-please methods. There is little doubt that the methods adopted as standard can be improved later, and the standards should be improved. Many seem to believe that standardization is a foe to prog- ress, and that the adoption of standards precludes im- provement. This is far from the truth. Standardization represents the determination by the best talent available, the best tool, the best method or the best appliance for pro- ducing work, and the adherence to this method until a better is determined. Mr. Gantt says, regarding standardization, " All work, and all knowledge, for that matter, may be divided into two classes, Expert and Standard. Expert knowledge may be described as that which has not been reduced to writing in such a man- ner as to be generally available, or exists only in the minds of a few. By analogy, expert work is work, the methods of doing which either are known only to a few or have not been so clearly described as to enable a man familiar with that class of work to understand them. " On the other hand, standard methods are those that are generally used, or have been so clearly described and proved THE PRINCIPLES OF SCIENTIFIC MANAGEMENT I05 that a man familiar with that class of work can understand them and safely employ them. '' The largest problem of our expert is to standardize expert methods and knowledge." The standard represents the best method known at the time it is adopted, but when experience or further investigation points out a better method it should become the standard. But, the standards must be protected; changes must not be based on whims, or because of the natural tendency of man to change a method devised by someone else. No change should be made in a standard except upon the written authority of the planning department, and this department must author- ize no changes until the new methods have been fully inves- tigated and it is clearly shown that the change is a real im- provement. FUNCTIONAL MANAGEMENT OUTSIDE OF SHOPS. Considerable space has been devoted to improvements that can be made in the shops under the supervision of a competent and energetic shop superintendent. It must not be assumed that the shops are the only places where improvements can be made. The manager should require each head of division or depart- ment to study and to investigate his department as has been outlined for the shop superintendent; if this is done, results equally as satisfactory as those obtained in the shops will be secured. In the main office and the drafting rooms material improve- ment can no doubt be made ; in cost-keeping methods and storehouse arrangements there is usually a wide field for improvement. In these places, as in the shops, the changes most prolific in results will be those in the direction of func- tional management and standardization. The duties of officers, draftsmen and clerks should be made functional, and the duties and methods should then be standardized; after this has been accomplished it is possible to lay out each day a definite task for each man. l66 COST KEEPING AND SCIENTIFIC MANAGEMENT Much can be clone by heads of divisions to improve their departments if first their interest and then their enthusiasm for scientific methods can be aroused. When enthusiasm is aroused, study and investigation v^ill follow, and the way for improvement will be clearly indicated. One of the most important duties of the manager is to arouse interest and enthusiasm in the heads of division for the work and for better methods of doing the work. The ability to do this is one of the most valuable assets of a manager. The surest way to accomplish this result is to provide the incentive — to make it worth while for the head of division to show interest and enthusiasm in the best way to accomplish the work of his division. If a manager himself has real enthu- siasm, and shows his heads of division that he is not only interested in progress, but that he is determined to secure it, and that he will reward those who assist him, he will soon get from the heads of division interest, and finally enthusiasm. Each of these will give much time to study and to investiga- tion of better methods for his department, and if led by the manager towards functional management and standardization great improvements will be made. In the advance that has been made in tlie shops towards scientific management, t-he office must do its part. There must be an accurate cost-keeping system which meets the requirements of the shop; which not only gives true cost, but gives it in such a manner that defects in organization or defects in methods will be indicated. All forms and office methods should be standardized. The drawing office methods should be materially changed. The shop is more dependent on the drawing office than on any other department, and in many establishments changes can be made in drawing office methods which will materially reduce the cost of work in the shops. In many establishments the employment of an expert to systematize the drawing office, is one of the best moves that can be made by the management — even though the expert takes a year to do the work and is paid a large fee. The drawing offices of American shipyards and Government navy THE PRINCIPLES OF SCIENTIFIC MANAGEMENT 167 yards are, generally speaking, even more badly managed than the average jobbing machine shop, and an expert to systema- tize the methods in these offices will in a very short time pay his salary or fee many times over. Let the chief draftsman in each office do a little investi- gating, and ask himself a few questions: " Are the duties in the office clearly defined, and assigned in accordance with the principles of func- tional management ? " " Are the plans issued to the shops of standard sizes, and is a standard arrangement used?" " Do the plans clearly indicate the important dimensions which must be adhered to? Do they show the tolerances allowed? Do they show the finish required for every surface?" There is a great deal of work done in machine shops, as well as other shops, particularly in shipyards, where it makes no difference if a dimension varies 1/16" or ^", or even ]^^^ from that shown on the drawing; there are on the same drawing other dimensions which should be exact within a hundredth of an inch, or even closer limits. For dimensions where extreme accuracy is required, the foremen or assistant foremen know the use to which the part is put and will usually direct the machinist, but for the general run of dimensions the machinist will make them as exact as possible, using a metal scale and pair of calipers, while many dimensions will be satisfactory if within an eighth or quarter inch of that shown on the drawing. This results in many unnecessary cuts, loss of time in making measurements, and unnecessarily adds to the cost of the work. All important dimensions which must be adhered to should be prominently marked, and toler- ances given for all dimensions. If the drawing office work be studied and analyzed as has been done for the work in the shops, there is little doubt that as much improvement can be made here as has been made in the shops. l68 COST KEEPING AND SCIENTIFIC MANAGEMENT STORE SYSTEM. In many plants the store system is far from satisfactory. From the shop point of view there are three important require- ments in connection with the store system: (1) That ordinary supphes which are regularly required shall always be in stock. (2) That stores required may be obtained quickly. (3) That the planning department shall know each day the stores on hand; and that this department in planning work shall be able to set aside stores for the job planned and have them reserved for the job. From the storekeeper's point of view there should be ample notice of the probable requirements in order that the stock may be maintained. With a planning department which plans every job as soon as the order is received and makes complete orders of material, there should be no difficulty in keeping the store informed of the probable requirements. From the storekeeper's point of view there is little need of the shop having a daily balance of stores, but if the planning is to be done properly and the work carried out as planned this must be supplied. This is also of assistance in keeping a proper stock of material. The planning department can materially aid the storekeeper in this, but to do so it must know what is on hand. There are very few store departments which meet the essen- tial requirements of the shops, and this subject should receive more consideration. In a large establishment with work and shops covering considerable area there is generally one central store; there should be in addition a number of sub-stores located in the shops, in order that material which is in con- stant use may be quickly obtained. It will be profitable to outline the conditions that should be met and the service that should be rendered by the store department ; then show in detail wherein the store department fails and why. An investigation of this kind will clearly indicate defects and usually point out the remedy. CHAPTER XII Methods Which Lead Toward Scientific Management An officer in charge of government shops who wishes to manage them in the same manner as he would were he in commercial life, where the payment or non-payment of divi- dends will measure his success or failure as a manager, has some difficulties to overcome which are not met elsewhere. In the government service the reward for meeting and over- coming these difficulties is so meager that few are tempted to wage the necessary fight, as such a fight is replete with many dangers, and if successful, the reward is little more than the self-satisfaction of the knowledge of " duty well done." This is one of the important reasons why the results obtained in many government shops are not equal to those obtained in well-managed commercial establishments. In efforts to obtain efficiency in government establishments with which I have been connected I have encountered my share of the difficulties. This, however, is no place for a description of these difficulties, and it will suffice to say that in spite of tremendous obstacles the application of the general prin- ciples of scientific management to government work has wrought improvements and brought results which are far beyond expectations. The results obtained, some of which will be described in subsequent chapters, justify the belief that any manager of a commercial establishment can himself apply, without the aid of an expert organizer, the general principles of scientific management, and he should obtain even greater improvement than the application of these prin- ciples brought about in a government establishment. There will be for many years, whatever may be the cause, establishments where the detail methods advocated for carry- ing out the principles of scientific management will not be 169 170 COST KEEPING AND SCIENTIFIC MANAGEMENT applied. Methods which have been used in following the general principles, without the use of a scientific rate depart- ment, should be of assistance to managers who wish to make improvements in these directions without outside assistance. Each of these managers, when he begins to apply the general principles, will see the benefits to be derived from the more scientific details, and will realize the need of an expert organ- izer to assist him, and he may become impatient with half-way measures. This is a good sign; contentment never brings progress, and discontent is frequently the forerunner of im- provement; every manager should do the best possible under the existing conditions, and an. energetic capable manager can go alone for a considerable distance on the road to scientific methods. APPLICATION OF THE GENERAL PRINCIPLES OF SCIENTIFIC MANAGEMENT TO NAVY YARD SHOPS. The machine shop at the Mare Island Navy Yard was no worse than the average Navy Yard shop ; it was, of course, below the standard of the average commercial jobbing machine shop, yet the faults found can be found in a very large number of shops. While government shops leave much to be desired, it must be admitted that the government has no monopoly of the inefficient establishments. The steps taken to correct many of the defects are given in some detail in the descrip- tion which follows. DETAILS OF SHOP SYSTEM. In describing the shop system, little or no claim is made for originality. The system is based on the teachings of Mr. Fred W. Taylor, in so far as Mr. Taylor's system can be applied to a day-work shop, without a rate-making depart- ment. No attempt is made to give the workmen detailed instruc- tion cards describing how each operation is to be performed ; the instruction cards only tell the workman definitely zvhat is to be accomplished, and he, assisted by the gang boss and METHODS TOWARD SCIENTIFIC MANAGEMENT I7I Speed boss, determines the detail methods. It will thus at once be seen that important elements of Mr. Taylor's system are not undertaken, but it is believed that it is impossible for a manager to attempt, himself, to introduce these elements. The use of the day-work system was the result of circum- stances over which the manager had no control. It was the constant aim to get the shops up to maximum efficiency under this system and at the same time collect data which will make it easy to go to one of the more efficient systems of paying labor. If an expert organizer is not to be employed the Halsey premium system is undoubtedly the best to use; when a shop has been raised to a high standard under the day-work system, it is an easy step to go to the premium system. There are a number of general instructions which apply to all shops under the one management, and as these have to do with the management of the machine shop, the most im- portant of these instructions will be given before the machine shop instructions are taken up. DELIVERY OF PAPERS BETWEEN SHOPS AND OFFICES. In many establishments papers are sent from office to office by messengers from each office or shop. This method is expensive and unsatisfactory. The ideal method so far as operation is concerned is the use of pneumatic tubes connect- ing all departments, but where the shops and offices are scat- tered, the installation of pneumatic tubes will involve a large expenditure of money which is not warranted by the results obtained. The following simple arrangement has been found satisfactory: In the main office there is a set of post-office pigeon-holes ; one for each foreman or shop; one for each officer attached to the department, and one for each sub-department in the main office, such as drafting room, estimating department, requisition office,, etc. In each of these offices there are two mail baskets, one " out-going," the other " receiving." A boy distributes all papers from the main office to the foremen's offices and all papers between the foremen's offices. He starts \y2 COST KEEPING AND SCIENTIFIC MANAGEMENT his first trip at eight o'clock in the morning, taking all papers from the pigeon-holes and putting each shop's papers in a separate envelope. These papers are distributed to the various shops, being placed in the receiving basket. All " out-going " papers are collected and returned to the main office, where they are distributed for the next trip, v^hich begins at nine. This is continued throughout the day ; a round trip being made every hour. The papers for the various officers and sub- departments in the main office are distributed from the " post office " by the office messenger. Soon after this system was put in operation it was found that the boy was irregular in the collections. This was cor- rected by having him carry a small watchman's clock having a key at each point of collection. The dials from the clocks are examined each day by the chief clerk. RECORDS OF WORKMEN. In each shop a record is kept of the mistakes, neglect and other offenses of the workmen. A man through carelessness makes an error in machining a piece of work which involves only a small loss; it is out of the question to suspend or discharge him for this, for it may be the only mistake he has made in six months. Moreover, severe penalties for errors of this kind will make workmen over-careful ; they will take an unnecessarily long time on their work and run up the cost. On the other hand, the man who habitually makes mis- takes should be known, and the written record brings this out. The knowledge among the men that these records are kept has a good effect, and when a reduction of the force is neces- sary the records are of great assistance in selecting the men to be laid off. In a government establishment there can be but three punishments : reduction in pay, suspension, and dis- charge. These are much too severe for many offenses which merit some punishment. Fines are perhaps the best punishments for all offenses which do not merit discharge. The amount of the fine should METHODS TOWARD SCIENTIFIC MANAGEMENT 1 73 be in accordance with the offense and may range from one cent to twenty-five dollars. All fines collected should be re- turned to the workmen in some way and should never be taken by the company. An excellent way to dispose of fines is to give the money collected to the workmen's benevolent in- surance fund, if there is one; if not, they should be used in some way to benefit the workmen as a whole. SHOP ORDERS. The type of shop orders, both for output work and expense account work, are shown in Fig. 2 and Fig. 3 (Chapter V), and require but little explanation. It requires, however, some educational work to have the orders properly issued. Some trouble was experienced in getting the foreman issuing the order to fill in the date on which the work is actually wanted. It requires no investigation or thought to fill in " as soon as possible " or " immediately," and a great many orders were in the beginning made out in this way. The greatest diffi- culty, however, was experienced in getting the foreman re- ceiving the order to make an intelligent promise. When first used it was found that promised dates of completion were, in some cases, made without the foreman knowing the work to be accomplished, and in nearly all cases were made with but little consideration of the job itself, or of other work in the shop. With a little education and constant watchfulness, this was corrected. At present care is taken that the date given on which the work should be completed is reasonable, and is the time that the work should be delivered, and the promised date of completion is only given after the work is carefully sized up. If the date is beyond the date on which the work is required, the foreman requiring the work is immediately telephoned, and, if the question is not satisfactorily arranged, it is immediately referred to the shop superintendent. A tickler file is kept in each shop of promises made and promises due, and failures to keep promises are reported to the shop superintendent. 174 COST KEEPING AND SCIENTIFIC MANAGEMENT MATERIAL SUPPLY. There are two sources of supply of material, the general storehouse, which may be some distance from some of the shops, and the sub-stores, which are located in the shops. In the sub-stores there is kept a small supply of materials which are constantly required in the shops. The sub-stores are re- plenished as necessary from the main store. There must be a strict accountability for all stores and the methods fol- lowed to secure this end are described in the chapters devoted to Cost Keeping. Material from the shop stores can be quickly obtained, but time is required to obtain material from the general store- house. The practice usually followed is to send messengers from each shop to the main storehouse for material when re- quired, and these messengers often wait for the material and carry it to the shop, using a hand cart, or a team. This sys- tem is extremely unsatisfactory. There should be enough looking ahead to enable material to be obtained from the main storehouse in an orderly man- ner and at reasonable cost. Requisitions are made on the store in triplicate, one copy is retained by the shop (or check- ing the stores on arrival, and two sent to the storehouse by means of the messenger service. The stores are collected and deliveries are made to the shops by means of delivery teams or by the yard railway service. A competent man is detailed as " material man " who sees that deliveries are promptly made to the various shops. In some cases material is ur- gently required and to obtain it in the regular way will cause delay; in these cases the shops are authorized to attach a pink ^' urgent slip," described later, to the requisition and send the requisition to the store by special messenger, and such requisitions must receive immediate attention. METHODS TOWARD SCIENTIFIC MANAGEMENT I75 WORK, REPORTS OR REQUISITIONS REQUIRING IMMEDIATE ACTION. A pink " urgent slip " is used to attach to orders for work, requisitions, or other papers when the occasion necessitates immediate action. Anyone receiving orders or papers with one of these sHps attached is required to give the subject im- mediate attention and give all such work right of way over ordinary work. Anyone using these pink slips must sign them, and he is held strictly to account that the work is really urgent, for it is realized that if this is not done and the slips are used for work that is not urgent the object of the slips will be defeated. TRANSPORTATION OF MATERIAL FROM SHOP TO SHOP OR FROM SHOP TO PLACE OF ERECTION. The handling of material from shop to shop, or from shop to place of erection, is a subject which receives far too little attention. In large establishments where there are a number of shops, more or less separated, the cost of handling the material may be more than the cost of the shop work. In almost any establishment a thorough study of the subject, and systematization of methods, will result in marked reduc- tions in cost; these reductions will be made not only for the work itself, but savings will be effected by eliminating unnecessary delays which exist. In many large establishments, particularly shipyards and navy yards, there are no standard methods for handling work from shop to shop. In many cases work done in one shop for another may be delayed several days after completion or may even remain in the shop until sent for by the shop requiring the work. It is not unusual to see helpers and laborers carry- ing material from shop to shop; in many cases mechanics, assisted by helpers, carry work from the shop to place of erection ; in some large establishments hand carts pushed by laborers or helpers are the usual means of transportation of all but heavy articles. It is hardly necessary to point out 176 COST KEEPING AND SCIENTIFIC MANAGEMENT that these methods are uneconomical in the extreme, or that very little investigation and study can effect great improve- ment. In large establishments where shops are scattered, as in a shipyard, it will pay well to handle all material between shops, from storehouse to shops, and from shops to place of erection, by means of a plant railway system. A discussion of this important subject is not within the scope of this work, but a few suggestions can be offered. In nearly all establishments it will be difficult or even im- possible to use the standard gauge for this purpose, on account of short curves which are necessary to reach many shops. The use of the narrow gauge on the other hand, makes it impossible to receive or ship direct from the shops by standard railway equipment, unless there is also a standard gauge track reaching to all parts of the plant; this duplication of track equipment is undesirable. It will usually be found, however, that the amount of standard track required to reach the im- portant receiving and shipping points and for the locomotive cranes is not great. The best arrangement will usually be a narrow gauge sys- tem reaching to all parts of the plant, and a limited amount of standard track reaching the principal receiving and shipping points, and standard track for the use of locomotive cranes. In some of the most efficient establishments in the country, which have a great deal of standard trackage, a complete narrow gauge equipment has been installed, and the manage- ment considers both systems necessary to efficiently handle the large output, which varies from small weights of a few hundred pounds, to those of many tons. With a railway equipment of this kind a railway freight service should be established, and hourly trips can be made, though trips made every two hours will give far better service than is now obtained in the great majority of plants. When such a service has been established it will be necessary to pro- hibit material being transported on men's backs or by hand carts, for, strange as it may seem, there will be found many METHODS TOWARD SCIENTIFIC MANAGEMENT I// foremen and workmen who maintain that transportation in this manner is necessary to avoid delay. No doubt it is, with foremen who cannot look ahead two hours, or even one hour, and in every case of so-called " urgency " that I have investi- gated it was found that the urgency was caused by neglect of foremen or assistant foremen. The transportation question is one of great importance, and the methods to be followed should not be settled until a search- ing investigation has been made of conditions and the require- ments, and then the scheme should be planned in all of its de- tails. Some years ago I became impressed with the importance of this subject, and undertook to improve the transportation methods at the Mare Island Navy Yard. Like many other managers, I did not have the equipment which was required, and had to make the most of resources available. At this yard there was standard gauge track reaching the important parts of the yard, but the track was in such poor condition that the necessary speed for a regular service could not be maintained, and there was not sufficient rolling equipment for this service. The use of the railway equipment was confined to handling material in carload lots, and the use of several locomotive cranes for handling heavy weights. A regular team service was organized for handling all light material between shops and between storehouse and shops, and also between the shops and ships along the water front. In each shop a receiving and dispatching space was laid out and marked. The dispatching space has two divisions, one for work which has been completed, but not tagged for ship- ment, and another for articles ready for shipment. As soon as work is completed it must be immediately placed in the space for completed articles, and necessarily shipment promptly follows. This method insures prompt handling of work from shop to shop. Articles must remain in the receiving space until the planning department receives notification of arrival and routes the work to the machines. After this system was well organized the use of hand carts, or men carrying work 178 COST KEEPING AND SCIENTIFIC MANAGEMENT from shop to shop was prohibited, except in urgent cases. In such cases the foremen were authorized to use these meth- ods but were required to submit to the shop superintendent a written explanation of the necessity for this action. These methods were a great improvement and resulted in a large reduction in the cost, and also elimination of delays in work going through the shops. The same system was after- wards employed in other large navy yards with equally satis- factory results. Later the railroad tracks were improved, and additional equipment secured. The team service was then abandoned and replaced by a railway freight service on regu- lar schedule. This service was very satisfactory and eco- nomical. At Mare Island the shops are widely separated, and in gen- eral are on streets nearly parallel to a straight water front. The wide gauge tracks, while not entirely satisfactory, reach all of the important shops, and pass the others near at hand. It is, however, impossible to enter some of the shops on ac- count of short curves. There are very few plants which will be found as well adapted to the wide tracks as the Mare Island plant. In the great majority of plants the narrow gauge system is necessary if material is to be efficiently handled in this manner. CENTRAL TOOL-GRINDING AND -ISSUE ROOM. A central grinding and issue room was established in one of the machine shops. The grinding machines were concen- trated in this room and all tool grinding, with a few excep- tions was done by this department. In the illustration, Fig. 16, there is shown a part of the central grinding room; the central tool issue room is adjacent. The grinding room was placed in general charge of the head toolmaker, but was in direct charge of a young ambitious helper who had been trained for the work. All of the opera- tors in the grinding room were trained helpers, and these did practically all of the grinding, it being seldom necessary to detail a tool room hand for special or difficult grinding. METHODS TOWARD SCIENTIFIC MANAGEMENT 179 Adjacent to the grinding room a central tool issuing room was established. Each shop sends every day to the central issue room a box containing its dulled tools; these tools, ex- cept specials, are immediately replaced by sharp tools from the issue room and the box returned, a note being made on the tool shipment sheet of the tools not returned. Tools are assembled by classes, and ground in quantities, but special tools received from shops have right-of-way over stock grind- FiG. 16, Part of Central Tool Grinding Room, Mare Island Navy Yard. Central issue room is immediately adjacent. ing and are promptly reground and returned to the shop from which received. Each workman keeps a daily record of the tools he grinds ; at the end of the week a summary is made of the week's work and the cost per tool for each workman, and this report is submitted to the shop superintendent. Very satisfactory work and a very high output for day work are obtained by these methods. The tools ground in the central plant are for the following shops or departments : Tools for shipfitter's department, l8o COST KEEPING AND SCIENTIFIC MANAGEMENT consisting of chisels, drills, countersinks, reamers, punches, shear blades, etc. ; for a large iron worker's department ; all tools for three machine shops; a large electric shop; a large boiler shop; and a large blacksmith shop. The tools for the woodworking shops do not go to the central grinding room, but are ground in these shops by the machine hands. WEEKLY CONFERENCE OF HEADS OF DEPARTMENTS AND FOREMEN. Each head of department meets the foremen once a week at a regular time. At these conferences the work in progress, proposed improvements, and the policies of the management are freely discussed. The manager frequently attends these meetings. The procedure at these meetings is as follows: (i) Work in Progress. Under this head is discussed the time of completion desired on the various work under way, whether more men should be taken on or drawn from work that can wait, why the progress on certain work is slow, the difficulties encountered, etc., in other words, a full discussion of current work. It is my experience that, when foremen are taken to task for delays, it is always the " other fellow " — he couldn't get his work out of the smith shop, or the foundry ; or the machine shop did not do the work properly, or the laborer did not get the crane or furnish transportation in time; or some other excuse of this kind. When these sub- jects are taken up in the presence of all the foremen the ex- cuse of the " other fellow " is not so frequent. If it is the " other fellow " who is to blame it is' brought out in a free discussion of this kind. At this meeting the head of the de- partment settles all of these differences and lays out the im- mediate work as he wishes it done. Every foreman fully un- derstands his wishes and directions, and has no excuse if he .does not work with the others to the desired end. (2) Suggestions from the Foremen. After the current work discussion, each foreman is asked in turn for sugges- tions as to improvements, either of facilities or methods. Every suggestion is fully discussed, even though the sugges- METHODS TOWARD SCIENTIFIC MANAGEMENT l8l tion may at once appear to the head of the department as valueless, and all foremen are invited to advance their ideas on the subject though it may not affect their departments. Some suggestions are adopted at once; others are rejected; some require further investigation. (3) Suggestions from the Department Head. After all suggestions from the foremen have been discussed, the head of the department takes up his suggestions. It is my practice to make notes during the week of the subjects to bring up at the next conference. In addition to the discussion of cur- rent work and general improvements in appliances or methods it is my practice at these conferences to point out the weak- nesses of the various shops — not only those discovered in the usual rounds of inspection, but to take each shop in turn week by week and make a diligent hunt for the uneconomical meth- ods. At the next meeting these are all brought out and fre- quently samples of the work illustrating the uneconomical methods are exhibited. There are some who will question the advisability of bring- ing up these weaknesses in this manner at the general meeting, and will say that the same results can be obtained by calling the foreman of the shop and going over these subjects with him alone, and that a foreman resents a public demonstration of this kind. I use a public demonstration of this kind as an object lesson to all. I want each foreman to know that I am hunting for all uneconomical methods. I demand that they do the same. I want each foreman to think for himself " How can I save money on this job?," No doubt the foreman does resent the public demonstration, but he will try to see that there are no more public demonstrations of his shop. After the meeting is over a stenographer is called and the necessary instructions are given on all matters settled and a record on cards is made of all unfinished work; these cards are brought up at subsequent meetings. I attach great importance to these conferences, and am sat- isfied that much progress is made by means of them. l82 COST KEEPING AND SCIENTIFIC MANAGEMENT DAILY CONFERENCE OF MANAGER AND HEADS OF DEPART- MENTS. There is a short daily conference of the manager and the heads of departments. This conference begins at 4:15 p. m., and should not last later than 5 p. m. A manager may, several times during each day, wish to discuss subjects with heads of divisions. In a great many cases the question is not of im- mediate importance and can readily be deferred a few hours; these questions frequently also interest more than one head of department. Many managers send for heads of depart- ments every time a subject comes to their minds which they wish to discuss, and often a head of department is sent for three or four times a day. Usually he must go, no matter on what work he may be engaged ; this breaks in on his work, and but few managers realize how much this interferes with the work of a head of a department and those under him. The various heads of division also frequently wish to discuss routine matters with the manager ; every manager must be ac- cessible to these heads, yet these frequent calls interfere with his work, and prevent concentrated thought. There is a great deal of time lost from these two causes, and they are also wearing on the nerves of both the manager and his heads of division. All of this can be avoided with the daily meeting. During the day when I wish to send for a head of division, I ask myself if the question cannot wait until the afternoon meeting, and in nine cases out of ten it can; if it can, a note is made of the subject so that it will not be overlooked at the meeting. The heads of division do the same; if the ques- tion should be brought to the immediate attention of the man- ager, the head of division goes to him, otherwise he makes a note of the subject to bring up at the afternoon meeting. At this meeting the manager and heads of department have memoranda of the subjects they wish to discuss. The work in progress, anticipated delays, etc., are gone over, and the manager informs his assistants of any change in policies. METHODS TOWARD SCIENTIFIC MANAGEMENT 1 83 There is a tendency for these meetings to lengthen out ; heads of departments will bring up subjects which may require long explanations; these should be eliminated from the general meeting; everything should be cut short and if much consid- eration of a subject is required all concerned should note it as unfinished business and take it up for consideration sepa- rately, and then bring it before the next meeting. In practice I have found it desirable to limit the time of the daily meet- ings to forty-five minutes. CHAPTER XIII Machine Shop Methods general instructions. The planning department, under the general direction of the Master Machinist, will control and direct all work done in the machine shop. All orders for work will go to the plan- ning department, via the Master Machinist; this department will separate the orders into the various classes, viz. : urgent orders, routine orders, manufacturing orders, plant repair or- ders, etc. The planning department will analyze these' and lay out their future course. It will be the aim of the planning department to accomplish the following: First: — A careful analysis of the work' to determine ex- actly what is to be done. Second: — ;The determination of the best way to accom- plish the work in the quickest time at the lowest cost. Third: — The employment of the best machines, best facili- ties, and the best men available to carry out the work in the best way as previously determined. The instructions of the planning department are supreme in designating the machine on which the work is to be per- formed, and the route that the work shall follow, and no change will be made without the consent of the planning de- partment. The gang bosses and speed bosses are invited to offer suggestions to the planning department if in their opinion the methods prescribed can be improved, but under no cir- cumstances is any change to be made unless such change is made by the planning department and shown on the route sheet and instruction cards. All castings, forgings, material, work from other shops, 184 MACHINE SHOP METHODS 185 and work from the ships received in the shop, must be de- posited in the receiving space and received by the. receiving clerk, who will record the arrival, and will report same to the inspector, and after inspection will report to the planning department. Work received from the outside machinist force must bear tags identifying the work, stating the requirements and giving the date on which the work is wanted ; for work re- ceived from other shops the necessary information is given on the shop orders sent direct to the planning department. All work spoiled, mistakes made, and damage to machinery or appliances must be reported, to the planning department on damage report forms in accordance with detail instructions for making these reports. These reports, with report of inves- tigation, will be forwarded to the shop superintendent. In case tools ordered for a job are not satisfactory,' or the condition of a machine is not satisfactory, or belts are not in good condition, or if there are any other conditions which will interfere with carrying out expeditiously the work called for on the instruction cards, the workman discovering the same shall immediately report to the gang boss or speed boss, whichever is in charge of that part of the work, and the latter shall immediately bring this to the attention of the planning department for correction. As long as reports are not made by the workmen it will be assumed that standard conditions prevail, and excuses for unsatisfactory output wdll not be ac- cepted. When a new standard pattern is made, one piece will be cast and machined to completion under the direct supervision of a representative of the planning department, who will deter- mine if the pattern is entirely satisfactory; too much stock for finishing is a usual fault, and careful attention should be given this subject, as all unnecessary finish must be eliminated. If changes are required, the patternmaker will be called for con- sultation, and the necessary changes ordered. When the pat- tern is satisfactory the pattern shop will be notified. Defects in castings caused by faulty patterns, in other than standard l86 COST KEEPING AND SCIENTIFIC MANAGEMENT patterns, will be reported to the shop superintendent by the planning department. The planning department will control all drawings issued from the drawing office to the shop, and will issue by checks the same to workmen. Any errors discovered in drawings, or improvements suggested, should be reported to the planning department by the mechanic, outside quarterman or leading- man, gang boss or speed boss, and that department will fully investigate the subject and make a report to the drawing of- fice, in accordance with standard instructions regarding cor- rections to drawings. The planning department will control and issue all shop orders in accordance with standard instructions. Care will be exercised in making promises of dates of completion to other shops that the promises can be kept. When it does not appear possible to complete work on the date required by another shop, the subject must be taken up immediately with the foremen of the shop requiring the work, and if the re- quirement cannot be changed to one which the machine shop can meet, immediate report must be made to the shop super- intendent and instructions requested. The planning depart- ment will report to the shop superintendent failures of other shops to keep promises. There will be kept in the planning department a tickler blackboard; on this, under the head of "to-day's important business," will be given the work due other shops or divisions on that date, and all promises made by other shops to the machine shop which fall due on that date, and all important matters which must receive attention. On this board will also be shown, under the heading " Black List " all delinquencies in promises. Each day at four o'clock the data will be collected from the tickler files and the reports of work received and work completed, and the next day's important business and the delinquencies will be posted on the board. A delinquent no- tice will be sent to shops or divisions which have failed to keep promises, and a summary report of all delinquencies will be made to the shop superintendent. MACHINE SHOP METHODS 1 87 The planning department will prepare and issue detailed written instructions of the duties of tool room keepers, topi delivery boys, move-men, cranemen, sweepers, and others who have general duties of this kind to perform. In each case these instructions must specify in detail the work to be done, and as far as possible must prescribe a daily task for each man. PLANNING DEPARTMENT AND SHOP STAFF. Chief Planner. It will be his duty to personally study all orders received and familiarize himself with the requirements of each job. He will first determine if there is sufficient in- formation available to carry the work to completion, and if not he will take steps to secure the necessary information. If drawings or sketches are required he will notify the drafting office, and send a duplicate to the shop superintendent. If a manufacture order gives specifications or is " per sample," and drawings are not required, but the specifications are not complete or the sample has not been received, the planner will immediately notify the Assistant Shop Superintendent who has charge of this work, who will obtain the necessary infor- mation. At the navy yard there is a large amount of work of this character; ships both at the yard and away from the yard make requisitions to replace broken or worn-out parts, and it is not unusual to have on hand at one time 500 orders of this kind, which call for parts from the smallest, as a small special bolt weighing an ounce, to a defective gear which may weigh a ton. Until there is more standardization in ships built by different ship builders it will not be practicable to have draw- ings of the thousands of small parts. Ship officers in mak- ing requisition for these parts usually furnish a sketch or send a sample which is sent to the shop, but very frequently the in- formation furnished is incomplete and this should be discov- ered immediately after the order is received. With the necessary information available, the planner will determine the operations necessary and will enter these on the 1 88 COST KEEPING AND SCIENTIFIC MANAGEMENT route sheet (in duplicate), Fig. 17. Under the column head- ing '* machine " will be given the type of machine on which the operation is to be performed but the number of the ma- chine will not be entered at this time. It is impossible at this time to tell when the work will be undertaken and consequently the work cannot now be routed to the best advantage to the ex- act machine. He will prepare the shop orders for castings (via pattern- maker), forgings, or work that may be required from other shops, but will not now enter dates on which work is required. The route sheet and shop orders are turned over to the '' ma- terial man " referred to in a subsequent paragraph, and he ascertains the date that material can be obtained and informs the head planner. The planner, with the information available and general knowledge of the work required in other shops, and the time required to do the work, but in doubtful cases in consultation with the foremen of other shops, ascertains if the work as a whole can be completed on the date given either on the order or in special bulletins. If not, he must immediately notify the shop superintendent by telephone, and explain the reasons, and obtain instructions. If the work can be completed in the time required, the plan- ner must determine the date on which material must be de- livered and dates on which castings, forgings or work from other shops must be received to enable the work in the ma- chine shop to be accomplished and the work as a whole com- pleted within the required time. He now inserts these dates on the shop orders," and enters under the heading " Schedule of Material Ordered " on the route sheet. Fig. 17, a summary of these orders. The description of the completion of the or- ders, preparation of instruction cards and entries on route sheet, and the filing of this sheet are given in subsequent para- graphs which describe the duties of other members of the planning staff. When material, castings, forgings, etc., have been received in the shop, to justify beginning the work, the planner will MACHINE SHOP METHODS 189 190 COST KEEPING AND SCIENTIFIC MANAGEMENT take the route sheet with accompanying instruction cards from the file, and consulting the order-of-work board, which shows the status of work in the shop, will route the work to the ma- chines to the best advantage, and he will th«:n turn over the route sheet, with the instruction cards, and standing order slips, to the " standing-order-board man * 10 put the work in progress. The chief planner must keep track of the progress of the work, and take the necessary steps to make good any delays which may occur in the program as planned. He must keep the shop superintendent informed of all delays. The shop superintendent will depend on him to get the work through the shop in stipulated time, and if the planner anticipates that the ultimate completion of the work will be delayed he should promptly notify the superintendent. Each day at four o'clock, from the ticklers, reports of receipt of material and work from other shops, reports of com- pleted work, he will make the reports of delinquencies, and will post the " Important Business Board " for the following day. The " Important Business Board " for one of the shops is shown in the illustration. Fig. 18. The chief planner will prepare and issue detailed written instructions of the duties of tool room keepers, tool delivery boys, move men, crane men, sweepers, and others who have general duties of this kind to perform. In all cases possible he will prescribe for each man a daily task. The chief planner will visit the shop as often as possible and at least twice each day, to observe the progress of work, and to consult with the gang bosses and speed bosses; these bosses should be encouraged to make suggestions regarding routing work. The chief planner will train a man selected by the Master Machinist to perform the duties of chief planner. When the quantity of work in the shop warrants; this man will be de- tailed to assist the planner and during the absence of the latter will take up his work. Material Man. The material man will be in charge of the MACHINE SHOP METHODS 191 I, lllJIUliWtiilli 192 COST KEEPING AND SCIENTIFIC MANAGEMENT shop Store. When the work in the shop warrants, the fore- man will assign an intelligent laborer to assist liim. The ma- terial man will keep a record of issues of material to the va- rious jobs, will keep up the stock, and make returns to the main storehouse in accordance with standard instructions. The material man will obtain information regarding material on hand, dates when material required by purchase can be ob- tained, and delays in delivery. He will keep the chief planner informed of these conditions. When the route sheets have been obtained from the chief planner, he will, after receiving instructions from the chief planner of the kind and quantity of material required, obtain information from the storehouse and other shops of the amount of material on hand, and if additional material is needed, will obtain information of dates when this can be obtained by purchase, and he will give this information to the chief planner. After the latter has decided the date on which the material is required, he will make the requisition for the material (as per standard instructions) specifying the dates on which it is required. He will record on the route sheet, Fig. 17, under the heading " Schedule of Material Or- dered," a summary of the material ordered. When ma- terial is reported received, he will check it against the re- tained copy of the requisition, will tag it with the name and number of the job, and will have the material stored until used. He will enter on the route sheets the dates on which the material is received. He will teach the man detailed to assist him the duties of material man, in order that he may be able to perform the du- ties during the absence of the material man. Instruction Card Man. It is the duty of the instruction card man to prepare the written instruction cards issued to the workmen. These cards tell the workmen and shop bosses what is to be accomplished at a machine or a bench and the machine or bench to which the work is to be moved for the next operation. On the instruction card will also be placed the order number to which the work is to be charged, the gen- MACHINE SHOP METHODS I93 cral and detail drawing to be followed, or sample to be fol- lowed, and special tools or jigs that will be used. If special instructions are to be given a workman the instruction card will specify the man who is to give the instructions. When the premium system or piece-work system is employed, the standard times or piece rates will also be given. The route sheet with the operations given is passed from the head planner to the instruction card man, who prepares the instruction cards for the job. He will, from the card index of jigs and special tools on hand, determine if any are suitable for the job and if so specify them on the cards. He will determine if new special tools or jigs appear to be war- ranted, and in this connection will consult the head toolmaker ; if in his judgment additional tools are warranted he will pre- pare an estimate of the cost of these tools, and submit a re- port to the master machinist, giving savings that will be made by the tools and their estimated cost. H the tools are author- ized by the master machinist or shop superintendent regular orders will be issued for the manufacture and the instruction card man notified, and these tools will be specified on the in- struction card. The instruction card man will prepare the standing-order slips, which are briefs of the instruction cards and which are to be placed on the standing-order board. A sample instruc- tion card is shown in Fig. 19, and a sample standing-order slip in Fig. 20. The instruction cards and standing-order slips will be placed in the envelope on the back of the original route sheet, and the whole turned over to the " standing-order-board man." The instruction-card man will visit the shop as often as pos- sible, and not less than twice a day, to observe the progress of work in machines, the use of the tools, and to consult with the speed and gang bosses. He will encourage suggestions from these bosses. It will be the duty of the instruction-card man to make to the master machinist recommendations for the purchase or man- ufacture of new tools for machines, jigs, dies, etc.; the head 194 COST KEEPING AND SCIENTIFIC MANAGEMENT toolmaker will therefore submit his recommendations on this subject to the instruction-card man. The instruction-card man will train a man selected by the master machinist to perform the duties of instruction-card Complete ^ ^_^ Work assigned at...Z.>^.- M r^.rxZ. By....<^yr^/'^. Gang boss Machine set and work accepted by..A^4//F/^^>^..Speedlyoss,zt/iC>.jt4..M...^^.Ty.'7 Work completed at.//..>4..M....^.T./<5...By check No^/^JSTJT I tern f*5Ci^^^^^. Report of man in charge of work: Jd^^^!7^/c//!i/ia ZS^_j?35r^ 2:l.^$1_^^J ^ (0 1 vff «k tM 5! § !5 - 5 ^ f^ 1 ^5 N (A Z h < UJ Q. % z t E i 1 15! IS 1 1 1 s 1 Q ii < m Li L I -1 X. J z en UJ m 1 Is 1 ^ ! i a: UJ < I U K \ \ i s I: (0 \ 1 ^^ t 1 z > .{^ l u Q U 1 s u c 1 1 4 \ II 2o6 COST KEEPING AND SCIENTIFIC MANAGEMENT Plan No % OPERATIONS, OB'N Time ^ojtjs' S^ -T^^^T^j^ C^/VT^y^ y3o^-r. on one ..-- ^^ _ ,__, ...^^ ^on! one! ^'>^^'^^^^<^^ ^V^^^ '^^/yy^C remarks; Rate Fig. 25. Shop Record Card for recording observation times and average TIMES AS taken FROM TIME TICKETS. SPECIAL TOOLS & JIGS for ^^ / zy ^ Plan No. 3 O JIG No OPERATIONS USED FOR ^'^-/ /g^svp/.yg Co^M-y^ y^o/9 C^A^-r^/c^lSo^'r /r-^-^ 7 ^/g> CoY E/fL /l'^-^ f/rc ^ A- Cut tf/^oa^^ lP'0/9 Ipuja/a^^/^ Sr/P/P i£/?a {^a/7j£c^ y^/r^Q y^^/Y€£L ^-^'V D/^/^L Sic Cot/A^r£/^S/jy/< //oJ-^:r /^j^ j/tij.oy/rsDat^S S^ Fig. 26. Index Card for special tools and jigs. This index is in the PLANNING department AND THE INSTRUCTION CARD MAN CAN QUICKLY DETERMINE THE TOOLS ON HAND FOR EACH JOB. MACHINE SHOP METHODS 2O7 work must be passed along to the next man, and the next, until the job is complete. All great things are accomplished by the cooperation of several men, and little can be accom- plished without cooperation. Any system to ,be successful must have cooperation, and must be such that if this is not obtained the blame can be definitely fixed. In the system outlined this is accomplished; the duties of each man are definitely fixed, and the duties of the man who follows cannot be accomplished until those of the preceding man have been satisfactorily completed; each forces the other to do his work, and if this is not done the fault is immedi- ately revealed. CHAPTER XIV Organization of a Smith Shop, a Woodworking Shop, AND a Canvas and Flag Shop Methods similar to those used in the machine shop, which are described in Chapter XIII, have been employed with suc- cess in a blacksmith shop, woodworking shop, canvas and flag shop, and sheet metal shop. While the general principles which govern are the same for all shops, the details must be made to suit varying conditions which exist in the several shops. The organization of a few of these shops and the methods followed will be briefly described. BLACKSMITH SHOP. Very little attention is given to organization or methods in commercial jobbing smith shops, yet as miich can be ac- complished by study and analysis of methods in these shops as has been accomplished in machine shops. In describing the organization and methods of the smith shop, I wish to emphasize that the improvements made are really but the first steps towards scientific management, and are merely the introduction of a systematic and logical method of handling the work where none existed. Unfortunately' the same conditions exist in the great ma- jority of the jobbing smith shops throughout the country. The methods employed in the shop under consideration are simple and can be used in any shop, and in the great ma- jority will result in marked improvement, but these methods are recommended only as the first step toward scientific man- agement. 208 ORGANIZATION OF VARIOUS SHOPS 209 - fnm Circulating Tank 2 TO COST KEEPING AND SCIENTIFIC MANAGEMENT Fig. 28. Smith Shop, Mare Island Navy Yard, north wing. Miscel- laneous SMALL WORK. Fig, 29. Smith Shop, Mare Island Navy Yard, main bay. Medium size work. ORGANIZATION OF VARIOUS SHOPS 2X1 Fig. 30. Smith Shop, Mare Island Navy Yard, south wing. Heavy forge department. Fig. 31. Smith Shop, Mare Island Navy Yard. Foreman's Office. Work board on the right. 212 COST KEEPING AND SCIENTIFIC MANAGEMENT ORGANIZATION OF VARIOUS SHOPS 2I3 GENERAL ARRANGEMENT OF SHOP. The general arrangement of the shop, location of tools, cranes, etc., are shown in Figs. 2J, 28, 29 and 30. The arrangement of the office, storeroom, wash room, lunch room and water closet is shown in Figs. 31 and 32. Very few smith shops are provided with facilities for the comfort of the workmen. In machine shops elaborate wash- ing facilities are usually provided for the men, while in black- smith shops, where more needed, they are seldom found. In the arrangement shown, the necessary office space, lava- tory arrangements, etc., are provided at minimum cost in space. The shop organization provides for the following sub-de- partments : 1. Miscellaneous small work. 2. Heavy forge work. 3. Bolt machine department. 4. Drop forge department. 5. Tool dressing and tempering department. The forges, furnaces, hammers, cranes and other facilities are grouped as far as possible to bring the work of each of the divisions named together. The shop is entered at two points by a standard gauge track, and all heavy material is handled to and from the shop on cars served by the shop cranes. The railway tracks pass immediately adjacent to the east end of the north wing of the shop, from which all light material is shipped. Transportation to and from other shops and the store- house is by means of the plant railway freight service. Trans- portation inside of the shop is by means of electric jib cranes, and industrial railway tracks which serve the shop and the material yard. The duties of the foremen and others, and the routine to be followed, are defined in detail written instruction issued to the shop, and in tlie description which follows, these instruc- tions are freely quoted. 214 COST KEEPING AND SCIENTIFIC MANAGEMENT foreman's RESPONSIBILITY AND DUTIES. The foreman is held directly responsible for all work in his department. He is expected to maintain the highest effi- ciency possible in his organization. Owing to his superior mechanical ability he is expected to devise schemes and meth- ods equal, and, if possible, superior to those in other large plants handling similar work. He will make a study of the special ability of each individual mechanic. He will in person receive all orders for work to be exe- cuted in his department. Upon receipt of job orders or shop orders, he will go over each and designate to whom the work shall be assigned, giving the necessary instructions, and note particularly any peculiarity or unusual conditions regarding the work, furnishing the data necessary for the route man to make out the instruction cards intelligently. He will utilize any special tools on hand that can be used to advantage, and if none are available and he considers it desirable to make such tools for a job, he will request the nec- essary authority from the shop superintendent. In other words, the foreman will give each job order his personal attention and study, assuring himself that all details have been arranged to enable the work to be completed ex- peditiously and economically. These instructions are not to be construed to make an office clerk of the foreman. It is intended that every job to be ac- complished shall be analyzed and planned by the foreman be- fore being undertaken in order that each may receive the bene- fit of his experience and knowledge. In carrying out these duties the foreman will have the assistance of two assistant foremen on the floor of the shop, one in charge of all small work in the north end of the shop, and the other in charge of the heavy work, the bolt machines and the tool department in the south end of the shop. He will also be assisted by a route man, an office clerk, a ma- terial and move man, and messenger boy. The duties of the various assistants to the foreman are as follows : ORGANIZATION OF VARIOUS SHOPS 21 5 Assistant Foremen. Each assistant foreman is responsible to, the foreman for all work performed in his division. It is his duty to see that each workman properly understands the work assigned to him, and he will supply the workmen with all information necessary to carry out the directions given on the instruction cards. He will see that each work- man has at least one job ahead with the necessary stock at the forge and with the necessary templates, sketches, or plans, in order that the work may be immediately taken up when the job in hand is completed. When a new instruction card is issued, it is the duty of the assistant foreman to decide upon the detail methods to be followed to carry out the instructions, and the proper size and amount of material required. In ordering stock the assistant will use an order slip, giving the size and amount of stock required, the job order number, and the forge at which the material should be placed. This slip will be dated and signed by the assistant foreman and will be given to the material and move man. If, in any case, he is in doubt, the foreman will be immedi- ately consulted. The assistant will inspect all finished work before it leaves the forge, and will attach a tag giving the necessary informa- tion to enable the move man to move the work to its proper place. Route Man. The route man will carry out the details of routing the work from the data contained in the job order or shop order, and the instructions received from the foreman. He will make out and issue the instruction cards and make out the standing-order cards for the same. He will keep the route board in the foreman's ofBce to conform to the exact condition of the work in the shop.- He will keep the order file up to date, filing promptly or- ders that have been routed and removing orders that have been completed. He will keep the " tickler " file for prom- ises made to other shops, or promises made by other shops. The route man will make sketches when necessary, to issue 2l6 COST KEEPING AND SCIENTIFIC MANAGEMENT with the instruction cards. He will index and file all plans received in the shop. Office Clerk. The office clerk will keep the records of the men, attend to the time cards, check the records of time given on the instruction cards and file the same. He will make out requisitions for material from the storehouse as called for on the order slips furnished by the material and move man. He will keep the " orders to foremen " files up to date and perform all clerical work required in connection with the work of the shop. Material and Move Man. The material and move man will keep an accurate record on the stock cards of the ma- terial on hand. He will see that all requests from the assistant foremen for material are immediately supplied ex- actly as called for and that it is delivered to the forge speci- fied on the order slip. The order slips will be turned over to the office clerk daily. He will keep a record of the fire bricks used by each forge and furnace; he will record the oil meter readings; he will remove finished work from the forge to the station specified on the tag attached to the work. A laborer will be assigned to him as an assistant, and when he requires additional labor to handle heavy stock the assistant foreman will supply the necessary men. OPERATION OF THE SYSTEM. All work is ordered either by job order or shop order from another shop. The issue of these orders has been fully described in preceding chapters. As the greater part of the work consists of repairs where the smith work is only a small part of the job, the greater portion of the work in the smith shop is on shop orders from other shops. The shop orders and job orders go direct to the foreman, who studies each order and notes on the back of the order such instructions as he thinks necessary. He also assigns the work, which he is able to do, for the work board in his office shows the work assigned to each forge or furnace. The orders then go to the route man, who makes out the ORGANIZATION OF VARIOUS SHOPS 217 instruction cards,, which are to go to the workmen, and the standing-order slips, which are to go to the work board in the foreman's office. The instruction card is shown in Fig. 33, and is self- explanatory. At each forge or furnace there is a holder for three cards as previously described for the machine shop. Each workman in charge of a gang records on the card CHECK No. Z//3 JOB ORDEF , ^. //S//O7 ARTICLE y:/jLt:^i^f^z> -^O-r Cp'ZJL Coa-^tcci^ /@erx>»^ ISSUED 1 INSTRUCTIONS (M^ ^^^/i. ^i^^c^^^^^^&^c^ ^cy-^xx^s ^ ^ <2i.^Ux>**^ •3d;^-2//^ ' / / DATE RT HR DATE RT HR DATE RT HR DATE RT HR DATE RT HR. i^~/^-/o S3 ? ^^~/S•^/o %^ z. Af-/f'/o ^{f <<. *t ^4, ? 3^ ^ .^- Instruction Card, smith shop. the time each man of the gang works on the job. For each instruction card there is a corresponding standing-order slip which contains a brief of the job, the job number, and the forge or furnace to which the work is assigned. These are placed on the work board. The work board, Fig. 34, is divided for the forges and furnaces, and has the check numbers of men in charge of gangs above the hooks on which the standing-order slips hang. The board is also provided with file cases for active and inactive orders, and pigeon holes for prepared instruc- tion cards which are not yet assigned, and files for com- pleted instruction cards. 2l8 COST KEEPING AND SCIENTIFIC MANAGEMENT I I I I I I 1 ll . I IIPBI III II III iiii> III ill I u. ORGANIZATION OF VARIOUS SHOPS 219 When there are already three jobs at a forge, the in- struction card with the standing-order sHp pinned to it is placed in a pigeon hole under the proper heading. The foreman can determine from the work board the condition of the work in the shop. He can see the location of each job and the amount of work in the shop not yet assigned to a forge. From this inspection and consultation with his tickler file of promises he can learn whether he should take on additional men or change some of the assignments al- ready made to give preference to work required at an early date. The assistant foreman in charge of a division begins the assembly of tools, drawings and material, as soon as a new instruction card is issued. He makes out a material slip for the material required and gives this to the material man. H the material is on hand in the shop stock it is drawn, and if not the office clerk is notified and it is ordered from the main store. When a job is completed the man in charge of the gang, after entering the time of the gang, removes the card from the holder and hangs it on a hook provided and moves up his next card and starts his job. The assistant foreman inspects the completed job, initials the instruction card, and attaches to the work a tag bearing his inspection mark and designating the place to which the work will be moved. The material man moves the work and takes the instruc- tion card to the office and places it in the basket provided on the desk of the route man. The route man removes the standing-order slip from the work board and the order for the work from the file, pins the latter to the instruction card and places the two in a basket provided on the desk of the foreman. The foreman will close the job, returning the order with the date of com- pletion marked. The costs of direct labor as shown by the instruction cards will be scrutinized and compared with previous costs, and 220 COST KEEPING AND SCIENTIFIC MANAGEMENT then will be indexed and filed. The shop superintendent goes over these records frequently and picks out and has recorded such as can be used as standard costs. In addition to the detail record of time kept on each job on the instruction cards, each man makes out his own time card for each job on which he works each day. These time slips go to the accounting department in the main office and from them the pay roll is made up. They are also posted under each shop to the job number and it is from this record Fig. 35. Racks for storage of material and tools. that the total cost, including, usually work in a number of shops, is obtained. It will thus be seen that there is some duplication in the records. This duplication pays for itself many times over, as it enables detail costs of each operation to be obtained, and it enables the foreman and shop superintendent to obtain, immediately a job is com- pleted, the direct cost of each operation. A reasonable supply of ordinary material is maintained in the shop store. In Fig. 35 the racks for the storage of bar material are shown. The main supply of material, how- ORGANIZATION OF VARIOUS SHOPS 221 MFG. DEPT. NO. 703. ARTICLE, ¥! 2 c u z ■ y/z//o 480 /7'/-//^'/ 3S-0 //1 < 2 No No No - Q 1 ^Or ^ 1 1 1 ' i °i 2 O H < cr LxJ CL o 1 X 1 1 .A \ 5 ^ > "» % ^ ^ 5 LJ o < CO CJ Q Ul O X —J - -z. < d ■z. < S q: < Q. > If ORGANIZATION OF VARIOUS SHOPS 23 1 it is desirable to have accurate record of the times taken on the various operations, and also the direct cost, in such shape that comparisons can readily be made of the work accomplished. The route sheet, Fig. 43, is an envelope, on the front of which in appropriate columns the order is re- corded, the operations are defined, and the assignment of the work made. When the work is completed the dates of completion are entered and also the time taken for each operation and the total direct cost of the job. This envelope forms an excellent pocket for filing the completed instruc- tion cards, bills of material, and other data regarding the job, the condensed information being given on the outside. The instruction card contains a description of the work required and has blanks in which the workman enters his time each day until the job is completed. After the work has been inspected, the time and direct cost records are com- piled from these cards and entered on the route sheet en- velope and the cards are filed in the envelope. Owing to changes made in organization and methods in these two shops the output for each worker has been greatly increased. With the same quantity of work only half the number of workers previously employed are required. In the following chapter there will be given data of reductions made in cost due to the better methods employed. CHAPTER XV Reductions in Costs Due to Scientific Methods The Mare Island Navy Yard labors under the disadvan- tage of a limited supply of skilled mechanics and high daily wages. First class mechanics at this yard receive from 52 to 63 cents an hour, while helpers and laborers receive 30 to ^^ cents an hour. It would seem that the high cost of labor would have brought forth the best efforts to secure scientific management. Such, however, was not the case ; the very fact that labor wages are high brought about the assumption that Mare Island could not compete with other navy yards. When high costs were reported conditions were not investigated, as it was assumed that the high cost was due to the high wages. In the past few years the general principles of Scientific Management have been followed, and there has been a re- markable increase in output and reduction in cost. It is entirely due to the adherence to these principles that this es- tablishment has been able to compete with Eastern navy yards where wages are much lower and the cost of material is less. It will not be possible to give the numerous cases where marked reductions in cost have been made, but a few ex- amples will be given to illustrate general conditions : shipbuilding. Shipbuilding comprises work in a large number of shops, foundry, machine shops, pattern shop, shipfitters' shop, joiner shop, electrical shop, coppersmith shop, sheet metal shop, etc. A large collier 450 feet long was built at the Mare Island yard, and a sister ship was at the same time built at a large Eastern navy yard. The two ships are identical, being built from the same detail plans. The wages at Mare Island are 232 REDUCTIONS IN COSTS DUE TO SCIENTIFIC METHODS 233 approximately 25 per cent, greater than those of the Eastern yard; the structural material for the Pacific coast built ship was necessarily obtained from the East and owing to trans- portation charges the cost was at least 25 per cent, greater than on the East coast. The cost of the ship built in the Eastern yard should therefore be approximately 25 per cent, less than the Western built ship, yet the Pacific coast yard, employing some of the fundamental principles of scientific management, built the ship for $100,000 less than the Eastern yard. BOAT BUILDING. A large number of small boats are each year built in the navy yards. As the boats are of standard design a direct comparison of costs can be obtained, and the amount saved on new boats by improved methods can be determined. At the Mare Island yard in two years' time the application of scientific methods of management reduced the cost of boats to approximately one-half previous costs and on the output of new boats in two years there was a saving on previous costs of over $25,000. In addition to the new work there is a large amount of repair work in this shop and the improved methods have greatly decreased the cost of this work, but the savings effected on repair work cannot be determined. WOOD CALKING. Practically all of the wood calkers on the Pacific coast belong to an association. This association is very powerful and very few care to antagonize it. The number of ap- prentices is limited and the output of the men is limited. Wages are very high, $5 and $6 a day being the prevailing wages. The calkers at the navy yard received $5 a day and they seldom ever reached in output the limits set. I was satisfied that the output was far too low, but for a long time was unable to increase it. Finally, after educating some men who could take the places of the calkers in case of trouble, and carefully ascer- 234 COST KEEPING AND SCIENTIFIC MANAGEMENT taining the amount that a first-class man should do, I fixed a piece-work price which would allow the men to make from 50 to 60 per cent, more than their day's wages and put all work on piece work. To enable these men to earn the 60 per cent, above day wages, it was necessary for them to do three and a half or four times as much as was accomplished at day work. The situation was accepted, and in a few weeks the men were actually doing from three to four times as much as was done before. It is now necessary, on account of the large output, to employ but a small number of men, and these are the very best of their class. They make large wages, are perfectly con- tented, and never give the management the slightest trouble. The output now obtained is far above that obtained in other establishments in the vicinity, and I believe exceeds the out- put obtained in Eastern establishments. The average output for representative classes of work is as follows: Neiv Work: Decks, three threads 380 feet in 8 hours. Sides and bottom, four threads 265 feet in 8 hours. Old Work: Reave out putty, harden down, and calk one thread 425 feet in 8 hours. Reave out glue, harden down, and calk one thread 380 feet in 8 hours. BOILER SHOP. Conditions were known to be very bad in this shop. The foreman was not in sympathy with any changes and resisted efforts made to improve efficiency. The aim appeared to be to employ as many high-priced boilermakers as possible, re- gardless of expense. Under these conditions every change had to be considered with the greatest care before being put into effect. An assistant who had considerable experience in handling men, and who was endowed with much patience and tact, REDUCTIONS IN COSTS DUE TO SCIENTIFIC METHODS 235 was put in the shop. This assistant was my representative in the shop and was given full authority to make changes. He was directed to fully study the situation before making his first change and to consult me daily regarding proposed measures. It was decided to take one job, the retubing of three water- tube boilers of the small tube type, and show what could be done by improving methods. In other words it was con- sidered necessary to make a demonstration that everyone could see before beginning a complete reorganization of the shop. The results obtained were far beyond expectations. A full description of the conditions found and the changes made cannot be given here. Generally, the operations were made to follow each other in logical order, the tubes coming in the door and going from operator to operator until they reached the boiler. Proper tools and equipment were sup- plied, machine work replaced hand work, helpers and boys replaced boilermakers for the inferior work, each man's work was carefully planned and a definite assignment of work made, daily records were kept of the exact amount of work accomplished by each man, and all waits were eliminated. No attempt was made to drive the men, but the operations were so arranged that the work shoved the men ; each opera- tion had to keep ahead of the operation behind, and if this was not the case it immediately showed up. A detail record of the time and cost of each operation was made. These records are of much interest, particularly as some of them showed such tremendous reductions in cost that they have been questioned. The man who has been outdistanced always questions the record of the man who has defeated him. One operation, the cutting out of the old tubes, has caused considerable comment. There were 4,600 — I ^ -inch and i34-iiT^ch, No. 11, B. W. G. tubes in the three boilers ; two cuts are required to remove the tubes, one at the top drum and one at the lower drum. Six expert chippers, working in pairs, cut out the tubes, and to each pair there was a helper to remove the tubes. The 4,600 tubes were cut 236 COST KEEPING AND SCIENTIFIC MANAGEMENT out, removed from the boiler, and piled by these men in 7J/^ hours. This was at day work; not piece zvork! The other operations show equally as satisfactory results. The time taken previously to retube three boilers in the shop was from 80 to 90 days, and the direct labor cost was about $1,100 per boiler. The time taken under the changed con- ditions was 15 days and the direct labor cost was a little over $400 per boiler. MACHINE SHOP. In the machine shop by far the greater part of the work is repair work and comparisons showing the improvement cannot be made. In the manufacture of fittings, such as hose valves, air ports, boat castings, deck light fittings, etc., the costs were greatly reduced and in many cases were less than half previous costs. In the manufacture of steam winches, the cost was less than the cost of the same winches in Eastern yards. Not only did the better methods reduce the cost, but they greatly reduced the time required to do work, and this is important in a navy yard, which will be called on in time of war to make repairs to the fleet. CANVAS WORK. In the reorganization of the sail loft no attempt was made to drive the men. In no case were the men told that the output was small, or that it should be increased, and only in one case was there an intimation that the management was not satisfied with the amount of work done. As soon as the work was in some degree systematized, a record of the daily output of each man was made. The men themselves made these records, and they could not dis- pute them. As improvement was made and the output in- creased it was soon evident to the men themselves that it would be necessary to reduce the force. Previously, prac- tically all of the sailmakers in the immediate vicinity had been employed and the first cut in the force brought out the fact that it is difficult to obtain work in this district. With REDUCTIONS IN COSTS DUE TO SCIENTIFIC METHODS 2.yj Still further improvement a second small reduction was nec- essary, and this left about half the original force. These men are all excellent mechanics, who can produce a large output. The majority of these owned their homes in, and had strong ties binding them to, the vicinity, and they knew that if they lost their jobs they would have to leave their homes to obtain work. This brought about keen competition between the men, and resulted in a very large output. To show what has actually been accomplished, a few of the time reductions made are given below, the names of the work- men being omitted : Time Taken in Making Standard Navy Hammocks In Lots of Ten All Work by Hand. Machine Work Not Allowed | Times Given are in Minutes for One Hammock Work- Time Taken First Records. Date. Date. Date. Date. men. 4-I3-IO. 4-16-10. 4-20-10. 4-22-10. I. 120 78 72 72 2. I20 78 78 78 3- 120 90 90 90 4- I20 90 84 84 5- I20 90 84 84 6. I20 96 84 90 7. I20 102 102 90 8. I20 120 120 108 72 9- 120 120 120 108 72 10. I20 120 120 108 90 II. I20 120 120 96 84 12. I20 120 120 120 90 13- I20 120 120 96 96 14- I20 120 120 96 96 These figures are interesting. Note that workman i and 2 made a marked reduction at once; 3, 4 and 5 did very well, while 6 and 7 held back. Workmen 8 to 14 determined at first that they would make no cuts, but later, facing the work done by the other men, their resolution failed and a moderate cut was made. It was then that the management indicated 238 COST KEEPING AND SCIENTIFIC MANAGEMENT that better .output was expected. A new lot of ten hammocks was ordered of each of these men (Nos. 8 to 14). The man's check number on the instruction card was written in large red figures and the word " Conditional " was written across the face of the card in large red letters. Nothing was said to the men, but it was seen as soon as the instruction cards were issued that the men understood the warning. Nos. 8 and 9 equaled the best records, while 10, 11 and 12 made Fig. 44. Eight Hundred Pound Coaling Bag. Made entirely by hand IN 3J4 hours. Former time, 12 hours. considerable improvement; 13 and 14 did not improve and were discharged. Further reduction can be made by substi- tuting machine work for hand work, but at present the spec- ifications prescribe hand work. These reductions reduced the cost of hammocks 75 cents each, and as large quantities are required, 2,000 for a single large ship, the saving effected is considerable. The time required in making clothes bags, 2,000 of which REDUCTIONS IN COSTS DUE TO SCIENTIFIC METHODS .239 are required for each large ship, was reduced from 60 minutes each to 36 minutes each. The most interesting reduction, however, was made in the manufacture of 800-lb coaHng bags, shown in Fig. 44. The record of the times, taken after the material is prepared, is as follows : Date. Work- men. First Record. 3-5-10. 4-6-10. 5-10-10. 5-16-10. 6-2-10. 6-15-10. I. 390 190 180 180 171 132 2. 390 210 195 188 180 174 156 3- 390 220 214 188 180 180 156 4- 390 225 210 206 180 177 5- 390 240 206 180 180 132 For exactly the same work it will be seen that the time was reduced from 390 minutes per bag to 132. Cutting out, folding and creasing, and cutting ropes to length, in lots of 100, require seven minutes each; diagonal stitching the sides and bottoms on the machine in lots of 100 takes 25 minutes each. The total time taken by the best workers to make a bag complete is therefore 2 2-3 hours. When the diagonal stitching is done by hand, the time for each bag is 3^ hours. These bags are well made, being subjected to very hard usage in coaling ship, 800 pounds of coal being hoisted in each bag. From the illustration, the amount of work in- volved can be seen, and it must be admitted that to make one of these bags by hand in 3^4 hours requires skill and hard work. It is not believed that this time can be materially reduced by piece work, and if these results are maintained there is little or no advantage, so far as this particular work is concerned, in either piece work or the premium system. Two years ago 12 hours was taken to manufacture a bag, while a year ago it took 8 hours, and this time has now been 240 COST KEEPING AND SCIENTIFIC MANAGEMENT reduced to less than 3 hours. As the pay of sailmakers is 58 cents an hour, the saving effected is very large. Similar reductions have been made in other classes of manufacture work, and also in all repair work. It is diffi- cult to believe that such large reductions can be made in work of this character, but the records are vouched for, and the performances described can be duplicated at any time. The reductions in cost which have been made at Mare Island in many different kinds of work will, it is hoped, be sufficient proof that an analysis and study of the work in any shop where the usual conditions prevail will result in large reductions in cost. Any manager of a commercial shop can go further on the road to Scientific Management than was possible in the government establishment. If managers will seriously make the attempt, the companies which they serve will be greatly benefited, and the managers will at least have the satisfaction of knowing that they are doing their part in . the march of progress towards scientific methods of management. THE END INDEX Accountants, expert, with no knowledge of shop conditions, cannot de- vise satisfactory cost system, 7. Accounting, simple, required for cost keeping purposes, 7. Accounting versus cost keeping, 6. Accuracy, importance of obtaining, in direct labor charges, 26. Advantages of cost system proposed, 69. Analysis of costs, improvement in methods due to, 13, 114. Analysis of expense accounts, 17, 95. Analysis of general expense, 96. Analysis of indirect charges to secure working minimum, 96. Analysis of shop expense, 95. Analysis of work before it is undertaken, 119. Analysis of work by the planning department, 184. Analysis of work in a joiner shop, 225. Assistants and gang bosses, danger of obtaining many outside of the establishment, 156, Assistants, shop superintendent should have competent, 144. Assistants should be trained to be thorough, 146. Average expense rates should not be used, 48. B Balance, daily, of stores should be furnished the shops, 168. Balance, monthly, of accounts desirable, 18. Balance, monthly, information given by, 18. Belt bench and records of belts, 152. Belt man, duties of, 152, 200. Belting, care of, 142, 151. Belts, central repair station for, 152. Belts, detailed written instructions regarding care of, 152. Blanks, uniform sizes for, 55. Boatbuilding, reductions in cost made at Mare Island, 233. Boiler work, reductions in costs made at Mare Island, 234. Blacksmith shop, improvements made by means of time studies, 131, 135. Blacksmith shop, see Smith shop. Breakage of tools, 149. Bonus system compared with the premium system, 107. Bonus system for the payment of labor, 107. Bonus system requires a scientific rate-making department, iii. Boss, gang, duties of, 198. Boss, speed, duties of, 198. Bosses, danger of obtaining many outside of the establishment, 156. Bolt machine department of smith shop, 213. Business, to-day's important, shown on a blackboard in the planning de- partment, 186. 241 242 INDEX Calking, wood, reductions in the cost of, at the Mare Island Navy Yard, 233. Canvas shop, details of shop system, 229. Canvas shop, organization of, 227. Canvas work, reductions in the cost of, at the Mare Island Navy Yard, 236. Central repair station for belts, 152, Central tool grinding room, 148, 178, Central tool issue room, 178. Changes, output must not suffer during, 145. Changes should not be made until investigated and probable results fully considered, 146. Changes should not be put into effect "on trial," 147. Charge symbols for expense accounts, 71. Check, double, system for issue of tools, 148. Clerk, machine shop, duties of, 195. Clerk, smith shop, duties of, 216. Comparison of indirect charges by means of curves or parallel columns, 17, 95. Competition most feared is that of an establishment which does not ob- tain accurate costs, 4. Competition, unprofitable, among machine tool builders due to inaccurate costs, 2. Completion of work, difficulty of obtaining accurate promises of, 173. Conditions, unsatisfactory, must be reported to gang bosses by the work- men, 185. Conference, daily, of manager and heads of departments, 182. Conference, weekly, of heads of departments and foremen, 180. Contract system for the payment of labor, loi. Control of expense accounts, 95. Cooperation among members of planning room staff, 203. Cooperation between planning department and gang bosses, 203. Cooperation, employers must do their part to obtain, 123. Cooperation obtained by scientific management, 123. Cost analysis, improvement in methods due to, 13, 114. Cost figures should be used and not treated as mere records, 65. Cost keeping versus accounting, 6. Cost of work card, description of, 67. Cost section records, 64. Cost system, information that can be obtained from a proper, 13. Cost system secret and not subject to criticism, 8. Cost system should be devised by an expert shop organizer, 7. Cost system, uniform, for machine tool builders, 3. Cost system, uniform, not practicable for manufacturing and jobbing re- pair shops, 3. Costs, accurate, an essential feature of good management, 114. Costs, inaccurate, brought about ruinous competition among machine tool builders, 2. Costs, inaccurate, disturb trade, 4. Costs, inaccurate, for standard articles, 2. Costs, lack of interest in the best methods for- obtaining, 11. Costs, operation, in smith shop, 219. Costs, purposes of, 11, 23. Costs represent work accomplished, 13. Costs, reductions made in, at the Mare Island Navy Yard, 232. Costs, value of, not realized by some successful managers, 8. Costs which are scientifically accurate are not practicable, 23 Cranes, jib, in machine shops frequently eliminate much wasted time, 162. INDEX 243 Criticism, superficial, of expense accounts, will usually result in decreased efficiency, 88, 90. D Damage report form, 203. Damaged work or machines reported, 185, 200. Data and reports not necessary for the purposes of costs obscure real objects sought, 23. Day work can be improved, 100. Day work is usually unsatisfactory, 100. Day work system for the payment of labor, 100. Defects in plant equipment frequently overlooked, 135. Defects must be known before they can be remedied, 129. Defects usually unnoticed detected by time studies, 135. Delays in joiner shop due to poor organization, 223, Depreciation, decisions of courts regarding, 30. Depreciation, decisions of Interstate Commerce Commission, 30. Depreciation, determination of, 32. Depreciation, determination of amount to be charged off each year, 33. Depreciation due to gradual wearing out, 31. Depreciation due to machines or appliances becoming obsolete, 31. Depreciation, ignorance regarding, 30. Depreciation, Interstate Commerce Commission refuses to promulgate standard rates, 33. Depreciation, machine tool builders* rates for, 32. Depreciation, must be charged to output, 31. Depreciation, treatment of in foreign countries, 30. Depreciation, usual methods for apportioning are unsatisfactory, 34. Diagram of organization should show duties and responsibilities of each official and their relations to each other, 139, Differential piece-rate system compared with the premium system, 107. Differential piece-rate system for the payment of labor, 109. Differential piece-rate system requires a scientific rate-making depart- ment, III. Direct labor charges, importance of accuracy in obtaining, 26. Direct labor, definition of, 24. Direct labor method for the distribution of indirect costs, 45. Direct material, definition of, 27. Disciplinarian, shop, 197. Dispatching and receiving space in each shop, 177, 185. Distribution of general expense, 53. Distribution of indirect costs, any scheme of, can be criticized, 41. Distribution of indirect costs by direct labor hours, 48. Distribution of indirect costs by direct labor wages, 45, 46. Distribution of indirect costs by machine rates, 42. Distribution of indirect costs must be in accordance with benefits re- ceived, 41. Distribution of indirect cost, simple method the best for the majority of establishments, 49. Distribution of power plant expenses, 43, 82. Distribution of selling expense, 54, 87. Distribution of shop expense, 50, 53. Distribution of storehouse expense, 53, 84. Dividends paid from capital, 19. Drafting room considered in its relation to the shops, 166. Drafting room frequently more badly managed than the shops, 166. Drafting room, functional management in, 166. Drafting room, improvement in methods of, 167. 244 INDEX Drafting room should be systematized by an expert, i66. Drawings, corrections of, should be reported, i86. Drawings, issue to workmen, i86. Drive methods not successful in dealing with workmen, 130. Drop forge department of smitl shop, 1.31, 213. Duties and responsibilities of onicers should be clearly defined, 138. Economies that may be effected are indicated by an analysis of costs, I3> 114- Efficiency does not vary inversely as the number of non-producers, 88, 144. Energy wasted in holding up that which has been built up, 144. Enthusiasm of manager and heads of departments necessary if the highest efficiency is to be obtained, 166, Equipment, poor, wasted time due to, 128. Expense accounts, control of, 95. Expense accounts, retrenchment usually begins with reductions in, 91. Expense accounts, superficial criticism of, will usually result in decreased efficiency, 88, 90. Expense accounts, supervision of, 17, 95. Expense burden sometimes averaged and applied to all labor, 21. Expense percentage can be reduced by employing hand work for machine work, 93. Expense percentage can be reduced by employing high class labor for work that should be done by inferior labor, 92. Expense percentage can be reduced by reducing the output of employees, 94. Expense percentages for different establishments cannot be compared, 95. Expense, shop, can be reduced by neglect of machinery and appliances, 92. Exception man, the foreman should be, 196. Expert organizer necessary in introducing scientific management, 138, 143. Expert should systematize the drafting rooin, 166. Factory cost, definition of, 29. Financial control versus works manager, 88. Fixed charges should be apportioned to shops and departments, 50. Flag shop, details of shop system, 22^. Foreman, duties of, 196, 214. Foreman is the exception man, 196. Foreman is the shop disciplinarian, 197. Foreman, smith shop, duties of, 214. Foremen make suggestions at weekly conference, 180. Foremen, weekly conference of, and heads of departments, 180. Forge work, heavy, 213. Functional duties for executive officers, 139, 143. Functional duties in the shops, 155. Functional duties should be quietly put in effect, 155. Functional management, F. W. Taylor, on, 157. Functional management in the office and drafting room, 165. Functional management outside of shops, 165. Functional management, superintendents must understand principles of, 158. G Gang boss, duties of, 198. Gantt bonus system for the payment of labor, 107. Gantt, H. L., on standardization, 164. INDEX 245 Gantt, H. L., on task setting, 112. General expense, analysis of, 96. General expense, definition and charge symbols for subdivisions of, 53, 71. Government shops, difficult to follow tijie best methods in, 169. Grinding tools by workmen should be 'j^iTohibited, 148. Grinding, tool, should be done in central grinding room, 148, 178. Guesswork; if we guess at the cause of defects, we must guess at the remedy, 129. Guesswork, many managers fail on account of, 129 H Halsey premium plan for the payment of labor, 103. Heat, power and light, subdivisions of, with charge symbols, 79. Heavy forge work, 213. History of each department or shop is given by cost records, 16. I Ideals, scientific, must not interfere with commercial success, 40. Important business, to-day's, 186. Improvement made by means of time studies, 131, 135. Inaccurate costs brought ruinous competition among machine tool build- ers, 2. Inaccurate costs disturb trade, 4. Inaccurate costs for standard articles, 2. Incentive, lack of, under the daywork system, lOO. Index cards for jigs and special tools, 203. Indirect charges, analysis of, to obtain working minimum, 17, 96. Indirect charges, comparison of, by curves or parallel columns, 17, 95, Indirect charges, definition of, 29. Indirect charges, rnonthly scrutiny of, by the manager, 17, 95. Indirect cost, definition of, 29. Indirect cost, distribution by actual rates or average rates, 48. Indirect cost, distribution by direct labor hours, 48. Indirect cost, distribution by direct labor wages, 45, 46. Indirect cost, distribution by machine rates, 42. Indirect cost, elements of, 30, 71. Indirect cost, method of determination should depend on whether work is paid for on the basis of cost plus a profit, 40. Indirect cost should be distributed in accordance with benefits received, 41. Indirect costs, many attach themselves to machine tools, 42. Industrial railway, use of, in smith shop, 213. Information, many complaints that it cannot be obtained from accounting department, 67. Information obtained from a monthly balance, 18. Information regarding costs should be furnished superintendents and fore- men, 65. Inspection of tools when turned in by workmen, 148. Inspector, duties of, 199. Instruction card, machine shop, description of, 192, 193. Instruction card, smith shop, description of, 217. Instruction card holders, 202. Instruction card man, 192. Instructions regarding care of belts, 152. Insurance and Taxes, 36. Interest and rent should be charged to product, ^7. Interstate Commerce Commission, hearings before, in the rate cases, 137. Interstate Commerce Commission refuses to promulgate standard rates of depreciation, :i^. 246 INDEX Inventory card for material in smith shop store, 222. Inventory, perpetual, of tools, 148. Investigation of small tool equipment, 147. Investigation to determine conditions and the best means to remove de- fects, 145. Investigations, assignment of, to assistants, 145. Investigations, complete report of, should be made, 146. J Jigs and special tools, records of, 154. Job order card, description of, 65. Job order or production order, 56, Job orders, numbering of, 57. Joiner -shop, analysis of work in, 225. Joiner shop, delays due to poor organization, 223, Jomer shop, details of shop system, 223. Joiner shop, machine work, 226. Joiner shop, organization of, 222. Joiner work, planning of, 226. Judgment, good, 21. L Labor and material charged to expense orders, 64. Labor charges, daily, should represent work accomplished, 13. Labor charges should receive daily supervision, 14. Labor charges, record of, 62. Labor, day work, can be improved by recording the daily output of each employee, 100. Labor, daywork, usually unsatisfactory due to lack of incentive, 100. Labor, direct, definition of, 24. Labor, methods followed in the payment of, 100. Labor, payment of, under the bonus system, 107. Labor, payment of, under the contract system. loi. Labor, payment of, under the day-work system, 100. Labor, payment of, under the differential piece-rate system, 109. Labor, payment of, under the premium system, 103. Light, power and heat, subdivisions of, with charge symbols, 79. Literature, little available on cost keeping for manufacturers, 12. Loafing, wasted time due to, 127. M Machine rate method for distribution of indirect costs. 42. Machine shop, Mare Island, condition previous to the application of scien- tific principles of management, 170. Machine shop, organization of, 184. Machine tool builders' association rates for depreciation, 32. Machine Tool Builders' Association report on cost keeping methods, 2. Machine tools and transmission machinery, care of, 153. Alachine tools, repair man should be made responsible for the care of, 154, 200. Machine tools, many indirect costs attach themselves to, 42. Machine work in a joiner shop, 226. Alachine work, reductions in cost of, at the Mare Island Navy Yard, 236, Machines are the best suited to each operation employed, 121. Maintenance of plant equipment is a profitable field for investigation, 161. Maintenance of plant equipment should be under supervision of an ex- pert, 161, 163. INDEX 247 Management, accurate cost keeping an essential part of good, 114. Management an art, F. W. Taylor on, 115. Management, functional, F. W. Taylor on, 157. Management, functional, in office and drafting room, 165. Management, functional, outside of shops, 165. Management, fundamental principles of, 117. Management, system of, recommended by competent engineers increases overhead expense, 115. Manager and heads of departments, daily conference of, 182. Manager can develop a planning department, 159. Manager should arouse enthusiasm for scientific methods, 166. Manager should be fully informed of fundamental conditions under which work is accomplished, 135. ■ Manager should investigate his own plant before deciding that he can derive no benefits from scientific management, 124. Manager should know the amount of wasted time and the causes, 127, 129. Manager should know what is taking place in his plant, 127, 129. Managers fail because of guesswork, 129. Managers, some successful, do not realize the value of an accurate cost system, 8. Material and labor charged to expense orders, 64. Alaterial and move man, smith shop, 216. Material charges, record of, 63. Material, direct, definition of, 27. Material man, duties of, 190. Material, minor, obtained from shop stores, 28, 63, 174. Material, returned, should be credited to the job, 64. Material, summary of requisitions for, 68. Material supply, 174. Material supply, smith shop, 220. Material transportation by plant railway system, 175. Material transportation by regular team service, 177. Material, transportation of, 175. Material unused on a job, should be returned to store, 64. Methods, best, for doing work should be determined before work is be- gun, 120. Methods, drive, not successful, 130, Methods followed in a government plant in applying the principles of scientific management, 169. Methods, standard, can and should be improved, 165. Methods, standardization of, 164. Methods, uneconomical, exposed at weekly conference, 181. Move and material man, smith shop, duties of, 216. Move man, duties of, 199. Mustering the workmen, 60. N Non-producers, the number of, is no measure of efficiency, 90, 144, Numbering job orders, 57. o Observation card, shop, 203. Obsolete, depreciation due to machines and appliances becoming, 31. Office, functional management in, 165. Officials should be assigned functional duties, 139. Oil fuel, use of in smith shop, 135, 222. Opposition of foremen to the employment of a competent shop super- intendent, 142, 145. 248 INDEX Opposition to changes in organization, 141. Orders, shop, description of, 57, 173. Organization, faults of usual shipyard, 140. Organization of a canvas shop, 227. Organization of a central tool grinding and issue room, 178. Organization of a flag shop, 227. Organization of a joiner shop, 222. Organization of a machine shop, 184. Organization of a smith shop, 208. Organization should be shown by diagram, 139, Overhead charges, relation between, and total cost, 89. Papers, delivery of to shops and offices, 171. Patterns, standard, first piece cast from, examined by planning department, 185. Percentages, expense, no measure of efficiency, 95. Planner, chief, duties of, 187. Planning department, beginning of, 158, 159. Planning department, general duties of, 184. Planning department, general instructions to, 184. Planning department issues detail instructions defining duties of tool room keepers, tool boys, crane men, etc., 187. Planning department issues shop orders, 186. Planning department makes an analysis of the work, 184, Planning department should control time studies, 161. Planning department supreme in routing work, 184. Planning department which can be developed by a manager, 159. Plant development accounts, 85, 86. Plant equipment, defects in, frequently overlooked until detail investiga- tion is made, 135, 162. Plant equipment, improvement of, expert should be employed in large establishment to supervise, 163. Plant equipment, maintenance of, is a profitable field for investigation, 161. Plant equipment, small additions to, frequently increase output, 162. Plant equipment sometimes too great, 162. Plant, pneumatic, economies that can be effected, 162, Plant, upkeep of, 36. Power, heat and light, subdivisions of, with charge symbols, 79. Power plant expense, 52. Power plant expense distribution, 82. Premium system compared with the bonus system and differential piece- rate system, 107. Premium system for the payment of labor, 103, Principles, fundamental, which are applicable to all good cost systems, 3. Production order, 56. Profit, does every line make a, 20, 21. Profit, lines which show none should be eliminated, 20, Profitable, is every department, 21. Progress of work can be determined from the daily labor charges, 13. Progress, standards are not foes to, 164. Promises, difficulty in obtaining accurate, for completion of work, 173. Punishment of workmen, 172. Purposes of costs, 11, 23. R Railway, industrial, in smith shop, 213. Railway system, plant, 176. INDEX 249 Rates, shall actual or average be used to distribute indirect charges, 43. Record of labor charges, 62. Record of material charges, 63. Record, shop, card, 203. Records, cost figures should not be mere, 65. Records, cost section, 64. Records of belts necessary, 152. Records' of tools ground in central grinding station, 179. Records of workmen, 172. Receiving and dispatching space in each shop, 177, 185. Reductions in cost made at the Mare Island Navy Yard, 232. Rent and interest charged to product, n. Rent, two elements of, 2>1- Repair man, duties of, 200. Repair man responsible for condition of machine tools, 154, 200. Reports and data not necessary for the two purposes of costs, obscure real objects, 23. Route man, smith shop, duties of, 215. Route sheet, information given on, 187. Routing work by the planning department, 187. Scientific management, adherence to the principles of, reduced costs at the Mare Island Navy Yard, 232. Scientific management,^ application of the principles of, brings about co- operation, 123. \ Scientific management defined, 117. Scientific management, many see only machinery of, 117. Scientific management, not easy to follow principles of, 124. Scientific management, not red tape methods, 116. Scientific management, opposition to will eventually disappear, 116, 137. Scientific rate-making department necessary with the bonus system, iii. Scrutiny, monthly, of indirect chaVges by the manager, 17, 95. Secrecy regarding cost systems, 8. Selling expense, 54, 87. ^ Selling expense, subdivisions of, with charge symbols, 86. Service cards, description of, 62. Shop clerk, duties of, 195, 216. Shop expense, 75. Shop expense, analysis of, 95. Shop expense, distribution of, 50, 53. Shop expense, subdivisions, with charge symbols, 75. Shop observation card, 203. Shop orders, description of, 57, 173. Shop orders for expense account work, 60. Shop orders for output, 60. Shop orders issued by the planning department, 186. Shop record card, 203. Shop superintendent in charge of shipyard shops, 140. Shops, relation of drafting room to, 166. Shipbuilding costs, reduction of, 232. Shipyard organization is usually faulty, 140. Shipyard pneumatic plant, investigation of, 162. Shipyard shops should form one homogeneous organization with standard methods, 140. Smith shop, duties of assistant foreman, 215. Smith shop, duties of clerk, 216. Smith shop, duties of foreman, 214. 250 INDEX Smith shop, duties of material and move man, 216. Smith shop, duties of route man, 215. Smith shop, general arrangement of, 209, 213. Smith shop, industrial railway in, 213, Smith shop, instruction cards, 217, Smith shop, material supply, 220. Smith shop, oil fuel in, 135, 222. Smith shop, operation costs, 219. Smith shop, operation of shop system, 216. Smith shop, organization of, 208. Smith shop, store system, 222. Smith shop, subdepartments of, 213, Smith shop, tools, drawings and material, assembly of, 219, Smith shop, transportation facilities, 213. Smith shop, work board, 217, 218. Speed boss, duties of, 198. Standard methods can and should be improved, 165. Standard shapes for tools, 147. Standards are not foes to progress, 164. Standards should be best methods known to men best qualified to judge, 164. Standards should be clearly defined in v^riting, 164. Standardization, definition of, 164, Standardization, H. L. Gantt on, 164. Standardization, method of, 164. Standing order board man, duties of, 195. Standing order boards, description of, 201. Standing order slips, briefs of instruction cards, 193, Storehouse expense, 52. Storehouse expense, distribution of, 84. Storehouse expense subdivisions with charge symbols, 83, Store system, improvement of, 168. Store system, requirements of, t68. Stores, shops should have a daily balance of, 168. Suggestions made by foremen at weekly conference, 180. Summary, monthly, of expenditures under the expense accounts, gg. Summary of material requisitions, 68. Supervision, daily, of labor charges, 14. Supervision of expense accounts, 17, 88, 95. Supply of small tools, 148. System, machine shop, operation of, 201. System, shop, at the Mare Island Navy Yard, 170. Task, daily, should be provided for every employee, 138. Taxes and insurance, 36. Taylor differential piece-rate system for the payment of labor, 109. Taylor, F. W., on functional management, 157. Taylor, F. W., on management as an art, 115. Taylor, F, W., on necessity for an expert to introduce scientific manage- ment, 137. Taylor, F. W., on task setting, iii. Team service between shops and storehouse, 177. Time cards, description of, 62. Time studies bring out defects which do not usually attract attention, 135. 162. Time studies bring out fundamental conditions under which work is ac- complished, 135. INDEX 251 Time studies, examples of improvements made by means of, 131, 135. Time studies indicate remedy for defects, 161. Time studies should be made under the direction of the planning de- partment, 161. Time studies show wastes, 130. Time studies, use of in making improvements in a smith shop, 135. Time study man, duties of, 196. Tool, central, issuing room, 178. Tool delivery boys, 148, 200. Tool dressing and tempering department of smith shop, 213. Tool equipment, investigation of small, 147. Tool issue room, future expansion should be provided, 149. Tool making and repairing should be done in the shop and not in the tool room, 150. Tool steel, disadvantage of several kinds for the same purpose, 147. Tool steel, Navy specifications, 147. Tool steel, uniform quality should be obtained, 147. Toolmaker, head, duties of, 199. Tools, breakage of, methods to be followed, 149. Tools, correct card inventory of, 148. Tools, delivery of to machines, 200. Tools, determination of standard shapes, 147. Tools, double check system for issue of, 148. Tools, grinding of by workmen should be prohibited, 148. Tools should be supplied workmen by tool boys, 148, 200. Tools should receive careful inspection when turned in by workmen, 148. Tools, small, ample supply necessary, 148. Tools, special and jigs, care of, and records, 154. Tools, special and jigs, index card for, 203. Transportation methods are of great importance, 175. V Upkeep of plant, 36. Urgent work and papers, 175. V Value of product must sometimes be obtained by monthly estimates, 18. W Wages at the Mare Island Navy Yard, 232. Waits, unnecessary, wasted time due to, 128. Wasted time and the high cost of living, 127. Wasted time detected by time studies, 130. Wasted time due to employment on suitable work, 128. Wasted time due to faults of employees and management, 129, Wasted time due to loafing, 127, Wasted time due to poor equipment, 128. Wasted time due to unnecessary waits, 128. Wasted time, manager should know the amount and the causes, 130. Work, accomplished by each day-worker should be recorded daily, 100. Work, best methods for, should be determined before it is undertaken, 120. Work, damaged, should be reported, 185, 200. Work day by day represented by direct labor cost, 13. Work definitely defined on job order, 56. Work in each shop or department should carry its own burden, 50. Work of like nature should be grouped under one head, 140, 155. 252 INDEX Work, promises for completion of, 173. Work, progress of, can be determined from the daily labor charges, 13. Work routed by planning department, 184. Work should be analyzed before it is undertaken, 119, 184. Work, unsuitable, wasted time due to, 128. Workmen best suited to each class of work should be employed, 121. Workmen, deserving should be encouraged, 197. Workmen do not respond to drive methods, 130. Workmen, muster of, 60. Workmen, punishment of, 172. Workmen, records of, 172. Workmen report unsatisfactory conditions to gang bosses, 185. Workmen should not go to tool room for tools, 148, 200. Works manager versus financial control, 88. •'■^7Jf:-fi:.i'j FOURTEEN DAY USE RETURN TO DESK FROM WHICH BORROWED This book is due on the last date stamped below, or on the date to which renewed. Renewed books are subject to immediate recall. l5ftiie'?5PW (^>^o^'^'' M,^ 5_195S AUG2 21955LU ^^ ^ i:> \>^5 CCP l-P QPC-'ltSSS RECE I VED AUG 2 2 193b CIRCULATION DEF' LD 21-100m-2,'55 (B139s22)476 General Library University of California Berkeley 2-2.J^>f THE UNIVERSITY OF CAUFORNIA LIBRARY